Words: Corey Adams
One thing I have learned over the twenty years of building construction companies is that there are plenty of gurus out there that will give you partial truths. They are everywhere right now. Every other ad we see on social media is for a company trying to sell me on their marketing system that will grow my business overnight. Now, I agree that marketing is necessary for a specific type of growth, but most small businesses need to grow a much simpler way first.
The whole thing reminds me of an old farmer that was talked about quite frequently in our one-stoplight town. He raised tomatoes on a small family farm just outside of town. Every year he would load up and take his tomatoes into town to the market.
One year he was asked how his business was. After explaining that it cost him as much to grow a basket of tomatoes as he was getting out of them he exclaims his answer to his years of losing money; “I need to buy a bigger truck!” This was a perfect example of a partial truth on growth, or in this case probably a fast way to bankruptcy.
When the numbers are not working, it is business suicide to think that just selling more work will get you out of it. I do understand the correlation between overhead percentages and gross sales, but that is not what we are talking about here. We as owners must focus on our profits before we can decide to grow our sales.
Growth is not strictly a sales metric. Your company can, and should, grow your profit margins first. By getting your numbers fined tuned to a beneficial profit margin, you can then decide if you want your company to grow in sales or continue to operate at your existing size. Many small business owners do not want their companies to grow out of their control. This is something the gurus around the country do not understand. They instead continue to shove marketing, sales, and growth for growth’s sake down your throats.
So how do we grow our margins without a massive sales push? Over the years we have done a few things to fine-tune our company to be the most profitable it can be. Here are a few examples:
- Expense lowering. OK, no big surprise here, but it is worth stating. The quickest way to gain higher profit margins without any additional work is to lower expenses. Sometimes this is just auditing your yearly insurance premiums, refinancing your line of credit to a lower interest rate, or a host of other overhead expenses. You can always look at it from a production side as well. Updated tools and equipment can lower your labor expense. Yes, there is an upfront cost, but if the item saves multiple field hours a project, buy it.
- Rate Pushing. I have discussed this in the past, but it is always worth repeating. Rate pushing is the process of having fluctuating rates based on your current backlog. As we get busier, our rates go up. As we catch up, our rates go down. This does two things for our company. First, it controls our backlog to a manageable point. More importantly, it is a running test on the market’s willingness to pay. That means we are always testing the market to see if our rates are too low, too high, or right on.
- Audit your services. Do you know what types of projects you are making the highest profit margins on? New Residential, commercial, restoration, etc.? Figure out what services you offer that drive the best profits, then advertise them specifically. You will find that removing a low-profit service and focusing on a high-profit one will grow your bank account without adding extra work. All you are doing is prioritizing what work you want and replacing the low-profit services in your schedule.
Growth is what you want it to be. Too many of us try to blindly grow without knowing how, why, or what to grow. Do not be fooled into buying a bigger truck to break even with. Know before you grow.