If you’re starting out a new contracting business, you probably want it to profit. Well after helping many contractors profit more, over 7 figures worth of profits more, we know what it takes to profit and what you need to put in place when starting out to make sure you do profit. So here are 3 pillars that you need to put in place today to make sure your business doesn’t crumble later.
Starting out with our first pillar, and honestly if you don’t put this in, there is no hope for your business. That is nailing your customer acquisition. When you’re starting out you need to find a way to consistently bring in new clients, without sales you don’t have a business.
So how do you go as to figuring this out? The number one thing is trying all the time. You need to become obsessed with getting new customers in. Whenever you’re not out on a job working it, you need to be working to get new clients in. And even when you are on a job you can even ask your customers for introductions to their neighbors.
When you constantly look to get new customers at the start you not only develop a consistent stream of leads, you also learn exactly how to perfect your services to cater to people’s wants. So the very first thing and the most important thing when starting out is to learn the best way for you to get customers.
Now that we have customers coming in, we need to make money off them. If not all of our efforts getting them are completely wasted. There are two main ways to make more money off customers, the first one is charging more and the second is having more things to sell to them.
We’ll cover how to charge more, but before we do so we need to get a good idea of what a proper profit margin is for a contracting business. If you’re under a 50% gross profit margin you are not doing well, less than that are not good margins. Ideally you want to sit at about 60-70% depending on the industry and the types of customers you service, but even then, if you can’t profit as much off one type of customer but you can off another, then why even bother with the less profitable ones? So if you want your business to truly profit and be printing out money, stay above 50% gross profit margins.
Now to charge more, we need to show more value. There are many ways to do so, and with contracting, craftsmanship is often one of the best ways to give more value. You can also use better materials, hire better crews, use only W2s that you specifically train and oversee, etc. Figure out how you can bring more value and then charge more so you can deliver on it, the key is to offer value that is disproportionate to its cost. That way you increase the price by more than you increase the cost.
The other way to make more money off other clients is to sell them more stuff. Now this doesn’t mean that if you’re a plumber now you also need to be an electrician, doing that while you’re small is a horrible idea. We want to figure out what more we can sell with our current assets. A huge thing that’s super easy to sell is warranties, you take about a third of the job’s price and that’s how much the warranty is, you sell it for 1 year and once the year is over, you sell the next. When people spend a lot of money on something they are almost always willing to spend a little bit more to protect it so they don’t have to pay full price if something goes wrong. Obviously if something goes wrong, fix it, but usually you end up making pure profits on warranties if you’re good at what you do.
Ok we have customers and we have profit, now what? We need to take advantage of that. Now is the moment to scale and here is where a lot of business owners get stuck. At this point it’s likely your business doesn’t have hundreds or thousands of employees yet which means that right now is not the time to focus on cutting costs. We need to add more here.
Contracting is a field in which adding more revenue is almost always tied to adding more employees and the costs associated with them. Do not be afraid to hire people and grow the business once you’ve nailed the first two pillars. People are expensive but without people you cannot make revenue, so once you have customers coming in and those customers are profitable for you, get to scaling!
Always so helpful! Very responsive. Super professional. Great information and advice for growth!!!