The cost your company spent to acquire and maintain the job.
Depending on how you allocate marketing dollars as a percentage of
sales or a fixed budget will have an impact on your marketing cost
per job. Your cost-per-call, closing ratio, and other related
information is all part of your operations, accounting, and
bookkeeping reports.
Are the costs you incurred to get a crew to the job site in
terms of travel time and vehicle operating costs; and then the
labor costs to unload tools, equipment, and material and put
everything in place for easy access and not in the way of the work
to be done. These costs are generally high and fixed.
Are the reverse and generally lower because it takes less time
to load the truck or van since you know where everything goes, and
you know the quickest route back to the shop or office. These costs
are also generally high and fixed.
Add these costs together and you will understand the value of
staying on each job and solving all of your customers, or client's
construction and maintenance issues are so much more profitable
than windshield time.
Some contractors prefer not to offer "add on" sales, change
orders, additional work orders whatever you call them because they
feel it is a disservice to their clients and if it makes you
uncomfortable don't do it.
Let's Run The Numbers Starting With The Cost To
Acquire A Customer:
Step #1 – Generate a Profit & Loss Report from the previous
two years and isolate total income. (Note: All companies are only
two years old regardless of how long they have been in business
because what happened more than two years ago doesn't matter when
developing a financial forecast).
Step #2 – How much money did you invest In Marketing? Not
investing money in marketing is like winking at a pretty girl or
guy in the dark, you know you are doing it, but they don't. Relying
on word of mouth means being in a race for the championship of low
price leaders!
Step #3 – How many new customers or clients did you acquire
during the past two years?
Step #4 – Divide Total Income from step #1 by the number of
customers or clients in step #3, and you will have a rough idea of
your sales per customer.
Step #5 – Divide The Amount Of Money You Invested In Marketing
by the number of customers or clients in step #3. Just know that
80% of the marketing is done to keep current customers, and only
20% is designed to attract new ones. I have studied marketing
extensively and will offer this one hint. Why do you suppose the
car manufacturers invest so much money advertising their products
when most people continue to purchase similar makes and models over
and over?
Step #6 – Multiply The Net Profit Percentage shown on your
Profit & Loss by the sales per customer in step #4 to generate a
rough idea of the net worth of a customer to your Contracting
Company. This is one of the numbers that become very important if
you ever want to sell your Contracting Company.
Step #7 – Customer Gross Profit in step #6 minus marketing
cost in step #5 = Customer Net Profit.
Step #8 – Where
MR > MC, when the Marginal
Revenue is greater than the Marginal Cost and risk is manageable,
do the deal.
Step #9 – Where is Break-Even or how far can I go before it is
time to quit doing it?
Step #10 – When you know how much a client is worth, you will
know how much you can invest to acquire a new one and as many new
ones as you want.
Profit Opportunities:
Add-on Sales
Your Customers And Clients - Are depending on you to give them
good advice and help them protect their real estate
investments.
I cannot begin to tell you the number of times people have
come up to me at social and networking events to relate stories
about how they did everything but get on hands and knees and beg
their contractor to do a little extra work while they were already
there. When I asked if they expected it for free all of them said
no, they planned and were willing to pay extra.
You can choose to provide add on sales and services for
your customers and reap bountiful profits or wait until your
customer calls one of my contractor clients who are learning how to
grow a profitable and successful business and they will take your
customers off your hands and turn them into high-profit
clients.
Service Agreement
Service agreement holders are more likely to be clients that
add more value to your construction company because they represent
the most loyal segment of your customer base. Every service
agreement client represents future work. In the meantime, service
agreement clients are a source of cash flow and are predetermined
to call you instead of your competition when repairs are
necessary.
Non-service agreement customers are more likely to be
customers and fickle. They may call your contracting company for
future work, or they may decide to shop the competition and use the
information they find to negotiate for a lower price. In some
cases, they may not even remember you or your construction company
name.
Also, your replacement sale close-ratio usually is higher with
service agreement clients and your overall pricing and related
service care level can be much higher, resulting in even more
raving fans. Service agreement clients trust you, follow your
recommendations, and do not frequently shop around.
Accept Credit Cards
Unplanned Emergencies are stressful, now add "how am I going
to pay for this" to the mix, and the anxiety increases
exponentially! For most people short in cash supply, it leaves them
using a credit card, getting a bank loan, or selling something to
raise money as their best options.
For Example: Homeowner with a leaking roof is going to get it
fixed right away because rainwater is damaging the interior of
their home including some irreplaceable sentimental treasures such
as items passed down from parents and grandparents.
Who will they call? - You, I hope! If you are their contractor
and you are actively working and the contractor they like and
trust.
Accepting all credit cards makes you the hero because they get
instant financing and your Electronic Armored Car takes your money
to the bank.
"Everybody wins, your client gets roof fixed, they earn
airline miles and other perks, and you made a sale which you could
have easily lost to a competitor that accepts credit cards."
Conclusion:
Two Easy Ways: to massively increase cash flow and profits is
to cut costs or increase revenue. One is limited the other one is
not. Money is not everything; it is merely a way for you and your
family to enjoy the good things in life. By serving your client
base effectively giving them what they want, your wealth will
provide opportunities for other people who help you to do the
same.
About The Author:
Randal DeHart, PMP, QPA is the
co-founder of Business Consulting And Accounting in Lynnwood
Washington. He is the leading expert in outsourced construction
bookkeeping and accounting services for small construction
companies across the USA. He is experienced as a Contractor,
Project Management Professional, Construction Accountant, Intuit
ProAdvisor, and QuickBooks For Contractors Expert. This combination
of experience and skill sets provides a unique perspective
which allows him to see the world through the eyes of a contractor,
Project Manager, Accountant and Construction Accountant. This
quadruple understanding is what sets him apart from other Intuit
ProAdvisors and accountants to the benefit of all of the
construction contractors he serves across the USA.
Visit http://www.fasteasyaccounting.com/randal-dehart/ to
learn more.
Our Co-Founder Randal
DeHart - Is a Certified PMP (Project Management
Professional) with several years of construction project management
experience. His expertise is construction accounting systems
engineering and process development. His exhaustive study of
several leading experts including the work of Dr. W. Edward Deming,
Michael Gerber, Walter A. Shewhart, James Lewis and dozens of
others was the foundation upon which our Construction Bookkeeping
System is based and continues to evolve and
improve. Check out our Contractor Success Map Podcast on
iTunes.
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