DECEMBER IS THE MONTH when I usually present a group of resolutions to consider for the New Year. This year is different. I am focusing on one specific, major problem I see with both large and small contracting firms.
The biggest single problem, and the cause for most low-profit businesses, is the unwillingness of most contractors to charge enough. The quick test for you is whether you increased prices this past year.
I have a fail-safe methodology to improve your profit levels.
Because so many readers are small shops (less than five trucks), I’m going to start off with advice to larger contractors. When I get to the small guys, you will understand that the illness known as lost profitability is a malady that plagues the entire industry.
If you are a long-time reader, you will remember the large, respected contractor that received a Malcolm Baldrige Award and then went on a massive ego trip telling the world how great the company had been. I said that right — “had been.” As management spoke, removed from the day-to-day operation of the business, the stage was set for it to go belly up. And it did.
Rule one. If you are the chief operating officer, never turn your back on your job unless you have trained and delegated authority to your competent replacement. I am hardheaded about this. I have seen, as you may have, others who have moved into national prominence seeking broader glory without being sure there was someone in charge who would keep the profit and personnel fires stoked.
If you choose to gallivant around the country being a big shot, that is your decision. If you have no adequate replacement with the title and authority to front your business, you are wrong and your creditors may be the first to tell you.
No matter how big you are, a concentration on sales volume and sales growth, rather than a dedication to profitability, is the second most dangerous lapse for most businesses. “If we sell more, profits will come” is a world-class fallacy.
Real winners concentrate on generating higher real profit dollars, bottom line, rather than playing games with percentages or gross revenue growth. Raw, real dollars in the bank are the final measure of progress.
In the past I have written about a guy I called Mr. Success who was successful beyond the dreams of most of you, large or small. He had decided on a sales volume ceiling and concentrated on making more profit on those sales and doing it with fewer people.
Mr. Success had so much cash in the bank that I was critical of it until he explained why he kept the business so liquid. In round numbers he had a ratio of one overhead person per $1 million in billings! You would look at his table of organization and decide that his business was operated so tightly that it squeaked. (To remind you, it was Mr. Success, an office manager, two foremen and a chaser in a pickup truck.) He observed that while he could not cut people, his ambition was to reduce the number of hours he personally worked as one of those five overhead employees!
All of you should be working to improve profitability. The rest of the story is how most of you should be doing it. Let’s start with a dogmatic statement for you to ponder this Holiday Season.
Almost everything you consume, in business or your personal life, has increased in price. It is inflation and unless you raise prices to keep ahead you will fall behind. The fall is quiet and, at the same time, quite dramatic.
If you have not significantly raised your prices in the last year, you are part of your market’s competitive problem. I say this to all manner of businessmen and hear the same defensive reaction. I am told I do not know the intensity of their competition. They can’t raise their prices because Joe Bottomfeeder, driving around in a rust bucket van, will take business away from them.
Second dogmatic statement: If you focus on taking business away from Joe Bottomfeeder, you are doomed to a life of poverty and personal denial. You must work hard to find words to explain why you have concentrated on the least of your competitors. There will always be a guy like that and he must never control your destiny.
Next month, to start the New Year, I will give you a short set of guidelines that will help you solve your pricing and growth problems. Raising prices and adding new people judiciously is a low-risk program. If you somehow overdo it, you can always have a spectacular price cut promotion and really stir up your competitors.
Your New Year’s Resolution? Make my January CONTRACTOR column must reading of the highest priority!