THE EXCUSES contractors use to not raise prices would fill a book — a big, dumb book. Instead of going over them again, let’s concentrate on a sure methodology for growing profitably. We’re going to concentrate on small to medium contracting businesses, but the thoughts may make some of you larger guys long for the good old days when you were still able to control your destiny.
The art of growing the business and making more money is a sequence of steps.
Putting on your “rainmaking hat,” you build your business volume so that you are turning down good work or operating too often on an overtime basis. I hate long, protracted periods when a company is on an overtime basis, and so should you. These are clear signals that you have too much business for your size. The first step is to gently and reasonably raise your prices. Usually this price adjustment doesn’t really cut your volume and you are faced with the ugly reality that your prices were too low and you must add a person.
Be patient and make the search a major personal effort. Announce far and wide that you are looking for a new person. Brace yourself for the wave of suggestions from employees and friends who have out-of-work relatives. Explain that you will consider everyone but that you intend this search to be for someone at least as good as (quietly, you hope even better) than those already in your workforce.
Every salesman who comes through your door should leave with a profile of the type of person you are looking for and how well you will reward excellence. Say, for example, that you are in one truck and an exceptionally skilled and outrageously honest, hardworking guy is in the other truck. You are a small, skilled and successful team.
Fact of life: If the guy in the other truck is a butt-crack, beer-bellied Mr. Dolt, your first step for growth and profitability is to find a new guy for that other truck, no exceptions! If Mr. Dolt is your partner, I think you should drop out and start over.
You may think I am wrong and that your goal should be to find a second highly motivated guy for a third truck. Wrong! The Dolt can suck the vigor out of anything you attempt to do. You are not big enough to support a Dolt if your ambition is to grow.
How big do you need to be to support a Dolt? You’ll never be big enough. No matter how large you grow, your good people will be aware of the drain such a loser places on your business and will hold it against you even if the Dolt happens to be your own brother.
So, mission accomplished, three trucks running with good people in them.
With three trucks running profitably, your next growth goal is to ease out of the daily schedule so that you can spend your time selling and managing. You are still there and you are the protection against overload, overtime, and scheduled or unscheduled absence. (Refer to my September 2002 column, pg. 26, on being the “Rainmaker.”)
As your workload grows, the quality of customer service will deteriorate if you can’t handle the work in a timely and quality manner. At this point you must test the “upside” of your customer base by gently and significantly raising your prices again. Making an inflation adjustment is the gentle part. Going beyond the inflation rate is the beginning of significance.
This is a mostly fail-safe exercise in pricing management. It is your stair-step program to greater earnings. If you are truly worth more, most of your customers already know it and have been wondering when you would wise up!
A few customers who either can’t afford to pay you what you are truly worth or who resent your wanting to improve your profitability will complain and look for a new loser to help to the poor house. Let ’em. Don’t worry about it. If you have really been doing a quality job, some of those dropouts will be back, and then you can experiment on them. You can test how much they really missed you by charging them prices on the high side of your target.
The result is almost always more profit and almost never a loss of desirable business. As you continue to push for sales to a higher quality customer mix, you will reach a place where you must add another quality employee in another truck. Find the new quality employee first; the new truck will be the easy part. It is a failing not only of contractors that it is more fun buying great trucks than it is to find and manage the great people to staff them.
Next month I’ll discuss some special problems and growing pains of larger contractors, and you’ll learn why I do not necessarily think big is beautiful.