Business Owners Give Tips to Improve Profitability

Originally published by: Metal Construction NewsApril 1, 2016

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Below are some tips from business owners on the art of staying profitable and successfull.

The Basics of Profit Building

• Measure everything
• Watch your scorecard (profit & loss statement)
• Preseason planning
• Define departmental budgets
• Set performance standards that complements your business

Embrace Technology

Construction is one of the few industries in America that is losing productivity over time. It's our opinion that embracing technology can help the industry catch up. Focus on incorporating technology that allows for moving quicker and responding to needs faster. We're continuously evaluating options that help us deliver information as quickly as the world is moving. We're investing in web-based software and apps for superintendents to communicate quickly and effectively with architects, as well as web-based software for preconstruction project management.
Jim Bell, president, Bobbitt Design Build Inc., Raleigh, N.C.

Cascading Goals, Cascades Profits

Create cascading goals to ensure company resources are aligned and cultivate accountability.
• Establish company goals.
• Cascade company goals to departments.
• Cascade department goals to directors.
• Directors should support department and company goals.
• Cascade director goals to support functions (construction estimator, receptionist, superintendent, sales associates). Support function goals should support director, department and company goals.
• Goals should be a 50 percent mix of quantitative goals and qualitative goals.
Jay Bailey, CEO, SteelCo Buildings Inc., Covington, Ga.

 A Profit Strategy

Implementing a well-defined design-build process is imperative. We work to ensure both our employees and clients understand and follow it. Of course, each step can be individually tailored to the client, but we create efficiency by following a similar process across projects. This also helps us provide a quality experience for our clients, because we're bringing them through a known, proven process versus trying new approaches as we go.
Jim Bell, president, Bobbitt Design Build Inc., Raleigh, N.C.

When forced to choose, I will not trade even a night's sleep for the chance of extra profits.
Warren Buffett, American business magnate, investor and philanthropist

Do it Right

Our strategy to ensure profitability on a project is to do it right the first time. Ensuring a proper roof system is chosen to meet the customer's unique set of needs, and coordinating those needs with a properly designed, high-performance roof system ensures the end product is delivered and installed to meet the expectations of the building owner. On every project, strive to ensure the right team is assembled to deliver the expected results. It is critical to coordinate a team of design professionals, installers and on-site representation that work well together and have the customer's best interest at heart. When this team communicates and executes the project as it was originally intended, fewer mistakes are made and the customer ultimately gets the end result they expect, and more.
Tom Diamond, PE, senior product manager, The Garland Co. Inc., Cleveland

Strategies, Schedules, Margins

Stick to the work you do best, choose and retain customers that are like minded and understand that cash flow is critical to the success of their project. Make sure the scope of work is clearly understood on both sides and changes are adequately charged based on true project impact, with a clear understanding of any scheduling implications. Make sure communication is clear and consistent and the project expectations are clear on both sides. Create realistic schedules and budgets to eliminate unnecessary surprises for clients. The project manager and site superintendent must all be part of determining and maintaining the schedule, and be privy to and responsible for maintaining the budget. Be sure you truly understand how much your overhead is and how much work you need to generate the required revenue. Your margin should be aligned with risk/ degree of difficulty required to complete the project and with an understanding of your market conditions.
Tom Gunsinger, president, Bel-Con Design-Builders Ltd., Belleville, Ontario, Canada

 Profit Growing Advice

A simple way to multiply your money and increase your net profit at the end of the year is to manage your cash aggressively. It doesn't take much time, but can return a nice sum of money for your efforts. If your company is generating $3 million in annual sales, you will average $250,000 in monthly revenue. Most likely you collect your money throughout the month but only pay your bills twice a month. This means, on average, you should have a bank balance of around $125,000 at all times. If you average $50,000 monthly in materials and are offered a 2 percent discount for quick payment, this will generate an extra $12,000 annually. And if you invest your cash balances in interest bearing accounts or programs, you should be able to make another $5,000 to $15,000 every year. Not bad for a few minutes a week focused on your money. Make an appointment with your business banker and discuss the many options and programs they have to maximize the return on your bank balance.
George Hedley, Metal Construction News columnist, licensed professional business coach and author of "Get Your Business to Work!"

 In the end, all business operations can be reduced to three words: people, product and profits.
Lee Iacocca, American automobile executive

Customer Communication

Clear communication and developing a strong, trust-based relationship with customers from the onset is an important facet of remaining profitable. This relationship allows us to develop a true understanding of the customer's needs, and ultimately recommend a solution. It also allows us to identify meaningful opportunities to share additional options the customer may not have considered previously but will help them better achieve their end goals.
Dean Clark, sales manager, New-Belle Construction Inc., Belle Vernon, Pa.

What is the Key Difference Between Gross Profit and Gross Profit Margin?

1. Gross profit is the left out amount remained after deducting all the direct costs from the sales. Gross profit margin is the margin of profit over net sales.
2. Gross profit is calculated in figures while gross profit margin is calculated in percentage.
3. Gross profit is shown in the income statement. Conversely, gross profit margin is not shown in the income statement.
4. Gross profit is the basis through which net profit of the company can be calculated. Gross profit margin helps the company to know the incremental sales of a particular year and take pricing decisions.
Information provided by KeyDifferences.com

Establish Profit Priorities

Like most construction companies, we establish shop/yard, general/administrative, revenue and fee budgets for our fiscal year. In addition, we establish revenue- and fee-generation goals for each project manager and estimator. Monthly, our finance department and upper management meet with our project managers to forecast financially each project in a very structured format. With the forecasts in hand, we then provide the entire team an update on all budgets, both corporate and individually based upon actual spend, revenue earned and associated forecasting. The process is completely transparent and is established to be motivating to the employees, as the goals and projections all tie back to our bonus system. In addition to the monetary aspects of our performance, we close-out each project with a report card for the superintendents that measure things like customer satisfaction, safety performance, schedule adherence and quality control.
Patrick Kozeny, president/CEO, Kozeny-Wagner Inc., St. Louis

 What is a Profit-Volume Chart?

A profit-volume chart shows the relationship between a company's earnings (or losses) and its sales. The chart tells how different levels of sales affect a company's profits. Companies can use profit-volume charts to establish sales goals, to analyze whether a potential project is likely to be profitable and to see the maximum potential profit or loss of a given project, as well as where the breakeven point lies.

 Better Installation Means Better Profits

Think about your installation team. How can you help them deliver the product in an easy manner? How can you deliver the product in a way that is convenient and can expedite installation? Too often in our delivery process we consider the mother (the owner), the baby (the finished job) and forget the doctor (the contractor). Consider how you can help the doctor during delivery. Never forget that the best laid plans will fall long term if you don't take care of the product. Nothing costs more than products and installations that go bad. Make sure the customer understands the requirements for maintenance. There is no greater waste then unmaintained failure. While it is always our corporate goal to perform at our best, mistakes happen, processes fail, there are disappointments. Relish them, learn from mistakes, maybe your process or metrics are not adequate … always shoot for performance improvement for fair to good from good to great.
Joseph Mellott, vice president, IMETCO (Innovative Metals Co.), Norcross, Ga.

 A business absolutely devoted to service will have only one worry about profits. They will be embarrassingly large.
Henry Ford, American industrialist and founder of the Ford Motor Co.

As Soon as Possible

Identify the project schedule and budget as soon as possible to ensure your team and the customer have clear and aligned expectations. A smoother project is more profitable, and creating this understanding from the beginning is well worth the effort. Get on-board early. Focus on fostering repeat business and involvement in local organizations to keep a pulse on potential customers that may be interested in building in the near future. We've noticed the longer a project is scheduled, the less profitable it tends to be. The sooner we can get in and get out, generally, we'll make more money. To ensure our operations stay as efficient as possible, we hold regular progress meetings with the full project team. In these meetings we look back two weeks and look ahead two weeks to review progress, identify potential setbacks and find workarounds for any ramifications.
Chad Derrick, project manager, Derrick Building Solutions, New Richmond, Wis.

 Customer Care

Our customers' success determines our success. Strive to be the only contractor a customer will need. Strive to meet or exceed their expectations for quality, value, schedule and responsiveness. Anticipate their needs and help them plan for future growth. It's essential to add value and offer creative solutions. Customer needs have guided us as we've added services through the years to address every need in a project's life cycle, such as site selection and real estate development, energy management, 24/7/365 emergency response, and facility and process maintenance. More than 80 percent of our clients are repeat customers, with many relationships spanning decades. We stay in touch with customers in a variety of ways, through direct mail campaigns, customer satisfaction surveys and personal conversations. Use LinkedIn and Twitter. Use iPads on job sites for immediate communication between office, field associates and customers.
Jeff Schaller, vice president of preconstruction operations, Rudolph Libbe Group, Walbridge, Ohio

 Any business arrangement that is not profitable to the other person will in the end prove unprofitable for you. The bargain that yields mutual satisfaction is the only one that is apt to be repeated.
B. C. Forbes, financial journalist and founder of Forbes magazine.

 Time is Money is Profits

Time is money in construction, so finishing ahead of schedule helps improve profitability. Beating the schedule not only makes a project more profitable, but it also often provides a real benefit to the customer. In terms of scheduling, local permitting approvals take significant time. We can spend as much time in permitting as in construction. We've found that helping our clients understand what goes into the approval process, providing a rough idea on the timing it will take and what facets are within their and our control helps us navigate this part of the process more smoothly.
Jim Bell, president, Bobbitt Design Build Inc., Raleigh, N.C.

 Customer Care

The customer can have a huge impact on how profitable a project is. We tend to focus on repeat and word-of-mouth business. With these types of relationships, there is a level of trust that helps projects run more smoothly than if that trust does not exist. This approach wouldn't be possible if we didn't deliver quality work each time. We work so our projects can speak for themselves.
Chad Derrick, project manager, Derrick Building Solutions, New Richmond, Wis.