Don't forget the main reason why you're in business
January 1, 2010
This month, I’ll write about one of the most important ingredients for success: profits.
All successful entrepreneurs have profitable businesses. Is every year profitable? Probably not. However, there are more profitable years than not.
Too many contractors are afraid to charge enough for their work. Probably none of you, my Contractor Cents readers, market your businesses as having “the lowest price” because you are smart enough to find the answers to questions you don’t know. You are good at pricing and know what it takes to make a profit.
The question is how do we get the majority of the HVAC contractors to stop working for wages? They make it harder for us to sell at proper margins. They give our industry a bad name for many reasons. If you have an answer to this question, let me know.
Now, after my rant, back to the profits ingredient for success.
You have to make a profit to stay in business. And, gross profit does not equal net profit. A decent profit is necessary to survive the tough years like this one has been. Others take the entire profit and spend it, not saving for “those rainy days.” And, when a rainy day comes, they are in trouble.
What’s a decent profit? That’s up to you. However, the industry average of 1 percent to 3 percent is unacceptable in my opinion. You are taking too many risks at that profit level. You are essentially working for wages with those low profits. The idea is to earn a living and create a good living for your employees, too. Benefits and raises come out of profits.
QualityOf course, those employees must do quality work. It has to be right the first time and you have to sell. You can’t sell on price alone and make a profit. That’s “taking orders.” If that were the case, you might as well be the lowest priced company in town and work for that 1-2 percent.
Many contractors I know consistently earn 15 percent before taxes. Most are not in new construction. Most of their business is service and replacement. But even some new construction contractors I know consistently earn around 8 percent to 10 percent net profit before tax.
Why this high? Because the HVAC industry is cyclical. The last downturn was in 2000 and 2001. And then the industry was doing very well. Now it’s bad again. You need to have the profits and cash reserves for the terrible profit years.
Also, you may want to sell your business and you’ll want something at the end for your hard work over the years. Those who earn 1 percent to 2 percent don’t have anything to sell at the end of years of hard work.
So, the final trait of successful entrepreneurs is they have profitable businesses. Make sure that you generate sufficient profits for the risks you take, your hard work and your employees’ hard work.
Speaking of hard work, in the past few weeks I’ve had many conversations with different contractors about their frustrations with their salespeople - too many aren’t closing sales and they are griping about their compensation.
So where are you with your salespeople? If you are happy with your sales team, consider yourself among the lucky contractors. Most that I know are looking for that special salesperson who can sell value and wants to earn mega dollars. Take stock of your sales staff’s abilities. If they can’t sell, then don’t keep them.
Copyright Ruth King. All rights reserved. Write to Ruth King, 1650 Oakbrook Drive, Suite 405, Norcross, GA 30093. Call (800) 511-6844; e-mail email@example.com.