Updated: Mar 24, 2019
A 5% improvement on the 5 profit drivers can result in a 24% or higher increase of net revenue.
Successful contractors always improve profit drivers incrementally. If you do not know what profit drivers are, they consist of customer number, return frequency, value of sale, margins and expenditure.
Customer Numbers – Find out your total sales in the last 12 months and increase that figure by 5%. This will provide you with measurable marketing goals.
Return frequency – This is the amount of times customers will return to your business. Tips on how you can increase your return frequency is discussed later in this article.
Increase Sale value – review your pricing structure and incrementally increase your price. Do not fall into the trap of undercutting for clients. Charge the value of the work, no less. If you are having to rent equipment, make sure you are making a margin on the rental equipment as well.
Increase your margins – Successful contractors always endeavor to streamline the cost of completing projects. Review how your business completes jobs try to cut down waste, travel time, recalls, inventory usage etc. Could your business benefit from new technology or software? This will require a deep dive into the fabric of your business, but it is well worth it.
Reducing expenditure – A set of financial statements will highlight where you will be able to reduce your costs. As a rule of thumb, you should get financial statements prepared every quarter. They are essential to running a business – hire a professional to prepare them for you.
Below is a case study to highlight how effective a 5% improvement in your business can be.
Contractors may not have expertise or do not have time to produce reports and analyse these profit drivers. That is why we have come up with an affordable full year taxation and business support package. Designed specifically for contractors & small business owners. Best of all subscription starts at just $23 per week. Contact us now on
09-3935651 to start improving your profit.
Never stop marketing, keep up with technology
One of the most common “mistakes” our clients told us about was not constantly marketing their business. Only through facing cash flow problems they learnt how important it was to never let up on marketing. You do not want to start marketing when you run out of work.
Focus on Retaining current customers.
The cost of gaining a new customer is nine times higher than the cost of getting new business from an existing customer. Focus on your current customers make sure they ultimately leave happy with your business.
Be quick to handle any complaints. If need be get involved personally. Happy customers will also encourage other people to use your business.
You want to be the first person your old clients think off. This means reminding them about your business. This can be done through sending emails/texts/card during any national holidays. You could also be more personal by calling your clients.
Marketing – social media
Social media marketing is the modern-day king of marketing. You must be on platforms regardless of your business. Facebook and Instagram are your basics. If you are really aiming for the stars than a YouTube channel with instructional videos will work wonders for you. People will pay more attention to audio and video advertisements that reward the viewer with either entertainment or knowledge rather than traditional advertisements.
Instagram and Facebook Content
Document all the projects and even the smaller jobs you complete. Make sure you upload pictures of everything you do onto Facebook and Instagram. Think of this as your portfolio. Clients who are considering using your business will have a gallery of images to look through and see all the good work you have already done. This will give you an edge over the competition. Make sure you take advantage of this. It's almost free and you can reach thousands of people at little to no cost! this is a rather new way to market your business only few a contractor’s in New Zealand use this strategy, so there is an open opportunity here. Below is an example of how some builders have set up their Instagram page.
Cash Flow is king
This is the primary concern of most builders – getting paid.
Successful contractors always invoice as soon as they can. You will always get clients that will pay late. Do not contribute to the problem by invoicing the client late as well.
Focus on time it takes you to invoice and put in place a good routine to follow up on aged accounts receivables. These two points are vital to your business.
Below are two key points we believe you should take into consideration.
Project Deposits and installments.
Installments are a great way to ensure you do not run into any cash flow problems.
Here is a useful template you can use. (The percentage portions are changeable to suit your business)
30% deposit paid when the contract is signed. Without the deposit do not start any work.
50% paid when plans have been approved by the client or simply when more than 50% of the work has been completed
20% paid when the project is completed and ready for the client.
It can be very difficult to ask clients for payment even before they have seen any work but remember this practice is not uncommon.
Net zero payment terms.
Stop using “net 30 days” or even “net 7 days”, clients will always ask for more time thus produce invoices that are due on receipt. Make sure your clients understand your payment terms clearly before you start any work. Set the expectation right at the start. If you do not, clients can take months to pay. We have encountered a lot of business owners who have 90+ day invoices outstanding because they have not communicated with their clients properly.
Would your client wait 30 days to be paid for their own work?
If a client has a problem with your payment terms. Especially if it is for a small sum then this is a red flag, you should reconsider your business relationship. At times it is better to turn down a client rather than spending months and months chasing a small sum. Your time could be better used taking care of clients that do pay on time.
We have yet to encounter a successful builder who does not have a basic understanding of Financial statements. Successful builders have an accountant working with them closely during the financial year. Not just during tax season. Understanding financial statements is vitally important to the health of your business. They are key to making 70% of your business decisions.
Financial statements will also give you insights into your tax obligation. One of the most common mistakes builders make is only thinking about tax when income tax is due. Throughout the year their tax liability builds up, goes unchecked or actioned upon. This is how so many businesses find them self's in hot water with the IRD. This is needless and a waste of time. Get In tune with your tax obligations to save yourself a world of trouble.
Tax liability is one of the biggest contributors to cash flow problems. Some business owners are unable to pay their income tax because they did not track their tax liability throughout the year. Resulting in interest being charged on the tax they owe, late fees, penalties and legal problems.
We realize that hiring an accountant to work with you throughout the year can be very expensive thus we have created a full year business and taxation support package that will give you everything you need, for just $23 per week. Contact us now on 09-3935651 or click here for full details: