What do we all want as contractors? We want to provide a good service and be paid for our work. Where does this process start? As we discuss on Episode 86 of The DYOJO Podcast, positive project outcomes start with a clear and consistent client intake process.
Overhead and Profit for the Contractor
The client intake process also initiates the data collection process. The gathering, interpretation, and application of solid data is critical to helping an entrepreneur make good business decisions. If you want to be profitable as an organization you must manage the project lifecycle sequences. We begin this discussion on The DYOJO Podcast Episode 89 as well as a series of articles on overhead and profit that myself, Ben Justesen, Anthony Nelson, and Ed Cross will be releasing for the in-print version of C&R Magazine.
Using A Letter of Intent (LOI)
Contractor's often discuss whether they should be charging for estimates. Some of the options include:
We talk rather frequently with contractors about this concept of the Letter of Intent or LOI. We will introduce this resource during Episode 89 and will go into further detail in the following episode.
The Four Modes of Profitability
What does the average contractor want?
Our competition as contractors isn't even necessarily with the market, but with ourselves. We want to grow our company by laying a foundation. If you want to be a profitable company, it's important to understand some of these concepts that lead towards profitability. So that's why we're tying a lot of this together, from:
I'm working on the first in a series of articles with C&R magazine that's going to touch on some of those elements of overhead and profit. My contribution, the working title is The Four Modes of Profitability for Contractors.
There's an infographic coming out from Restoration Industry Association (RIA) that will also be a helpful tool for contractors as they work through the process of developing and growing their team. Within that tool there are definitions and visual aides such as these two:
These resources are designed to help shorten your DANG learning curve and to build your company through those stages of profitability.
The Contractor's Fight for Survival
We have observed or participated in many companies that don't make it unfortunately, the Bureau of Labor Statistics estimates that 20% of small businesses fail within the first year and 30% after the second. You feel it right? You're in an all out battle for survival. You want to move from survival mode to scraping-by. At the end of your first year you get hit with this tax debt and renewals for indirect (aka overhead) costs such as your licensing, bonding, and insurance. You realize that to even scrape by as a business, you must charge more than you were charging. You're gonna have to think differently about how you're charging for labor, materials, equipment, overhead, and profit.
Every year is a fight to compete as a contractor, the average failure rate for businesses:
The DYOJO Podcast is designed to help you shorten your DANG learning curve. Going back to those statistics we talked about, which will be in the series of articles with C&R magazine. The mindset used to be that if you can make it past year three, you're probably going to be fine. But the statistics show that if you make it to the fifth year you're in the 50/50 club. 50% of the companies that started at a similar time are likely no longer going to be in business. And then if you push through to year 10, you're in the exclusive 70/30 club. Sadly, only 30% of entrepreneurs make it to the decade mark. Every year is a fight.
That's why we say you're moving from survival to scraping by, to having a fighting chance, and to competing. My latest book, How To Suck Less At Estimating, was written to pick away at some of those faulty foundations that regularly lead to profit sucking estimating habits. In doing this I'll try to break out those mindsets that are particularly helpful for the categories of professionals listed above which are (1) the aspiring professional, (2) the estimator, (3) the new manager, and (4) the business owner. By the end of this book and the course that soon will be coming with Restoration Technical Institute (RTI) you will have at least six elements that every estimator needs in their tool bag for success.
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