Technical skills vs. business skills. Take a lesson from major league baseball. With a few exceptions, great ballplayers generally don’t succeed as managers, while most of the game’s greatest managers came from the ranks of mediocre players. The skills required to play the game well are entirely different from managerial ability.
Likewise with the contracting business. The business of contracting requires financial, selling, marketing, negotiating, supervisory and leadership skills that have little to do with the hands-on work of putting up walls and ceilings.
The industry is filled with master craftsmen who can work magic with the tools of their trade, but who do not understand the costs of doing business and how to market their firms in any way except via the lowest bid. They approach contracting as an extension of the trade rather than a business opportunity, and the entire industry gets hurt along the way.
If you’re thinking of opening up a shop of your own, please do yourself and everyone else a favor by delaying your startup until you’ve taken enough business courses or seminars to understand what needs to be done to operate profitably. Don’t define success as getting plenty of work by bidding jobs for a few dollars less than competitors. The purpose of business is not just to generate work, but to make money. If you lose money on most of your jobs, I guarantee you won’t make it up in volume.
Many contractors go bankrupt every year, but I’ve never heard of a single one that failed because the people in charge didn’t know how to do the work required. Some of you may be world-class craftsmen, but if you don’t manage your costs and sell your labor and know-how at the prices needed to be profitable, you are better off remaining someone’s employee.
Salary and profits
Many contractors believe that profit equates with income. That is, whatever is left of their revenues after all bills get paid is what they live off. If there are no profits from a given job or over a period of time, they make do as best they can, often by delaying supplier payments or other bills. This is an ideal way to lay the groundwork for business and/or personal bankruptcy.As an owner of a privately held company, you need to budget a salary draw for yourself and build that draw into the selling price of your services. You may need to take home a modest salary when first starting out, but at least make sure you can pay the mortgage and put food on the table.
In addition to salary, as a business owner, you need to set aside a certain amount into a retirement account for yourself. Because if you don’t, who will?
Beyond all that, also budget a profit margin of 5 to 10 percent. Funnel your profit dollars into a separate account to be used for equipment purchases, facilities expansion or other expenses related to business growth. If that’s not a pressing concern, then make profit dollars a bonus pool for yourself and employees.
I can hear your skepticism. If you did all that, you’d have to raise your bids to the point where you’d price yourself out of many jobs. This may be true. The choice is yours. You can figure out a way to market yourself on something other than price, or you can continue to work too hard for too little money, and stay in perpetual debt for as long as you stay in business.
The customer is always right
Oh, we all know that’s not literally true. Sometimes the customer can be as wrong as the devil and a royal pain in the anatomy. But that’s not the attitude you can carry around and succeed in yours or any other business.A better mindset is to try your best to do everything possible to satisfy every whim of your customer. Sometimes that will prove impossible. Sometimes the customer will be unrealistic in his demands. Sometimes you may even determine you would be better off “firing” a given customer. But before you reach these conclusions, give the customer some benefit of the doubt. Pretend that he or she’s right and you’re wrong. Do your best to give in to what the customer wants, and force yourself to be cheerful when doing it.
You’ll find out that, more often than not, this behavior pays off a lot more than trying to win unwinnable arguments with a customer. It’s not what you say, it’s how you say it.
Under-promise and over-deliver. At least 99 percent of the contractors I’ve ever met do the exact opposite. The prevailing attitude is to say anything a customer wants to hear just to get the person off your back. The job will take no more than two weeks, tops. The materials will arrive no later than Monday. Sure, we’ll get it enclosed before bad weather rolls around.
Just remember this simple rule: If you promise something in a week and it takes 10 days, you’re a bum in the eyes of the customer. But if you promise something in two weeks and it takes 10 days, you’re a hero.
Make it easy to do business with you. Some companies act as if they are doing the customer a favor by agreeing to supply them with the services they need. Everything must be scheduled at the contractor’s convenience rather than the customer’s. Phone calls get returned when the spirit moves them. Every request involves a hassle.
This is stinkin’ thinkin’. You have nothing without your customers. If you have policies and procedures in place that make it difficult for them to deal with you, simplify those rules, remove those barriers. Make it easy for anyone to do business with you.
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