A thriving business should be one that runs smoothly, creates happy customers, fairly compensates the owner and employees for their contributions, and, above all, generates a net profit. As business author Charles Abbott puts it, “Business without profit is not business any-more than a pickle is candy.”
But I've met remodelers who have put themselves in a real pickle, if you'll pardon the pun, because they think profit is whatever is left over after all the bills are paid. This may be true on your tax return, but it is a much too passive way to think about profit. Profit should be a planned budget line item for any business. It should be paid out to the shareholders of the business as a reward for the risk they assume. Or, it should be reinvested into the business in some way to help it grow. And by growing, I mean greater profits, not just more work to do.
To turn a business from sour to sweet, we need to debunk the two key myths about profit.
Profit Myth #1: To get my business started (or to bring in some new business), I sell jobs at a low price. Later, I will increase my prices to include profit.
At first glance, this strategy makes sense. It gives the remodeler work and it brings in cash. But consider the residual effects. Customers who are happy with your price will refer you to their friends, who will expect the same great service at the same low price. Later, when you raise your prices to include profit, these people may not want to do business with you. That leaves you strapped with finding new customers and starting the referral cycle all over again.
Remember also that you are only generating cash, not profit. Eventually, you may be short on new work. Without profits and with no deposits on new jobs, how will you pay the bills? If something goes wrong on a job, can you afford to fix it? If you can't, will you still get referrals?
The remodeler who prices for profit at the outset is a clear winner. The business gets off to the right start and progress doesn't lead to disappointed referrals or starving business owners. Referrals expect exactly what you offer. And they will pay for it, too.
Profit Myth #2: I can only charge what my competition is charging. If I include a profit and charge more, I won't get any work.
Depending on your market, this may actually be true. If so, perhaps you can find a better market for your business. More often, however, this is a case of head luggage. That's how one remodeler described to me his inability to demonstrate a real value for his services during the sales process.
If you are experiencing similar selling challenges, one option is to take a look at your marketing efforts. If you aren't generating qualified leads who can afford to pay for your services, change your marketing message and target prospects at a higher price point. Even a great salesperson can't sell at a profit if the prospect can't afford to buy.
Next, look at the salesperson. Is he or she a salesperson by choice or by default? Either way, has that person had any real training? Selling without sales skills is like framing without nail guns. The job may eventually get done, but there may be no profit after all of the time and effort. So get your salesperson involved in an ongoing sales-training program. If you do all the sales for your own company, this advice applies to you, too.
Sales training will help you learn how to demonstrate that your company is different from the competition in ways that are of value to the right customers. The profits will follow.
Remodeling contractors work very hard to build their businesses by transforming worn-out or out-of-date homes into things of beauty for their customers. For this they should be proud. But if they still find themselves in a pickle, perhaps they can transform their ideas about profit as well. The results could mean the sweet taste of success. —Shawn McCadden, CR, CLC, recently sold his Arlington, Mass.-based employee-managed design/build remodeling business. In his second career, he is Director of Education for DreamMaker Bath & Kitchen by Worldwide. Send e-mail to email@example.com.