Back To Square One
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Many years ago, a good friend in the industry told me something that I will never forget. He said, “Never abandon what got you to where you are.” That statement can mean a lot of things to many different people, but when it comes to being successful in the trades, the meaning is clear.
At some point during the journey of building your company, a light bulb went off. You had been working hard for several years with sales increasing, but there was something missing in the mix of consistent growth—profit. The company was getting bigger, and profits should have been going up, but they were not. After exploring the reasons for reduced profitability, the answer became clear: you were not charging enough.
Since most owners in the trades used to be technicians prior to starting their own businesses, the question of how much you need to charge per hour to cover the real costs of doing business while generating profit is tough to answer.
So, the company owner does some research, talks to other contractors, attends a seminar or two, and reads some books or articles on how to set proper hourly rates. Armed with the needed education, new, profitable rates are calculated based on their company’s unique costs of doing business. Finally, the new rates are instituted, and two amazing things happen.
First, most of the customer base doesn’t realize the prices went up, and the volume of complaints you expected to occur did not happen. Second, the new rates produced a consistent profit.
Now fast forward a few years. The company has grown and continues to grow. However, it seems harder and harder to make a profit. The company has put systems into place, excelled in customer service, and invested large amounts of money into marketing. The staff has attended classes on leadership and teamwork, equipment and vehicles are in great working order, and everyone has bought into the company vision. The only thing missing is profit, again.
The process of adjusting hourly rates as things change within the business is key. Any time costs change within the company, whether it’s overhead, the price of materials/parts, the hire of additional employees, etc., it is necessary to change what the company charges per hour to maintain profitability.
Take time to review your actual costs of doing business from a cash flow perspective. If costs have changed over the past year, there is a good possibility that your hourly rates need to be adjusted as well.
The company may be the best in the area, the quality of work might be outstanding, and customer relations can be far above your competition. Everything from an operations standpoint might exceed your customers’ expectations, however, if the company is not priced for a profit, they are going to go out of business sooner rather than later.
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Posted In: ACCA Now, Business Development
