4 Reasons Your Contracting Business Is Not Profitable

As you gear up for another season, you might have some concerns niggling at the back of your mind…

How can you know if you’ll be profitable this year?

What do you need to do to be prepped and ready?

What does crossing all my t’s and dotting all of my i’s look like?

What are the things that I haven’t thought of that will leave me scratching the bottom of the barrel for cash at the end of the year?

It’s a classic “I don’t know what I don’t know” problem.

In an effort to stop the nagging worry and analysis paralysis problem, I’m going to list the key things that you need to have in place to ensure you’re set up to be profitable.

First, let’s identify the top profit killers.

Then we’ll break down a list of action items to stop them.

Top Profit Killers

• incorrect labor rates that aren’t recovering overhead sufficiently
• estimating with “rose colored glasses”, meaning underbidding labor & materials.
• logistical inefficiency, leading to labor overruns on jobs
• proposal turnaround taking too long, losing you work

I could add more to the list, but they typically pale in comparison to the sheer impact and weight of the 4 I listed above.

They are the most common things that prevent contractors from being profitable.

Failing to solve even one of those items in that list, could wipe you clean of profits. Even if you’re batting a 1,000 on all of the other 3.

So make sure to give due attention to each one.

How to solve them and be profitable

Incorrect Labor Rates:

The solution is to arrive at your labor rate by math instead of “market based” rates. The market doesn’t pay your bills, you do. So your labor rate needs to be based on your direct labor costs, your overhead expenses, and desired profit margin. Sum up those 3, direct cost, overhead, and profit, and you’ll have your labor rate. You can find your own profitable labor rate on my quick labor rate calculator.

Another thing to keep in mind: often contractors will do the math as described above, and “do it correctly.” But then don’t update the rate when things change.

Overhead expenses are constantly changing.

Insurance went up?

Gotta recalculate your labor rate.

Out of date calculations are incorrect calculations. Stay on this constantly. Checking things at least once a month.

Estimating With Rose Colored Glasses:

This one is very common. Contractors and owner/operators who hire their first crew lead to take over the responsibility of leading out on the job site know this all too well.

You hire the new crew lead, and you start delegating more and more to your crew…

….who also happens to not be as experienced and seasoned as you are…

….and you keep right on estimating man-hours on your jobs as if you yourself were on site every hour of the day.

See the problem?

Gotta estimate according to reality.

If the new crew takes 20% longer, gotta increase man-hour estimates by 20% as well.

Otherwise you’ll be left holding the bag.

The tricky part is you may never discover this if your crew isn’t tracking their time to a job. So… yeah…. track time to the jobs 😉

Logistical Inefficiency and Labor Overruns:

Labor overruns are the most expensive thing a contractor encounters. You not only have to pay for the unanticipated labor on the overrun, but you also delay getting the next job done, meaning delaying that revenue.

You get whacked twice – once for the actual cost, the second time for the opportunity cost.

Pro tip: focus on efficiency.

How can you maximize on-site time. Keep your skilled labor on-site and working.

Get other people to do the fueling and washing of trucks.

Have snacks and drinks at the shop to prevent those gas station pitstops.

Get porta potties delivered to the jobsite and prevent those restroom break runs off-site.

Get materials delivered, don’t send your crew after them.

These are all ways that contractors lose efficiency (big time).

And lost efficiency reduces the amount of jobs you can complete in one year.

There is a LOT of juice for the squeeze on this point alone.

Focusing on this allows you to increase revenue (and profits) without increasing your costs.

You still have the costs – you’re just getting more production out of those costs.

Proposal Turnaround Time:

Feeling bitter about losing work to cheaper competitors?

Stop.

That’s not your biggest problem with closing jobs.

Proposal turnaround time is.

A study on 1.3 million proposals done last year found that the BIGGEST indicator of who was going to win that job was not… ….price.

….it was who had the first proposal back to the customer.

So… focus on automating and speeding up your system to crank out proposals.

Use templates and production rates.

Use software.

Get the proposal done before you’re even leaving the driveway.

Leave that consultation with – not a to-do list and a promise to have the proposal back to them in a week or two.

But rather, leave that consultation with a completed proposal, a signature, and a deposit check.

You focus on these things – and you WILL be more profitable.

 

We help over 600 contractors all over North America solve these exact 4 issues in SynkedUP – day in day out.

There is still time to plug into SynkedUP and get these problems kicked to the curb for your season.

We can fix your labor rates and automate them being priced profitably going forward.

Help you get estimating templates set up that kill the “rose colored glasses” syndrome.

Get tracking and visibility into your labor overruns and why they happened.

And dramatically speed up your proposal turnaround time. I mean from hours to minutes.

Let me know if you’re ready to throw in the towel on your current method and want this SynkedUP method in your business for this season.

Let’s go 💥

Weston Zimmerman
CEO and co-founder