There are one million and one ways that business owners can reduce costs, and leverage their time and money, in order to increase their profit margins. The problem is that once trade business owners begin their daily grind of running a business and working on the tools, the task of taking the time to review, strategise and implement these ways is more often than not pushed aside.
If this sounds like you, perhaps let’s start with 7 simple adjustments that will get you moving in the right direction with out impeding too much on the endless things you already have to do in your day.
1) Increase your average dollar sale
What is more profitable than smashing out 6 jobs a day? Halving the amount of jobs to 3 and spending extra time with your customer, which in turn increases your average dollar sale.
Not only will this mean that each job is more profitable, but you will also be paying your staff for the important things – actually doing work and not sitting in traffic travelling to it.
Training staff with sales skills and providing incentives when their average dollar sale is high, can help ensure that they are spending this time with customers, and making the most of it.
Increasing your customers average dollar spend can be as simple as conducting a Safety Inspection Report. As part of the process at every job, tradesmen can carry out this report, bringing to their customer’s attention what other things (if any) may need servicing while they are already at their house.
By conducting this additional work while at a customer’s house, you eliminate the call out fee and hassle for the customer to arrange another day off work later on down the track.
Even if your customer chooses not to go ahead with the additional work on the day, you still haven’t necessarily lost the job. Provide them with a quote and use this as an excuse to contact them in the future.
2) Focus on quality work
Review how much profit your jobs are making. After careful assessment you may conclude that certain jobs, or particular customers are actually losing you money.
When this is the case, the solution is a “no-brainer” – Prioritise the most profitable jobs and get rid of costly customers!
3) Allocate your employees effectively
There is the all too common story of businesses that take on employees (and struggle with the associated overheads) when it is not yet financially viable.
However, when you do have employees it is important to allocate them to work strategically to make sure that you are getting a return on the dollar you spend on their wages.
Send expensive tradesmen to high quality jobs. It wouldn’t be wise to send your leading hand (a presumably high paid worker) to a not so profitable job, such as a tap repair. You will end up charging less on the job than it costs for you the pay for your leading hands time.
When it comes to the office and admin side of your business you may also find that there are certain tasks that take up a lot of your time or that of an employee (time that could be spent making money on a job). If this is the case, you may want to consider outsourcing. Outsourcing allows you to get these tasks completed outside your company at lower costs. It will allow you to make more money from your trade business, and give you back time and freedom.
4) Focus on retention
Engaging existing customers is an inexpensive way of getting more work in the future. Send your customer database regular email updates that are relevant to them. Explain to your customer what the upkeep is on the service you provided them. Use this as an excuse to touch base with them later on down the track. For example, a new tiled entertainment area may need annual treatment. You can send your customer email reminders or a courtesy call of these treatments. Money spent keeping clients is less money spent on lead generation marketing. Did I mention that repeat customers spend 3X the average dollar sale than new customers? Yes, it’s true… so stay focused on your retention strategies.
5) Be aware of wastage
Wasted stock is one of the biggest culprits of diminishing profits.
It’s highly important to split out your labour and materials in your Profit and Loss Statement. Doing this enables you to go through line-by-line to see what materials you have purchased, what you have billed out and therefore what is unaccounted for.
When you look into your materials you will also be able to see whether or not you are putting a big enough margin on stock.
There are a couple of simple steps you can take to reduce stock wastage.
Firstly, keep a stock list in each truck. This prevents tradesman from carrying too much or too little stock. It stops them from forgetting stock and will therefore save them trips to the suppliers. You can hold your tradesman accountable when stock goes missing.
Secondly, if you purchase stock for a particular job and it doesn’t get used, return it back to the suppliers. It doesn’t matter if you think you’ll use it a week down the track, by keeping this item on the truck you are creating the risk that it will get damaged or lost and therefore waste money.
6) Don’t compete on price
It can be tempting to slash the prices of your service to compete with other businesses in your area. But doing this will dramatically damage your profits.
Instead of reducing your prices, make yourself unique from your competitors by reinforcing things that are important to your market. Perhaps you have high quality service, family owned business, trustworthy, reliable etc. These things don’t sacrifice your income so they are the best way to differentiate. Most customers don’t mind paying a bit more if they know they are getting value for money, and not being ripped off!
7) Negotiate with suppliers
You can leverage off your financial statements when negotiating with suppliers.
When you review the materials in your Profit and Loss Statement you might notice that your suppliers have been putting up their prices. Use this information to your advantage and renegotiation the prices of particular items or overall.
As mentioned at the beginning of this article, there are so many ways you can leverage your money more effectively and it’s difficult to know where to start. Try these things in your business today. It won’t cost you a cent, so you have nothing to lose.
What’s next?
- Join our Kick-Ass Tradies Facebook Group, for access to trade business specific conversations, tips and resources, plus a like-minded community of tradies.
- Book a 15-minute Game Plan Call with Andy, owner of Dr. DRiP plumbing and co-founder of Lifestyle Tradie, to clarify your priorities and get clear action steps.
