The following points are simple but smart ways to work more efficiently, reduce waste and make better returns without increasing your prices. They can contribute to a win-win for all situations, and you will find that they apply no matter what size your business is.
Don’t take on bad deals If you are doing work of a high risk nature or below your normal margins you are probably better off not to do it. Do work that you are competent in and that consistently returns a fair margin. Don’t give things away Every time you include something at no cost or low margin you have to work that much harder to catch up financially.
Put upgrades into your specification as options with a cost, and let the client decide if they wish to incur the extra expense. Design and build product for your customer — not yourself One of the biggest mistakes builders make is that they think customers want a home that the builder would like.
This often leads to design and construction costs that may be beyond the client’s budget. Survey your customer’s needs and build accordingly. Eliminate waste and excess material usage If you evaluate your construction techniques significant savings can usually be made.
Ensure you check delivery quantities for error (yes, many a mistake is made) and always return excess material for credit. Failure to do so means that you can end up with damaged material that is only fit for the bin.
If you could reduce the number of bins from three to two on each site consider the savings over a year. Develop scopes of work and checklists Train your on-site staff and subtrades on the scope of work they are expected to complete.
Callbacks will reduce significantly for unfinished items. Don’t start until you have detailed drawings Accurate detailed and complete working drawings are a must if you are expected to work effi ciently. You are better off to delay the start of the project until these are available.
If you commence on less than full information the project will cost you through delays and rework. Value engineer the drawings In a design-build situation or given the opportunity early in the design phase, significant savings can be made by builders analysing the drawings for construction inefficiencies.
New or alternative materials can be considered along with different construction techniques, saving time and money. Keep a tight control of budgets Implement a formal purchase order system with good descriptions and quotes on all orders.
This controls cost slippage and makes checking your monthly accounts so much easier. Don’t be frightened to negotiate with trades and suppliers because if you don’t ask, they are not likely to offer a better deal for loyalty or volume.
Improve your estimating If your estimates are not accurate how can you ever expect to know how much margin to charge or if you are making a profit? Detailed back costings should be kept against the original estimates.
You do this as a check against the accuracy of your estimating. Failure to do this correctly means you are in the dark, and is a sure way to end up going broke. Programme your work the more efficiently you work, the more you can achieve and your earning potential increases accordingly.
For example, if you consistently build four homes in any one year and through good programming you increase that to five homes using the same resources, your income increases and your overheads reduce.
This message is simple — get yourself and your trades organised. Standardise and systemise procedures Wherever possible make detail and work practices consistent from job to job. Train your staff and subtrades fully in these systems.
Efficiency will increase through repetition and you will have the peace of mind knowing it is a tried and true reliable system. Watch staff levels It is important that staff levels maintain a balance with on-site work and sales volumes.
Builders tend to be eternal optimists when it comes to that next job starting, and often leave hard decisions of reducing staff until it’s too late. Keep an eye on your sales volumes As I have mentioned in earlier articles, you are better to do less work at higher margins than lots of work on smaller margins.
Do not discount your prices to increase your volume — it is a sure one-way ride to the builders scrap heap.
Always look six months out. If your inquiries are down now then there is nothing surer than you will be quiet in six months’ time. Some builders fall into the trap of being so busy trying to complete their current work load that they lose sight of where the next projects are coming from.
Keep an eye on the future. Monitor advertising and promotions Advertise and promote yourself in boom times and while you are busy for two good reasons.
First, you will be able to afford it and, second, because the gestation period for new projects is so long if you wait until you need the work it could be too late. Actively develop your referrals We all know the value of a referred client.
They come to you on recommendation and, on the strength of this, a sale is likely to occur. Not many builders actively work on getting referral business, but this can be done very cost effectively with outstanding results.
Look at your management systems It may be time to upgrade your computer system to a fully integrated estimating, ordering, back costing and accounts system. You are better to invest in quality systems before hiring more staff — it is so easy to become top heavy Build the project right the first time.
This is probably the most effective way of improving your bottom line in the whole article. Rework, callbacks and maintenance all cost money, time and resources, the cost of which will come from your company’s profits. It affects you in two ways — first, the direct cost of fixing the problem and, second, the lost earnings while you carry out the remedial work.
So really, it is a no brainer.
Put the effort and time into getting it right first time so you do not need to return.
The client will be happy and so will you with the increased earnings and lower hassles.
• This article was based on a seminar titled 25 Sure Ways to Improve Profitably presented by Charles Shinn at the International Builders Show in Orlando, January 2006.