Increase Your Profitability

Virtually all of the business skills of an entrepreneurial contractor come from the experience of earlier businesses. Generally, contractors that start their own business do so because of their skill and knowledge in the field, most of the time they lack of formal business training. In the circumstances of this business, essential matters such as implementing efficient bidding procedures and exercising professional management become acquired skills.

Contrary to what you might think, rising the percentage of awarded jobs does not ensure higher profit — quantity does not always equate with profit in any field. In fact, the contractor who effectively and continuously underbids the competition without understanding the actual cost will probably run out of working capital and endanger the wellbeing of the business. One of the two key components in recognizing costs is direct job cost, which are the estimated variable costs related with concluding the project such as material, equipment rental, labor, labor burden and subcontractors. The second major element is overhead application. Overhead can be a combination of indirect overhead such as estimating wages, supervisor wages, fuel and oil and consumable supplies. These are job-related costs, but they must be allocated over all of the jobs of the firm. The other overhead component is the total fixed cost associated to the operation of the business; it involves administration, wages, rent, insurance, utilities and owners wages.

Another practice that can help the profitability of your business is developing incentive plans. If you do not make an incentive program available, workers will create their own by cheating hours or stealing equipment. When developing an incentive system, try to keep it simple, because if employees do not understand the program they will not be motivated by it. The incentives must be linked to specific cost areas over which the employee has control; it should reward the group as a whole, as this tends to reinforce good behavior. The program must have positive as well as negative aspects for employees to focus on the costs and payments should be made often enough to provide motivation to the staff, but not to become an administrative burden.

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