10 Sign’s You’re Playing The Game of Contractor Roulette
Most contractors are great craftsman but terrible at accounting and financial management. Most can build a house from the ground up without any plans but have no clue how to identify and create the financial reports they need to know whether they are making or losing money.
Building or remodeling a house without any idea of whether you are making money or not, and if you will be able to pay all the bills as they come due, is like spinning a roulette wheel at the casino. You put money down, spin the wheel and hope to make money. Problem is that you have no idea or control over where the wheel will stop. If you run out of money the casino is happy to let someone else step in, lay down some money and do the spinning.
Like most gamblers, contractors always brag when they win, but never want to talk about it when they lose.
Contractor Roulette Is Not A Good Gamble
If it sounds like I'm describing you and your business you are playing what I call "Contractor Roulette". Sure, once in a while you may win, and even win big. But remember the odds are with the casino. How about you? Have you been spinning and winning or has the “casino” been winning and encouraging you to keep playing?
My list of 10 signs you’re spinning the “Contractor Roulette Wheel”
- You lose sleep at night worrying about money.
- You have no idea what markup to use.
- You think margin and markup are interchangeable terms.
- You never know if you will have enough money to pay your bills until they're paid. Again
- You guess at project payment schedule amounts and when they're due. As a result you constantly suffer from cash flow challenges.
When a prospect asks you if you will match someone else’s price for the same job you figure if the other guy can do it for that price so can you, so you say yes.
- You are always putting the whip to your production employees to beat the labor allowance in your estimate because you need to make up for dropping the price of the job just so you could sell it. Again.
- Even though you got price quotes for the materials before you sold the job, after you take the job you either bid the materials out to a get a lower price or beat your vendors up to sell them to you for less than they already quoted you. Again.
- You do little or no marketing so you have to try to sell to everyone who contacts you, even if you have a feeling they will try to beat you out of any profit. Again.
- You need to sell a job this weekend and get a deposit just so you will have enough money to meet last week’s payroll. Again.
Strive to become a Big 50 Remodeler
If you believe in the idea of relative success, where you convince yourself you are doing pretty well if you compare your results to other contractors who are doing far worse than you, then maybe you can be happy staying where you are regarding financial management at your business. On the other hand, if you want to measure your success against truly successful contractors, perhaps use Remodeling Magazine’s Big 50 list as your reference. To qualify for that list you need to be making a decent net profit.
There is hope!
If you have been playing Contractor Roulette here is a simple three-step plan to help you end your gambling habit:
- Admit you have a gambling problem and commit to do something about it.
- Get the professional help you need to help you stop gambling and eliminate the causes of your gambling addiction.
- Find someone you can trust to hold you accountable to doing what it will take to make the switch.
Related articles:
The Five Biggest Financial Related Mistakes Contractors Make
Remodelers: I Bet You Don’t Know Your True Burdened Labor Costs
Five Ways To Think Like A Business For Business Owners
your production manager?
If you’re setting out to just “drive around” you don’t need a destination. But if you need to get somewhere, it’s important to know where the destination is relative to where you are. So if I want to drive from New York to California, I should be heading west, not south. It’s the same with your financials. If you don’t have a clear view of the destination (answers to your questions), getting there is left to chance. You must identify what you want to find out.
If you’re planning that trip from New York to California, the path you select will reflect your criteria, such as whether or not you are interested in the fastest route, the most scenic route, the cheapest route, etc. Accounting software varies in its user friendliness and flexibility. QuickBooks is highly flexible and very user friendly, which leads users to take inappropriate routes with a high degree of confidence! There are many ways to accomplish any given task. Making the right choice can be confusing, sort of like making the New York to California trip without the benefit of road signs (or GPS!). You must know the software.
Can you turn right on a red light in Iowa? Is the maximum speed limit in Kansas the same as that in Missouri? Is it mandatory to wear seat belts in Nevada? Do you have to turn on your lights if it’s raining in California? Just as you can get yourself into trouble while driving if you don’t know the law, you can get yourself in trouble in accounting if you don’t know the correct way to classify transactions. You must understand the basics of construction accounting.
Help is available! There are good, experienced, qualified resources out there who can either start you out right or help you adjust your course. The key is to look for consultants and trainers with experience in your industry and in your software of choice. Find out how many businesses similar to yours they have worked with. A construction expert who has only worked with development companies with revenue in excess of $20M may not be appropriate for a startup remodeling company with forecast revenue of $600K. Get references. Request a no obligation 15 minute phone call to get a feel for whether they will be a good fit for your business and you.
Final Word
Hire and properly train employees before you already need them and their required skills up and running. 
Before you actually increase your overhead costs test the marketplace you plan to work in to make sure you can sell at the increased pricing you'll need and can sell enough work at that price. Consider if you are in the right market to do business but also if you have the right marketing and sales skills in place.
Typically in larger firms most employees are specialist. Each employee on the team will do just one part of the process, such as just the design or just the estimating. Because of this, clients working with larger businesses may never really get to know one employee very well. A smaller company has the possible advantage of having the same person sell, design, estimate, and help manage the project. Certain clients will be attracted to this type of relationship. To get in front of prospects who want this kind of service you need to market the advantages that come with it, otherwise prospects will assume you’re the same as the other companies they can work with. Writing about how you do business and sharing stories about how and why your past customer benefited can help point interested prospects your way. Doing so within your blog is a great way to get the message out. 
The changes Joe has made provide a better level of service and attention to current prospects and customers, and, at the same time, gives Joe the time and ability to also fully focus while meeting with new prospects for the first time. By sharing the workload with the right person and using the right process Joe has improved the service his company delivers and his customers are very happy. He says he now looks forward to working with new prospects as their calls keep rolling in.
Qualifying leads
Consider that if you try to close a prospect that is still in steps one or two above they will not likely buy anything from you, at least at that time. How could they? They still don’t have enough info to make a confident decision. If you try to close them you might just alienate them. Depending on your approach, if you make them feel bad because they wouldn’t make a decision and or that they wouldn't buy from you, they may never buy from you. But, on the other hand, if you know they are not ready to buy, rather than attempt to close them see if you can help them move their process along so they can do the due diligence required to confidently make a decision and sign a contract. Helping them through this process is what is often referred to as lead nurturing.
According to GE Capital Research consumers spend 38-115 days researching before making a major purchase. If your qualified prospects are not yet ready to buy, respect their process and consider your approach with them. Give them the time they need when they need it. By this I mean give them time to do their research. And, at the same time consider offering them some guidance to help move them along and to show that you can be a trusted adviser for them. When they are ready to decide on products and need help with that part of their process again be ready with help and guidance, but don’t try to close them yet. Remember, if they told you they were still trying to decide what products to use how could they make a buying commitment? Trying to close them may seem disrespectful to them. Instead offer them guidance and let them know you would love to work with them when they are ready to choose their contractor. The idea here is that if you practice catch and release, and your prospects can swim off unharmed, they will likely remain in your pond and may decide to jump on your hook when they are ready to bite!
Attempting to strategically ramp up staffing needs as the economy improves and get new employees acclimated before your business already needs to have them at high capacity will definitely be a juggling act. There is no better time than now to get that process started. Those contractors who use their past experience in this area and or the shared experiences of a mentor will have a jump on grabbing top talent. They will be the select few who are ready for the business opportunities that will come with an improved remodeling marketplace.
Your sales team is no different. They also desire and expect to interact with content that makes presenting fun and interactive. Veteran reps (the good ones) make the necessary adjustments within their presentation to do just that. Largely in part because flipping through binders and PowerPoint slides may not be enough for many today; and by their very nature, create ineffective presenters, lost sales and revenue.
Team Engagement - Engage all of your department’s leaders. 
If you plan to remain a small company, only worried about generating enough work for yourself and maybe one other worker, I suggest you work really hard creating and nurturing referrals. This is a good low cost option but it does take a lot of your time. You’ll need to spend time calling your previous customers to let them know you’re still around and would love to get more work from them. I suggest you also let them know you would appreciate their referrals. While you have them on the phone get their email addresses and permission to send them information about your company via email. If you can do this you can take advantage of low cost email marketing strategies to stay in front of them and remind them about referring you. If this works for you and you get enough quality leads, you will also need improved sales skills so you can raise your prices and still sell enough work. If you can pull off selling at higher prices use the money to expand your marketing strategy beyond the email related tactics.
If you have a business that is already doing at least $500-700K worth of business, but you are not making enough money, I suggest you 
to check and most will never be able to retire. I suggest you consider the option of a job at a company that already does good marketing and knows how to sell. These businesses will be growing as the economy improves and will need the talents of good carpenters and project managers. If you find the right company to work for you will probably make a lot more money, have a whole lot less stress in your life and your new job might even include a company sponsored retirement plan. 
In my quest for a web site company to work with I was specifically referred to the one I chose by another business owner I know who had similar goals for his business. This web site design company owner did what I thought was a great job interviewing me to uncover my purposes before she designed, priced and built my site. Now, because of her assistance, I can help targeted prospects find me and prevent suspects from wasting my time and resources! And, if contractors seeking help with their businesses aren’t yet ready to buy, I can nurture them along with more information about me and my business until they are. 
