Sunday, October 01, 2006

The Contractor Who Shoots Himself in the Foot

I recently met with a new contractor client who was in financial trouble. He reported that his jobs were not profitable, that he bent over backwards to please clients, and his prices were generally lower than other bids. This contractor seemed to do an excellent job for his clients, but he was not doing well for himself or his business.

Contracting is a business. Not all skilled craftsmen are business people and vice versa. As with any business, one has to recognize one's own strengths and weaknesses. Hiring a business manager, or taking a business class may greatly improve one's profitability.

A friend who is a contractor says that she takes her cost and adds ten percent. She knows the price of her labor and materials and ensures her profit. If changes are requested, she requires written change orders. I can't emphasize this enough. You have a right to make a profit, and you do not have to bend over backwards and satisfy every demand of the client. For example, I have a contractor client who brought the homeowner to the quarry to pick stones for a fireplace personally, and then when the stones were delivered she decided she didn't like them, and he paid to replace them himself! This is a big mistake. The homeowner will start to make more and more demands, and the job will turn into a loss.

The key to profitability is to start with a good contract where there has been a true "meeting of the minds." If the contractor's policies are spelled out in advance, and allowances are clearly laid out, then both parties will know when an item falls under the category of a change order. The homeowner will not be surprised by unexpected bills, and the contractor will make a fair profit.

It is not necessarily the lowest bid that will get the contractor the job. Homeowners are looking for reliability, personability and good references and skills. In fact, they may be more impressed if you charge more because they may believe you are a higher level professional.

So, take a look at your business practices and see if you are truly profiting from your jobs. If not, it may be worthwhile to consult with someone to revamp your proposals and contracts.


At 3:05 AM, Blogger Mary said...

Hi Andrea,

Thanks for sharing this situation and your insights. It is very helpful.

Again, thanks.

Mary Goldwin (decorative concrete flooring)


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