Are you finding it difficult to make a profit? Are your expenses eating up your income? Most companies, including professional services companies such as engineering, are always struggling to make a profit. Most of the expenses of a professional services company are related to labor. That is why many companies chose to do one or two things to increase their profits; increase workload or reduce staff. But there are many other strategies that can have a similar effect.
A typical engineering company generally strives for a profit or 10-15% after all expenses, including salaries. A very competitive market or a significant drop in demand from the engineering services market can make these margins even lower.
Today’s market has led many companies to reduce their fees significantly, but this is really the answer. Every engineering company knows that there are certain expenses that they cannot escape. Such as staff salaries, business licenses, professional licenses, business insurance, professional insurance, office expenses, etc. With good management of the company’s budget, various adjustments can be made to retain a portion of the revenue.
Below is a list of the top 5 key strategies for increasing your business profits without cutting staff.
Key 1: increase service fees – This may seem a bit counterintuitive at this point during a recession, but a small increase can have a significant impact on your earnings. For example, your business has a service that charges $ 1000 with a 10% markup ($ 100). If you increase the fee by 5% ($ 50), your benefit would increase by 50% ($ 150). This small increase in fees is very likely not even noticeable to your customers, but it can be very noticeable on your company’s profit and loss statement.
Key 2: workload determines the size of the company – Your engineering business must be integrated with permanent staff and independent contractors. The number of independent contractors can vary depending on the workload. Hiring independent contractors or sub-consultants is also known as outsourcing. The only permanent employees are those absolutely necessary. Outsourcing allows the company to restructure to handle a large number of new contracts when times are good and then reduce the number of contractors when there are fewer contracts during bad economic conditions. An example is having one or two CAD designers as permanent employees and then a group of CAD operators who are independent contractors.
In recent years, the federal government has really cracked down on who is an independent contractor. Independent contractors are in business for themselves and can get work from numerous sources. Having an independent contractor in an office within your business and only contracting with your company is probably not an independent contractor, and the government will seriously disapprove of this arrangement. You should discuss any questionable agreements with your tax advisor.
Key 3: Don’t focus on sectors with very small profit margins – Although during a difficult economy companies may be forced to take what comes next, do not focus your marketing efforts on those sectors that constantly hire the company with the cheapest offer. Professional services companies, such as engineering companies, should never compete on price alone. A good engineer can save a developer thousands, if not millions of dollars, which will generally far exceed the engineer’s fees. Sectors haggling over service fees are generally not worth it. In essence, don’t buy the job. There are those clients who will expect that since times are tough, you must provide even more concessions; free or drastically reduced rates to keep them as customers. It’s almost never a good idea to buy a project just to have a job. Know which is the balance point of your company and which sectors and services obtain the most benefits. Anything less will possibly force your business to close.
Key 4: Contact existing and former customers for new contracts – The best source of new work is from existing or former clients. If you did a good job for them in the past, they will be more than willing to use your services again. Even if they have left with another engineer, they may want to rehire you. The new engineer may not have treated them so well. In some cases, customers may have lost their contact information. In this case, they will be delighted to hear from you again.
There is nothing better in business than satisfied customers. This is the main marketing tool used in the engineering profession. Losing customers to other engineering companies means an immediate loss of revenue and can only be recovered by finding new customers. To find new customers, you will have to set aside additional funds to market them, which will further reduce your bottom line. Your existing clients can increase your income by awarding you new projects or helping you find new clients.
They may be so satisfied with your performance that they may not have realized that you need additional work. Your clients know other people in the same industry who may also be dissatisfied with your professional designers. Your customers will be your best marketer. When your references call you, they are already convinced of your company’s skills and services. In some cases, your clients may be a company so large that they require the services of several engineering companies. If they really like your performance, they may give you a higher proportion of their available jobs. The best source of new work is always through your existing clients.
Key 5: Keep your promises – Clients expect the engineer to provide all services as stated in the contract. This is why the proposal is so important. The services to be provided should be as explicit as possible, and every effort should be made to rephrase any vague language. In addition, a section of the proposal should include what is expected of the client. Before signing the Agreement, make sure that both you and the client understand what is expected of both parties. If the client believes that you are going to provide a service that is not in the contract, it can cause serious problems later on and can cause the client to be unhappy and unwilling to work with you. Whether the economy is in good times or hard explicit language in the contract is extremely important.
Most engineers have excellent technical skills, but not necessarily the same level of management experience. It is the responsibility of the engineer to develop these management skills through continuing education. This training can be obtained through community colleges, universities, professional training programs, professional organizations, and online training courses. In most states, these continuing education courses qualify for Continuing Education Units (CEUs) or Professional Development Hours (PDH).
In Part 2, we’ll look at five more strategies you can implement to increase your income and profits. Managers are often asked to make difficult decisions that can affect the size of the support staff, having a list of other strategies that do not require cutting staff may be the difference between a good manager and a bad manager.