Where builders go to grow their business.

How Builders Lose Money By Scaling Up

To grow a building company you need to advertise. But what happens when you advertise a business that is losing money?

The answer is simple, you lose even more money!

Let me ask you a question, is your business making money?

 

Before you answer that I need you to think carefully…

 

How much are you taking out of your company in wages?

 

I mean really taking out. Not just that figure the accountant told you to show the taxman each month, I mean EVERYTHING. The bit you draw at the end of the year end, the bit you take out as you need it…EVERYTHING.

 

The reason I ask is in our experience of dealing with hundreds of builders the first number they tell us is $30k-$50k. But when we dig deeper it ALWAYS comes out $130k-$150k!

 

Am I ringing any bells here?

 

It doesn’t matter what you are taking out but be honest with yourself, if you are drawing $50k in wages but taking the $100k net profit the company makes in order to live, then your wages are $150k. Simple.

 

The problem in this example is the company is not making a profit. And in our experience building companies with sales of under $3m a year are either not making any money or are actually losing money.

 

So here is my question, “Why would you advertise a business that is losing money? If you are losing money on sales of $1m a year what happens when you grow that building company to $2m?…

 

YOU LOSE EVEN MORE MONEY!!

 

Don’t believe what the so called experts tell you about the economies of scale…This is the building industry, those rules don’t apply to us!

 

If you scale up the operations in a factory you get economies of scale because the rent remains the same and productivity can be improved with machinery…

 

But for builders, expenses scale up disproportionately in relation to sales. A building company simply does not scale up like a normal business. So if you advertise a building company that is not making money, the additional sales will result in heavier losses!

 

That’s why marketing is not a silver bullet, you need a strategy.

 

Here’s what I need you to do right now.

 

Look at your figures for the last financial year. What are your real wages? The amount you need to live on. As a guide, you need to be covering all of your outgoings, tax and be saving or investing 30% of the total. That’s when you know you are putting down a realistic wage.

 

If you are showing $50k in your accounts but a realistic wage is $150k then add $100k to your expenses.

 

So what does that do to your net profit?

 

Are you still profitable?

 

If the figure starts with a minus you are losing money, so seek assistance from construction industry experts like the Association Of Professional Builders.

 

If it’s a positive number, Congratulations! You are on the right track. But there is still more to be done, your next target is to get your net profit up to a minimum of 10%.

 

Are you there yet? If you’re not, you need to make changes to your business starting with how you price your jobs.

 

if you are not achieving a 10% net margin then you are probably not using the Pricing For Profit Formula when quoting jobs.

 

We have created a full training course that will help you so make sure you click here to enroll.

 

 

 

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