Sales AND Profits: A Winning Strategy for Service Businesses

When I attend contractor based conferences I will sit in on various training sessions with strategies on how to take your business from $500,000 to $3,000,000 in sales for example. 

Sometimes at the lunch table I listen in on discussions on the same topic. Where are you marketing, do you have employees or subcontractors, how are you growing your sales?

Don’t get me wrong, celebrate sales but not only sales! Sales are critical for business success and cash flow. But profit and cash flow are not the same. Yes you need them both but for different reasons. Sales is the amount you collect from your customer. Profit is the amount your company keeps after expenses are paid on a project. Cash flow is the money coming in and the money going out each month.

Now, if you are doing cost based estimating this should be all set, right?

It is very simple to see the sales that have been generated by project totals or invoice totals and maybe your software even has a nice graph of monthly sales on the main dashboard. But here are a couple of questions:

• Are you budgeting hours on each project?
• Are you tracking the worked hours on the project for each employee?
• Are you tracking the materials used in each phase of the project, per the cost based estimating planning guide?

Now if I see that sales graph in my software and in April I sold and completed $500,000 worth of jobs. I am sitting back with my hands clasped behind my head with my feet up on the desk feeling proud.

Perhaps what is missing from this proud moment is the fact that the $500,000 in jobs in April were completed at a cost of over $495,000 to the company. Perhaps it included a cost of 40 man hours lost in that month due to miscommunication about project status. On May 1st you look back and your gross profit for the month of April was less than $5000. 

Maybe there were some lost days of productivity due to your crew going to the wrong location or because a $5 part to complete the bathroom renovation needed to be shipped overnight to the site at a cost of over $100 to you. This lost part for the bathroom then put your finishing crew on the project behind by a day. Your estimate included $5 for material but not the cost of the overnight shipping. So your overall costs are absorbing that additional shipping. 

Less than $5000 in gross profit in a month may not leave much room for the capital improvements that were planned or the equipment that keeps breaking down and needs replacing. 

• Being organized to keep with the planned time-line and keeping the project budgeted hours in line is a key to profitable projects. 
• Scheduling your crews effectively is essential to happy customers and a happy bottom line. 
• Organizing the materials needed for each phase of the project is also essential (mostly to keep the schedule efficient).

The main focus is too often just on how much is sold and not the profitability of what was sold. Once the Sales machine is working well, you need to focus on operations if you want long term success. Tracking worked hours on a daily basis and regularly entering expenses will help with your peace of mind that projects are going to be profitable.

Software tools like Estimate Rocket can help you track your profit margin for a project, both estimated and actual. Estimate Rocket can also track your employee hours, material expenses and sub expenses in real time to let you look at real job progress. Being able to manage and schedule your team is also a key to this success. 

Remember, saving from optimizing your operations by eliminating unnecessary material costs and maximizing the utilization of your team members will fall directly into your bottom line and you can feel that in your pocket!!