Profit is a Good Thing

I frequently receive e-mails seeking my thoughts on profitability and pricing. I have been receiving more of these questions lately as competitive pressures are forcing prices down. In fact, many remodelers and custom builders are taking work where there is no profit. They figure the revenues will cover some of their overhead, so why not?

The problem with losing money on projects is once you do it, you are likely to do it again and again. If your business continues to lose money on projects, pretty soon you don’t have a business.

If there is one thing I have learned in 35 years of business, there is no shame in making a profit. Profits let you grow your business, hire quality staff and pay them what they are worth. Profits let you invest in training and education so you can do your job better. Profit is a good thing.

Yes, I have had to trim my prices, but it just does not make sense to incur a loss on a project. This means knowing when to say no and walk away from a project, no matter how painful that may be. But more importantly, it means knowing how to sell (yes, sell) the client on the value of your expertise, so that you can get a fair price. A key component of that is becoming immersed in your client’s life, so you can point out things the client might not see.

For example, I recently engaged a client who lives in a two-story condominium in downtown Chicago. After meeting with the client, it was obvious that she liked to entertain, but that something was amiss at her parties. Her main concern was that people were not interacting.

So I asked to be invited to one of her parties. My client was delighted that I would take the time to do this, and was more than happy to include me.

What became very apparent was that my client’s guests were divided into two distinct groups. Not two social groups choosing to ignore each other, but two groups separated because of the design of the existing floor plan.

The problem: a 6- by 25-ft. balcony that bisected and separated the living room and dining room. This balcony became a physical and social barrier. It is human nature that if people in one area do not have easy access into another area, they will stay where they are.

The next time I met with my client, I told her what I observed. My solution: Enclose the balcony as living space, thus eliminating the barrier and encouraging the flow between the living room, dining room and kitchen. The additional living space also would serve as an overflow dining room for formal occasions. My client was delighted with this idea. Even though she did not like losing the balcony space, she understood how it would enhance interaction during parties.

It’s easy to say, “enclose the balcony,” but harder to bring to reality. First, the unit was in a condominium building, so we had to get approval of the other owners.

Second, we needed to ensure that adding another 150 sq. ft. would not push the FAR for the building over the maximum. We spent time refiguring the entire building based on the building “as-builts” and determined we were within the maximum allowable square footage.

Once these issues were resolved, I designed the new space. We infilled about 90 percent of the balcony and converted that into usable living space. We redesigned the lighting and selected a compatible floor material that set off this space but still flowed with the design of the balance of the apartment.

So in the end, my client was ecstatic. She appreciated the value my experience afforded, as well as my willingness to go the extra mile and come to her party to observe the entertainment experience firsthand.

And I now have a happy client and great reference. Did I make as much money as I would have in a better economy? Possibly not. But because of the value I provided, and the fact that I was able to sell that value, I was able to get a fair price and make a profit.

Quote of the Month

“Most people are afraid to ask for feedback because they are afraid of what they are going to hear. There is nothing to be afraid of. The truth is the truth. You are better off knowing the truth than not knowing the truth. Once you know it, you can do something about it.” — Jack Canfield, co-creator of Chicken Soup for the Soul.

Note: I am also proud to tell you that I have formed a new company, Michael Menn, Ltd. We are a single source for architectural and construction excellence for residential and commercial properties. My new phone number is (847) 770-6303, and my new e-mail is michael@michaelmenn.com.

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