40 Ways to Increase Your Profit

The shelves are full of business books offering advice for improving your bottom line, but to our mind, no one knows the remodeling business better than remodelers, themselves. That’s why we turned to our readers for their suggestions for how contractors can improve their profits without simply raising the prices they charge their clients.

About 100 readers responded to our online survey, providing their margin-boosting ideas. The responses we received tended to focus on ways remodelers can improve their businesses in five distinct ways: financial management, operations management, marketing management, project management and employee management.

We’ve collected the best 40 of these ideas below. We’ve combined and refined some of these thoughts, but our readers were the source of all of them.

"By locking subcontractors into a fixed price, you transfer some of the project risk off of your books.”

Financial management

1. Educate yourself.
“Far too few take the time to learn basic business skills,” said one respondent. Another believes that owners should understand financial concepts to the level of a junior accountant, with the ability to read and interpret profit-and-loss statements, balance sheets and job costs on a monthly basis.

2. Know where your money is going.
“Know what your true cost of doing business is,” urges one respondent. Specifically, another participant suggests developing a history of all your costs, and then looking at those figures as percentages so you can develop realistic profit margins. When costs go outside those margins, you’ll know why.

3. Re-examine ‘fixed’ costs.
By following the first two suggestions, you can gain a better idea of the impact insurance, healthcare and other overhead expenses are having — and what to look for when renewals come around. All these costs may be tax deductible, but, as one respondent notes, “so many let deductible costs get out of hand, thinking that the tax benefits will magically pull them out of bad cash flow.”

4. Base estimates on real costs
— not ballpark figures and back-of-a-napkin addition. Spend a little extra time going over your take-offs and double-check your numbers, and don’t forget the costs and time involved with deliveries, set-up and take-down.

5. Learn from your mistakes.
One respondent conducts “job autopsies” to look for production slippage and to compare estimates to actual costs. With this knowledge, you’ll be able to create more realistic — and profitable — proposals for future clients.

6. Pay your bills on time.
This one seems like a no-brainer, but it’s easy to let cash-flow worries make you late on your payments. However, as one reader notes, not only will meeting those due dates eliminate potential fees and rate hikes, but it also could gain you discounts from some supply houses.

7. Get off the credit treadmill.
One respondent has moved from business credit cards to business debit cards. If you have the cash capability, this move helps ensure your company isn’t living beyond its means.

8. Negotiate with suppliers.
Check to see if early-payment discounts are available, and be sure to check prices from other sources. Also, investigate group purchases with other contractors, to take advantage of possible volume discounts.

Operations Management

9. Reduce waste.
Develop a warehouse space to store leftover products at a project’s completion. Maintain an inventory so you know what you have, and check things in and out as they’re stocked and used. Also, don’t throw away nails or materials over 16 in. — having these on hand when you need them can save time and money.

10. Use less gas.
Bundle jobsite visits and reduce the number of material runs by making sure trucks are stocked. One respondent is putting the maximum number of passengers into company vehicles and only filling tanks when the price of gas is low — otherwise, they only buy the gas they’ll need for that day.

"Understand the kind of work you do best and where those potential clients are located.”

11. Let someone else do the driving.
Use the Internet or the phone, not a company car, to check out suppliers’ offerings and prices, and take advantage of any free delivery services your suppliers might provide. Such moves save time, a commodity that remains more valuable than gas.

12. Follow up.
Don’t take delivery dates or subcontractor start dates for granted. One respondent calls a day or two before planned deliveries or arrivals — “just like your dentist does.” These extra nudges keep projects on schedule.

13. Use more subs.
By locking subcontractors into a fixed price, you transfer some of the project risk off of your books. “An iron-clad change-order policy makes this work,” says the contributor of this suggestion.

14. Do more yourself.
As an alternative to the above suggestion, another reader is increasing his company’s profits by reducing its dependency on subcontractors, noting that “adding painting to our scope of work has expanded our part of the job.”

"Join a local trade association to build relationships with industry peers — this can be a great source for referrals, as well. ”

15. Invest in relationships.
Take time to meet with every inspector. As one reader notes, “there are a lot of delays in permitting and re-inspections,” and being on-site at the time to personally answer questions or suggest alternative approaches could keep small problems from growing.

16. Get educated.
Use the time freed up by slower business conditions to invest in training for you and your star workers. You could learn new ways to boost your business now, and be in a better position to lead the pack when the economy gets back on track.

Marketing Management

17. Know your market.
Understand the kind of work you do best and where those potential clients are located. Then focus your efforts on getting that business. As one reader says, “The farther you get from your target market, the less likely you are to close the sale.”

18. Mail it in.
Using a regular e-mail or print newsletter to stay in touch with both potential and existing clients keeps your name fresh in their minds. One reader says he regularly earns at least $1,000 every time he sends out his regular newsletter, which covers information on recent projects and industry news that could help existing customers.

19. Learn to upsell.
Higher grade materials can mean higher margins. One reader’s suggestions include promoting nickel hardware over brass, high-efficiency window glass over standard, heavier gauge steel in doors and 3 1/4-in. casing instead of 2 1/4-in. Focus on the benefits of these items over less expensive options.

20. Look for add-ons.
Taking on other projects while you’re already in the house can cut your costs and increase client satisfaction. One reader makes sure his carpenters have change orders on-site to make margin-boosting upgrades. Another spells out this flexibility with a clever byline — “…because one thing leads to another.”

"Stay in close touch with your clients after projects begin. You will need their input on progress and quality.”

21. Leave your customers happy.
Good word-of-mouth recommendations are your cheapest and most effective advertising, so make sure your clients are happy before you send the bill. Then ask if they’d be comfortable giving you referrals. One reader offers $200 for referrals that lead to work, tapping his advertising budget for the reward.

22 Get involved.
Join a local trade association to build relationships with industry peers — this can be a great source for referrals, as well. Similarly, another reader urges contractors to get involved in local chamber of commerce groups to get your face and name out into the community.

23 Team up.
Explore creative co-marketing opportunities with other construction professionals in related trades. For example, one respondent specializes in cabinetry and has joined forces with a local flooring business; the cabinetmaker now has display space in the flooring company’s retail shop and both get the benefit of any single potential customer’s visit.

24. Set yourself apart.
If you or your workers have the skills, expand your custom offerings. Doing your own millwork, providing design services and offering unusual products that can’t be found at the local home-improvement warehouse store will help you create a niche that’s less susceptible to periodic downturns.

Project Management

25. Aim for zero.
Zero punch, that is, as in a non-existent punch list. Get your entire production team onboard with meeting this goal and, one respondent says, you’ll increase efficiency and create good working conditions for your subcontractors by giving them more opportunities to reduce cost and build future business.

26. Build your value-engineering skills.
Once you’ve got the project, go over the details once again to see what simple adjustments could reduce installation labor needs and lower overall project costs. Share the savings with your customer, says one reader, “but reward yourself for your experience.”

27. Communicate.
Stay in touch with your client once the project begins to get their input on progress and quality. Also, once the project is signed, meet with your designer and project manager to review all orders, to protect against overlooked items and duplications.

28. Know what you’re getting into.
In remodeling, a thorough understanding of existing conditions is critical to maintaining schedules and margins. Take time upfront to study the current structure and systems, and you’ll save labor and aggravation in the long run.

29. Plan for success.
“It all comes down to planning — right down to the last nail,” says one reader. Once the schedule is in place, follow it at all costs. As a second respondent says, “Every day on a job is money.”

"If you can condense three four-month jobs into three three-month jobs, you can have one more job in the year.”

30. Protect yourself against change orders.
Make sure you’ve clearly outlined project scope, and then don’t be afraid to charge for changes. Include a time-and-materials clause in every contract to cover unexpected or extra work.

31. Stage it.
When you’re setting up for a job that will last for more than a couple days, gather all the tools you’ll need in a lockbox on-site, and have your materials close at hand. Preparing ahead of time will keep the project on schedule once work begins.

32. Work faster.
“If you can condense three four-month jobs into three three-month jobs, you can have one more job in the year,” says one respondent. “In a perfect world, this would increase your bottom line 33 percent.”

Employee Management

33. Treat employees as an asset, not a commodity.
The current slowdown may mean a bigger employment pool to draw from, but that doesn’t make experienced and loyal workers any less valuable. Turnover and training cut productivity and project quality, so maintain fair pay and practices to keep your operation humming.

34. Keep workers in the loop.
Make sure your employees understand every project’s plan, including the number of hours budgeted for their efforts — and then hold them to that schedule. Workers who finish up more quickly could gain a reward.

35. Don’t forget the subs.
They might not be on your payroll, but you still want them on your side. As one reader notes, “They are more apt to do a few things for me at no charge because I really take care of them.”

36. Get them out of their comfort zone.
Encourage employees to explore more efficient approaches to their tasks, instead of relying on their standard way of doing things. Again, if new methods speed completion or improve quality, a reward is in order. “This could be as simple as a pizza coupon,” says one reader.

"Figure out what you do that turns dollars, then delegate the rest.”

37. Make sure they make the grade.
With work slower for many remodelers than it was even a year or so ago, many are looking at cutting payrolls. Now can be a time to evaluate performance and remove those employees you may have thought you were too busy to do without — this means judging on performance, and not making simple last-hired/first-fired decisions.

38. Learn to delegate.
“Figure out what you do that turns dollars,” says one reader. “Then delegate the rest.” This approach will make you more valuable to the business, and boost your employees’ experience — and value — as well.

39. Make sure you’ve got the right person doing the right job.
One respondent makes sure to use lower-cost labor for things like cleanup and setup, rather than a more expensive lead carpenter. “Almost every job can use a ‘go-fer,’ ” this reader notes.

40. Don’t forget to supervise.
Be sure to have an employee on-site who’s capable of supervising and addressing possible problems. As one reader says, “On-site management — and the resultant communication with the office — is invaluable for cash flow and profit.