Are you finding it hard to earn a profit? Are your expenses devouring your revenues? Companies, including engineering firms and professional service providers, are constantly struggling to make profit. The vast majority of expenses for professional services companies are labor related. This is why most companies opt to do a couple of things to increase their profit or increase their work load. There are other strategies that can achieve the same effect.
A typical engineering company aims to achieve a profit between 10 and 15 percent after taking out all expenses, including salaries. These margins can be reduced by a very competitive market or a drop in demand for engineering services.
While many companies are trying to reduce their fees due to the current market, is this really the best solution? Every engineering firm knows that certain expenses cannot be avoided. These expenses include staff salaries and professional licenses. You can make adjustments to the company budget to keep a certain percentage of the revenue.
Below are five key strategies to increase profits in your company without having to cut staff.
Key 1: Increase Service Charges. While it may seem counterintuitive now, during times of recession, even a small increase in service fees can have a major impact on your profits. Let's take an example. Your company has a service that costs $1000, with a profit margin (10%) of $100. Your profit margin would be 50%, if the fee was increased by 5% ($50), or by 50% ($150). Although your clients won't notice the slight increase in fees, it could be noticeable on your Profit and Loss Statement.
2: The Workload Determines the Company Size Your engineering company should have both permanent staff and independent contractors. The number of independent contractors can vary depending on the workload. It is possible to hire independent contractors and sub-consultants. This is called out-sourcing. Only permanent employees should be those who are absolutely required. Outsourcing allows the company to restructure to handle a large number of new contracts when the times are good and then reduce the number of contractors when there are fewer contracts during poor economic conditions. A good example of this is to have CAD Designers on staff and then a pool CAD Operators who are freelance contractors.
In recent years, the federal government really cracked down on independent contractors. Independent contractors run their own businesses and can get work from many sources. The government will not approve of the arrangement in which an independent contractor has an office within your company. You should discuss any questionable agreement with your tax advisor.
Key 3: Do Not Focus on Sectors with Very Little Profit Margins. Although companies may need to accept whatever comes their way during tough economic times, it is important not to focus your marketing efforts in those areas that have the lowest profit margins. Engineering firms and professional services firms shouldn't compete solely on price. A good engineer can save a developer thousands or even millions of money, which will usually be far more than the fees. Sectors that try to negotiate their service fees are often not worth the cost. You don't buy the job. Clients will expect that you make concessions to them in times of difficulty. They may ask for reduced or no fees to continue being your client. It is almost never a good thing to just get work on a project. You should know what your breakeven point is for your company and which sectors or services generate the highest profit. Anything less than this will make it impossible for your business not to close.
4: Call Existing and Past Clients to Get New Contracts. The best source for new work is existing clients or past clients. If you have done a great job for them in the previous, they are more likely to return your services. Even if their previous engineer was less than satisfactory, they may choose to contract with your services again. It is possible that the new engineer has not treated them as well. Clients may have lost their contact information in some cases. Clients may lose your contact information in these cases.
Client satisfaction is the best marketing tool in business. This is the engineering works foremost marketing tool used in the engineering profession. In order to recover lost revenues, you must find new clients. Finding new clients will require you to invest additional funds in marketing them. This will reduce your bottom line. Your current clients can help increase your revenue by either assisting you with finding new clients or by awarding you new projects.
They may be so satisfied with your performance that they may not have noticed that you need additional work. You may be able to refer clients to other professionals in the same field who might also be dissatisfied with your professional designers. Your best marketer will be your clients. When their referrals call you they are already sold on your firm's abilities and services. In some cases your clients may be so large a firm that they require the services of several engineering firms. They may offer you a larger percentage of their jobs if you impress them. Your current clients are your best source of work.
Key 5 - Deliver on Your Promises Clients expect the engineer to provide the services stated in the contract. It is important to have a proposal. The services to be provided should be as explicit as possible, and every attempt should be made to restate any vague language. A section of the proposal should also include the expectations for the client. Before you sign the Agreement, make sure both the client and you understand what each other expect. A customer who believes that you are obliged to provide a certain service is likely to cause major problems and cause client dissatisfaction. It doesn't really matter if there is good economic news or harsh explicit language in your contract.