Are you having trouble making 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. Many companies choose to focus on a few things to increase profits, increase work load or decrease staff. You can also try other strategies to achieve similar results.
A typical engineering company strives for a profit of between 10 and 15% after expenses include salaries. These margins can be reduced by a very competitive market or a drop in demand for engineering services.
Many companies have reduced their fees in response to the current market. But is this really the right solution? Every engineering company knows there are some expenses they cannot avoid. There are many expenses that must be paid, including staff salaries, business licenses and professional licenses, insurance for business, professional and office expenses, as well professional licensing and business insurance. A good understanding of the company budget can allow for adjustments that will help retain some revenues.
Here is a list highlighting the top five strategies to increase your company’s profit without cutting staff.
Key 1: Increase Service Fees - This may sound a little counter intuitive right now during a recession, but a small increase can have a significant impact on your profits. Let's take an example. Your company has a service that costs $1000, with a profit margin (10%) of $100. If you increase the fee by 5% ($50), your profit would increase by 50% ($150). The fee increase will not be noticed by your clients but can be very noticeable in your company's Profit And Loss Statement.
Key2: The workload determines company size. - An engineering firm should have both permanent staff as well as independent contractors. Depending on the work load, the number of independent contractors required can vary. Outsourcing is the term for hiring independent contractors or sub-consultants. Only permanent employees should be those who are absolutely required. Outsourcing allows a company to restructure in order to handle many new contracts when times are good, and then decrease the number contractors when contracts are scarce or difficult. As an example, one or two CAD Developers could be hired as permanent employees. Then there would be a pool of independent contractors who can assemble CAD Operators.
In recent years the federal government has really cracking down on who is an independent contractor. Independent contractors are in business for themselves and are able to obtain work from numerous sources. The government will not approve of the arrangement in which an independent contractor has an office within your company. Any questionable agreement should be discussed with your tax advisor.
No Focus on Sektors with Very Low Profit Margins. While it is possible for companies to take on more work in times of economic hardship, your marketing efforts should not be focused on those industries that contract with the most expensive firm. 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. It is usually not worth it to pay for service fees in sectors that negotiate. The job is not yours. Clients may expect that, because times are tough, you will make even more concessions. You can offer them free or significantly reduced fees to keep their business. It is not a good idea to buy a project simply to get work. 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.
Key 4 - Contact Previous and Existing Clients for New Contracts. This is the best way to find new work. 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. The new engineer may have not treated them as well. Clients may have lost their contact information in some cases. In this instance they would be glad to hear from you again.
Happy clients are the best kind of client for any business. This is the most important marketing tool in the engineering industry. Losing clients to other engineering firms, means an immediate loss in revenues and can only be regained by finding new clients. To find new clients, you will need to set aside additional funds for marketing them. This will further lower your bottom line. You can increase your revenue by having existing clients help you find new clients or award you new projects.
They might be so pleased with your performance they do not realize that you require additional work. Your clients know other people in the same industry who maybe also dissatisfied with their professional designers. Your best marketer is your clients. When their referrals call you they are already sold on your firm's abilities and services. Sometimes clients have so many engineering firms that they require the services multiple engineering firms. You might be offered a greater share of the jobs they have if they are satisfied with your performance. Your existing clients are always the best source of new work.
5: Keep Your Promises- Clients expect that an engineer will perform all services described in the contract. This is why the proposal is so important. 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. Make sure you both understand the terms of the Agreement before you sign it. If the customer believes you are to provide a service that is not in the contract, may cause serious problems later, and may cause the client to be disgruntled and not willing to do any more work with you. It doesn't matter engineering works whether the economy has been in good times or not.