Financial Mistakes Contractors Must Avoid
There is always a demand for contractors that provide home services like remodeling, construction, and disaster restoration. Contractors of all types depend on generating good leads to get business and it is important for contractors to convert leads into jobs to grow the business and increase their bottom line. However, poor business management and financial mistakes can negatively impact the bottom line and get businesses into trouble, even when generating good leads.
Contractors know that generating good leads is half the battle. Making financial mistakes and poorly managing the projects once you convert your leads negates this effort and makes it difficult to generate revenue. In this guide, we will discuss the top project management and financial mistakes that contractors make that can negatively impact their business. Avoiding these mistakes will help you maximize the profits you make from your converted leads so you can increase your revenue and grow your business.
If you need help generating good leads for your disaster restoration business, RestorationMaster can help with our lead generation services.
Biggest Business Management and Financial Mistakes
Every contractor runs their business differently, but there are common mistakes that any contractor can make that will affect their bottom line. When your business works on converting leads, you must make sound financial decisions when it comes to estimates and projecting the cost of your services so that your work is profitable. You must also ensure that you deliver with quality, efficient services while keeping your costs under control.
The following are the main mistakes contractors must avoid:
Poor Project Management
When it comes to restoration, remodeling, and other similar projects, it is easy for the costs to get out of control without effective project management. When planning a project, you need to manage the budget effectively to avoid high costs that will cause you to lose money. There is always a risk of running into an unanticipated problem that will cause setbacks and increase costs, but with effective project management, you are better able to handle the unexpected without too much cost to you.
The following tips will help you improve project management and control your costs:
- Put the specific steps of your plan in writing for your customer, including the date you expect to be finished, so they know exactly what to expect.
- Make sure your customer understands that changes will be made if you encounter an unexpected issue.
- If your customer requests a change, refer them to the plan and explain how their request will impact the final cost and timeline.
- Keep open communication with your team to ensure that they understand the deadlines and what needs to be done.
Following these steps to better manage your projects will help ensure that the investment of your time and resources yields a profit.
Mistakes with Job Estimates
Contractors are most likely to lose money with how they estimate their projects. Many contractors make mistakes when it comes to valuing their services and factoring in things like labor costs and the cost of materials which ultimately leads to them buying jobs instead of selling them. Avoiding the following mistakes when providing job estimates will save your business from losing money on your projects:
Many contractors may undercharge for their services for a couple of different reasons. One reason a contractor may lowball the cost of their services is because they are just taking a guess at what their services will cost without accurately determining the cost of labor and materials or the time it will take. The other reason contractors offer low estimates is because they want to secure the job and believe they can do it on lower budget.
If you end up going overbudget after a low estimate, you will have to complete the project with your own money and take a loss. If you complete the project within the low budget, you may compromise the quality of your work by spending less on labor and materials. It is important to offer a fair and realistic estimate right away to avoid taking a loss.
Not Balancing Markups
The overall estimates you provide consist of several categories of costs required to complete the project, such as labor and materials. Each of these categories will also have a markup to ensure a profit. It is important to understand how each markup impacts your gross profit so that you can determine the markups for each category without negatively impacting your profit. There should be a balance between markups to get the required gross profit. For example, if you lower a markup in one category, you should increase the markup in a different category to make up for that loss.
Excluding Non-Productive Time in Labor Rate
Labor cost is an important part of an estimate for a project. You must make sure you use the right labor rate to cover the cost of labor for the project as well as the pay for your employees for non-productive hours.
The mistake that many contractors make with labor rates is only factoring employee wages and the paid payroll taxes of the employer against the projected costs and budgets of the job. However, taking only these factors unto account will undervalue the true labor cost. You should also account for employee benefits, non-productive time, and workers compensation insurance when estimating labor costs. Even though these costs occur outside the scope of individual projects, they should still be accounted for in billable hours for projects as these costs are necessary to retain your workforce.
Not Considering Costs of Materials at Time of Project
The cost of materials is another important factor in job estimates. All contractors must keep in mind that the cost of materials will increase as time goes on and this needs to be accounted for in their estimates. For example, if you provide an estimate for a project that will start in six months, you need to account for the projected cost of materials in six months when you start the project, not the current cost of materials. Otherwise, the increase in the cost of materials that you did not account for in the estimate will eat into your profits.
Inconsistent Lead Generation and Sales
As mentioned above, contractors of all types depend on a consistent flow of leads to increase revenue and grow their business. If you do not have a steady source of leads, your business could go weeks or even months without a job which can cause you to struggle financially. Continuing to generate good leads and keeping your sales pipeline full will help you close on more jobs so you can move on once you complete a project.
Lead Generation Services from RestorationMaster
Getting quality leads is already a challenge for many contractors. Once you convert your leads, it is very important to avoid costly mistakes that will impact the profitability of your projects. Following the above mentioned tips to improve project management and ensure estimates that accurately account for the time, labor, and materials needed to complete a project will help you provide quality work while increasing your bottom line.
Contractors cannot expect to close on profitable projects without first generating quality leads. RestorationMaster is a lead generation service provider that offers quality leads for contractors in the disaster restoration and cleaning industry. We work with restoration contractors to generate quality leads through our highly optimized, geo-based website to connect contractors with those looking for their services within their territory. The leads we provide are exclusive and sent directly to you, so you do not have to compete with other contractors for the same leads.
You can call us at (888) 846-1992 to learn more about how we can help you grow your business with effective lead generation marketing.