Are you finding it difficult to earn a profitable business? Are your expenses devouring your revenues? Many companies, even professional service firms like engineering, struggle to make a profit. A majority of professional service firms' expenses are labor-related. This is why so many companies decide to do just one or two things to increase profit, work load, and/or reduce staff. There are many other strategies you can use to achieve the same result.
A typical engineering company strives for a profit of between 10 and 15% after expenses include salaries. Margins can be reduced due to a competitive market or a decline in market demand for engineering products and services.
The current market has driven many companies to lower their fees significantly, but is this really the answer. Every engineering firm understands the importance of paying certain expenses. 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. You can make adjustments to the company budget to keep a certain percentage of the revenue.
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 counterintuitive right now in a recession. However, a small increase can have significant impacts on your profits. As an example, your firm has a service which charges $1000 with a profit margin of 10% ($100). If you increase the fee by 5% ($50), your profit would increase by 50% ($150). While your clients may not notice an increase in fees, it can make a big difference on your company's Profit & Loss Statement.
Key 2: The workload determines the company size. Your engineering business should include both permanent staff members and independent contractors. Depending on the work load, the number of independent contractors required can vary. It's also possible to outsource. The only permanent employees are those that are absolutely necessary. Outsourcing allows the company the flexibility to restructure and handle large numbers of new contracts in good times, while reducing the number of contractors during difficult economic times. 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 are independent contractors who are self-employed and can obtain work from multiple sources. A contractor who is independent from your business but has a contract with your firm will probably be considered an independent contractor. metal fabrication malaysia Discuss any unsavory agreement with your tax advisor.
Key 3 - Don't Focus on Small Profit Margin Sectors - While companies might have to do more in a difficult economy, don't focus your marketing efforts only on the sectors that are most likely to contract with the company with the lowest price. Pricing should never be the only consideration for professional services like engineering companies. An engineer who is a good one can save developers thousands, if not even millions of dollars. This will often far outweigh the engineer's fees. Sectors that haggles the service fees are usually not worth the expense. 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 almost never a good idea just to get work. Find out what industries and services are most profitable and where your company is at break-even. Anything less will result in your business having to close.
Key 4: Contact Existing and Previous Clients for New Contracts - The best source of new work is from existing or previous clients. If they were satisfied with your work in the past, they may be willing to hire you again. Even if the engineer they used was not as good, they may still want to work with you. It is possible that the new engineer has not treated them as well. Sometimes clients might have lost their contact information. 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 foremost marketing tool used in the engineering profession. In order to recover lost revenues, you must find new clients. Your bottom line will be further affected if you don't have the funds necessary to market new clients. 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 are your clients. Their referrals will have already heard about your company and are ready to recommend you. Sometimes your clients are so big that they require several engineering firms. You might be offered a greater share of the jobs they have if they are satisfied with your performance. The best source of new work is always through your existing clients.
Key 5: Deliver on Your Promises - Clients expect that the engineer will provide all of the services as stated in the contract. The proposal is crucial. The proposal should contain as much detail as possible. Any vague language should be clarified. Also a section in the proposal should include what is expected of the client. Both you and your client should understand the expectations before signing the Agreement. It can cause problems for the customer if they believe you are required to perform a service not specified in the agreement. This could lead to dissatisfaction and make the client unwilling to work with you again. It doesn't matter if the economy is doing well or if the contract contains harsh language.