Monday, December 8, 2014

Are You Chasing Deals?

I have to be honest. I'm seeing a lot of contractors chasing deals. These deals are promises of work if they can beat the price. To me, that is a losing proposition.

In my 40 odd years of being a contractor, I too in my early years, fell into the trap of chasing the deal. I learnt quickly, deal chasing is a losing proposition. You see, only the owner wins the deal.

Let me ask you a question.

Have you ever, agreed to beat the price to get the job, lose money, and years later when the owner sells the project for a profit, have him call you up and tell you he has a check for your share of the profit he made off of you doing the work for nothing?

I doubt it.

The truth is, they put the profit in their pocket and move onto greener pastures.

So, why does this happen?

In some cases, it is desperation. Needing a job to produce cash with hopes it will buy you time or profit. That is not the way to run your business. That is an act of desperation.

In other cases, it is ignorance. Ignorance of knowing what the meaning of the value of what you are selling, or the value in money to your business.

I was had a very smart surety agent tell me that "All the work in world for nothing still adds up to nothing. Volume doesn't make up the difference!'

Here is what I know.

I get to work with hundreds, if not thousands of contractors over the last 20 years or so. I've seen countless financial reports and performance reports for these contractors. I can say without a question, the majority do not know their financials, how to use them or how to correct them. And almost all, told me that they did know them. That is the common underlying factor. You see, they thought they did.

The other flip side of the coin is, those that did not allow their ego to get in their way, were willing to do the work, and made massive improvements and profits just with a great working knowledge of their financials. They completely turned their business and lives around for the better.
However, let’s return to the why does this happen.

I said earlier that it either was chasing a deal for desperation, or ignorance of not knowing the value.
They are both correct, because one leads to another. 

Let me explain.

If you do not sell the value of your services for the right amount of money, manage that money correctly, you are forced into desperation. You can't even be desperate unless you don't have the money, correct?

Therefore, you must understand the value of money and its worth to you and your business first.
And that, brings us to a basic and common problem. Most contractors are using either a bogus or wrong markup. In other words, what they sell the job for isn't enough to cover their costs and make them money to begin with.

This leads me back to something I've learned from working with so many. If you do not have a working knowledge of your numbers, you have no way near a working markup rate.

To correct this, you need to grasp a better understanding of your numbers and your markup rate.

No comments:

Post a Comment