Are you finding it difficult to earn a profitable business? Are your expenses devouring your revenues? Professional service companies like engineering are struggling to make profits. The vast majority of expenses for professional services companies are labor related. Many companies have chosen to do one or more things to increase their profits: increase work load or reduce staff. 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. A very competitive market or a significant drop in the market demand for engineering services can drive these margins even lower.
While many companies are trying to reduce their fees due to the current market, is this really the best solution? Every engineering company knows there are some expenses they cannot avoid. These expenses include staff salaries and professional licenses. A good understanding of the company budget can allow for adjustments that will help retain some revenues.
Here are the top five key strategies for increasing your company's profits, without having to reduce 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. Your firm offers a $1000 service with a 10% profit margin ($100). Your profit would rise by 50% if you increased the fee by 5% ($50). 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. Dependent on the amount of work, the number and type of independent contractors needed can vary. Out-sourcing, also known as independent contractors or subconsultants, is also possible. Only those employees who are absolutely essential are permanent. Outsourcing allows the company flexibility to manage a large number new contracts, and reduce the number when it is difficult to find contractors. 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 decades, the federal government has made it very clear who is an independent contractor. Independent contractors operate independently and are able obtain work from many sources. Having an independent contractor sit-up an office within your business and only contract with your firm is probably not an independent contractor, and the government will seriously frown on this arrangement. Any questionable agreement should be discussed 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. Know were your company's break even point, and what sectors and services make the most profit. 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. They will likely return to you if they have done a good job in the past. Even if they have previously contracted with another engineer they might be interested in contracting with you again. They may not have been treated as well by the new engineer. In some cases, clients may have lost your contact information. In these instances, clients would be pleased to hear back from you.
Nothing is better than happy clients. This is the foremost marketing tool used in the engineering profession. You can't lose clients to engineering firms. It will cause a loss in revenue immediately. You will need additional funds to market your clients to find new customers. This will further decrease your bottom line. Your existing clients can increase your revenues by either awarding you with new projects or by assisting you in finding new clients.
They might be so pleased with your performance they do not realize that you require additional work. Your clients may know others who work in the same industry and are also unhappy with their professional designer. Your best marketer is your clients. Their referrals will have already heard about your company and are ready to recommend you. Some clients might require multiple engineering firms to assist them. 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.
Key5: Deliver on Your Promises The client expects that the engineer will fulfill all terms and conditions of the contract. This is why the proposal is so important. The proposal should engineering works contain as much detail as possible. Any vague language should be clarified. A proposal section should clearly state what the client can expect. 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.