Are you struggling to make a profit in your business? Are your expenses devouring your revenues? Even professional service firms such as engineering struggle to make money. The majority of a professional service company's expenses are labor related. Many companies choose to focus on a few things to increase profits, increase work load or decrease staff. There are many other strategies you can use to achieve the same result.
An engineering company typically strives to make a profit of 10 to 15% after paying all expenses, including salaries. These margins can drop if the market is very competitive or there is a substantial drop in engineering services demand.
Many companies are looking to cut their fees, but this may not be the answer. Every engineering firm understands the importance of paying certain expenses. Staff salaries, professional licenses, business and professional insurance, as well as office expenses are just a few of the many costs that engineering firms must pay. It is possible to adjust the company budget in order to keep some of the revenue.
Below are five key strategies to increase profits in your company without having to cut staff.
Key 1: Increase Service Charges. While it may seem counterintuitive now, during times of recession, even a small increase in service fees can have a major impact on your profits. Let's take an example. Your company has a service that costs $1000, with a profit margin (10%) of $100. Your profit margin would be 50%, if the fee was increased by 5% ($50), or by 50% ($150). Although your clients won't notice the slight increase in fees, it could be noticeable on your Profit and Loss Statement.
2: The Workload Determines the Company Size Your engineering company should have both permanent staff and independent contractors. The number of independent contractors can vary depending on the workload. It is possible to hire independent contractors and sub-consultants. This is called out-sourcing. Only permanent employees should be those who are absolutely required. Outsourcing allows the company to restructure to handle a large number of new contracts when the times are good and then reduce the number of contractors when there are fewer contracts during poor economic conditions. 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. Discuss any unsavory agreement with your tax advisor.
Key 3: Do not Focus on Sectors with Very Small Profit Margins - Although during a tough economy companies may be forced to take on what engineering company in Malaysia ever comes along, do not focus your marketing efforts on those sectors that constantly contract with the firm with the cheapest offer. The price is not the only thing that should be considered by professional service companies such as engineering firms. A good engineer can save a developer thousands or even millions of money, which will usually be far more than the fees. The cost of services that are negotiated is often not worth it. In essence do not buy the job. Some clients will expect you to make more concessions, such as offering a reduced fee or free services in order to retain them. It is almost never a good thing to just get work on a project. 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.
4: Call Existing and Past Clients to Get New Contracts. The best source for new work is existing clients or past clients. If you did a good work for them in previous years, they will most likely be happy to use your services again. Even if they have gone with another engineer, they may want to contract with you again. They might not be treated the same by the new engineer. Some clients may have lost contact information. Clients may lose your contact information in these cases.
Client satisfaction is the best marketing tool in business. This is the best marketing tool for engineers. The loss of clients to other engineering companies results in a immediate decrease in revenue. This can only be recovered by finding new clients. In order to find new clients you will have to sit aside additional funds to market them, which will further reduce your bottom line. Your existing clients can either help you to find new clients or give you new projects.
They may be so satisfied with your performance that they may not have noticed that you need additional work. You may be able to refer clients to other professionals in the same field who might also be dissatisfied with your professional designers. Your best marketer will be your clients. When their referrals call you they are already sold on your firm's abilities and services. In some cases your clients may be so large a firm that they require the services of several engineering firms. They may offer you a larger percentage of their jobs if you impress them. Your current clients are your best source of work.
Key 5 - Deliver on Your Promises Clients expect the engineer to provide the services stated in the contract. This is why the proposal has such importance. 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. Before you sign the Agreement, make sure both the client and you understand what each other expect. A customer who believes that you are obliged to provide a certain service is likely to cause major problems and cause client dissatisfaction. It doesn't matter whether the economy has been in good times or not.