10 Ways To Increase Your Contractor Business Revenue
To maintain a profitable business, you need to generate as much small business revenue as possible. Here are 10 tips for increasing your revenue as a home services professional.
No matter what type of service you provide, you want to run a profitable business. One of the first steps in generating a profit is bringing in as much revenue as possible. The following guide explains the difference between revenue versus profit and provides 10 tips for increasing small business revenue as a contractor.
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Profit Vs Small Business Revenue
Before you learn how to increase your revenue, you need to know the difference between revenue and profit. Revenue is the amount of income you generate from operations, while profit is the amount of money left over after you pay your expenses, including payroll, utilities, rent, and insurance. As you can see, it's important to control costs — otherwise, you could generate millions of dollars in revenue and have no profit left over at the end of the year.
Now that you understand the difference between small business revenue and profit, here are 10 ways to increase your revenue as a contractor.
1. Increase Your Prices
The easiest way to increase your revenue is to increase your prices. If you completed 60 projects per year at $3,000 per project, you'd generate $180,000 in gross revenue. Now imagine you increased your prices so that you billed $4,000 per project instead of $3,000. With the same 60 projects, you'd generate $240,000 in gross revenue, an increase of $60,000 — all without signing new customers or making any other changes to your business.
Raising your prices periodically also makes it easier to keep up with the rising cost of materials. The cost of raw materials is always a concern, but the COVID-19 pandemic triggered a series of supply chain issues that have many contractors wishing they’d raised their prices earlier. Steel, diesel fuel, aluminum, brass, and copper prices soared, making it much more expensive to operate a construction business. According to the Associated General Contractors of America, the overall price of construction materials increased by almost 20% in 2021. Lumber prices are also at historic highs, prompting general contractors and carpenters to charge more for their services.
If you decide to raise your prices, give customers plenty of notice. Most people understand that the cost of labor and materials increases each year, but they don't want to be blindsided by a price increase that goes into effect in a matter of days. Let customers know a few months ahead of time so they can budget for your services.
2. Improve Efficiency
The more efficient you are, the more projects you can complete each month. In this context, efficiency means using the lowest amount of energy, effort, and/or materials possible to complete a project. As a contractor, there are many ways to improve efficiency without sacrificing quality:
- Delegate simple tasks to inexperienced employees, leaving skilled workers free for more complex tasks.
- Prioritize effective communication to avoid misunderstandings that can increase waste or force employees to redo portions of their work.
- Set clear goals to ensure everyone's on the same page.
- Eliminate unnecessary tasks.
- Employees should be able to focus on revenue-generating activities.
3. Purchase New Equipment
If you're using outdated equipment, your business probably isn't as efficient as it could be. To increase your small business revenue, replace manual tools with power versions or purchase machinery capable of increasing your output. If you're on a tight budget and can't replace everything at once, start with the equipment you use most often.
4. Attract New Customers
Attracting new customers takes a little effort, but it's a great way to increase your revenue. Imagine you have 50 customers who spend an average of $4,000 per year with your business. That's $200,000 in gross revenue per year. If you can't increase your prices or convince your existing customers to increase the amount they spend, you need to add more customers to your roster to increase your earnings. If you get 20 new customers, that's an additional $80,000 per year in revenue.
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5. Reduce Business Expenses
In business, net revenue is the amount of money remaining after you deduct your cost of goods sold from your gross revenue. For a service-based business, cost of goods sold includes things like labor, equipment, and project materials. If you can keep these costs in check, you can keep your net revenue as high as possible.
When it comes to reducing labor costs, offering low wages isn't always the best way to go about it. If you offer below-market wages, you may have trouble attracting experienced employees who understand how to stay productive and avoid waste. The small amount of money you save is likely to be outweighed by increased costs associated with training inexperienced employees or redoing completed work because your inexperienced workers made mistakes the first time around.
To reduce labor costs without offering substandard wages, you can focus on reducing turnover, offer incentives for good performance, or reduce the amount of overtime required for each project. If you have the right number of workers assigned to a project, you should be able to complete the work with little to no overtime hours, reducing your labor costs without cutting corners.
One of the easiest ways to reduce your equipment costs is to do regular preventive maintenance. It's tempting to save a few dollars by skipping the annual maintenance on a piece of construction machinery, but a lack of maintenance may cause the machine to break down, leaving you with a big repair bill. You'll also lose money while the machine is out of service, reducing your revenue even further.
You can't eliminate the cost of project materials entirely, but there are a few things you can do to make them less expensive. First, look into establishing a relationship with a supplier that offers discounts or attractive credit terms. Even if you can't get a discount, you may be able to reduce your overall costs by working with a vendor that doesn't charge interest for 60 or 90 days.
Second, if you need to work with multiple vendors, pay attention to their prices. If the price of an item drops significantly, consider stocking up while it's on sale. Do this only if you know you'll use the item within the next few months; it doesn't do you any good to purchase materials on sale if you'll never use them.
Another way to increase your revenue is to specialize instead of working as a generalist. When you provide general services, you have to compete with every other generalist in your market. Depending on where you live, you could be competing with hundreds of other people for the same customers. The high level of competition keeps prices low, making it difficult to increase your small business revenue.
Specializing has several benefits. One of the main benefits is that it sets you apart from the many generalists in your neighborhood, reducing competition and making it easier to find customers who want to pay you for your expertise. Another benefit is that you can justify higher prices, increasing your revenue without reducing your business expenses. If you currently work as a painter, for example, you might want to specialize in creating murals for nurseries or children's rooms. Once you establish a reputation as a skilled mural painter, you can generate more business via word-of-mouth marketing and charge more for your services.
7. Decrease Waste
As you already know, the cost of project materials cuts into your net revenue, making it more difficult to run a profitable business. That's why it's so important to minimize waste on every project. An extra piece of lumber or a few nails may not seem like much, but imagine what would happen if you wasted these materials on every project. You'd quickly find your costs increasing, cutting into your business profits.
To increase your revenue, focus on reducing waste. If you're working with inexperienced employees, provide training before you start each project. Remind workers that they should "measure twice and cut once" to avoid making mistakes. When you work on large projects, put someone in charge of tracking inventory and making sure none of the materials are left out in the rain or damaged by heavy equipment.
Recycling and storing your materials properly are also good ways to reduce waste. If you purchase supplies for one project and don't use them all, for example, see if you can incorporate them into a new project. Any time you have leftover materials, make sure you store them in a climate-controlled environment away from moisture and high levels of heat.
8. Improve Your Website
Improving your website is a great way to attract new customers to your business, increasing your overall revenue. A business is more than just a brochure that lives online. It's a 24/7 sales assistant, educating potential customers on what you offer and making it easy for people to request an estimate or book an appointment with one of your employees.
If you have a simple website with just a few pages, there are several things you can do to make the site more effective for marketing. First, add a landing page for each city in your service area. A landing page is where people "land" when they click a link to your website. For example, if someone searches for "contractors in Coral Gables," you want to have a landing page specifically for Coral Gables. This helps potential customers understand what you offer and where you offer it.
You should also add several pages explaining the services you provide and letting people know what makes your business different from the dozens or hundreds of other contractors in your area. If you have a degree in construction technology or developed a new technique for completing specialized projects, make sure you mention those achievements on your website. You want to position yourself as a trusted expert who has the knowledge and skills necessary to complete every project to a high level of quality.
Finally, make sure your website includes a full list of your services and gives potential customers several ways to contact you. If you add a contact form to the site, test it several times to make sure it works correctly. You may also want to add your email address, telephone number, and mailing address.
9. Adopt New Technology
If you're doing everything manually, it may be time to adopt new technology to increase efficiency and improve productivity. For example, if your employees have been filling out estimates by hand, consider purchasing contractor software. With the right software package, you and your employees can easily create estimates or invoices, eliminating the need to fill out forms manually. The most robust packages have additional features, such as the ability to record payments from customers or keep track of the supplies you use for each project.
10. Provide Additional Training
Training is often considered an expense, but you should think of it as an investment in your business. There are a few ways that providing additional training can help you increase your small business revenue. First, training employees helps them develop new skills, making it easier to complete high-end projects. Second, well-trained employees are less likely to make mistakes, reducing waste and ensuring a high level of customer satisfaction. Finally, providing additional training can reduce the risk of job site accidents, reducing operational expenses and making your business more profitable.
Increase Your Revenue Today
If you're ready to increase your revenue, CraftJack is here to help you find high-quality leads. Contact us today to learn more about our lead generation capabilities.
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