For home service contractors, a few common roadblocks can make it more difficult to run a profitable business. Read on to learn more about these roadblocks and find out what home service professionals can do to overcome them.
You took the leap and opened your own home service business. Now you’re giving estimates, completing projects, and building your reputation as a reliable professional. But what should you do if all your hard work isn’t leaving much profit available at the end of the year? This guide explains some of the most common roadblocks to running a profitable business and offers tips to help home service professionals overcome them.
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Profit For Home Service Professionals
Before you learn more about the most common roadblocks to generating a profit, you need to understand what profit is. In simple terms, profit is what's left over after you've paid all your business expenses. Every time you complete a project, you generate revenue. From that revenue, you need to deduct the cost of labor, materials, overhead, taxes, and other expenditures to determine how much profit you earned.
If you want to increase your profit margin, you can focus on increasing your revenue, reducing your expenses, or a combination of both. Now that you understand this, you can use the tips below to build a profitable small business.
1. Licensing Issues
Most municipalities require home service professionals to have some type of license. Every location has its own set of requirements, but you usually have to pay a licensing fee and demonstrate that you have a basic level of competency in whatever service you provide. For example, you may need to provide an affidavit stating that you have a certain number of hours of experience as a general contractor.
Some home service professionals minimize their start-up costs by working without a license. Not only does this increase your liability should something go wrong, but it also hampers your ability to turn a profit. Savvy customers manage risk by looking for contractors who are licensed and carry an appropriate amount of insurance; these customers won't hire you if you don't have the license you need. As a result, you'll be limited to working on small projects for customers who may not be willing to pay what they'd pay to work with a licensed professional, reducing the amount of revenue generated by your business.
To make your business more profitable, invest in getting the required license and make sure you renew it as required by your municipality. You'll be able to work on more lucrative projects and get more referrals from satisfied customers.
2. Lack Of Marketing Knowledge
One of the best ways to generate more revenue is to serve more customers. That's why marketing is so important for home service professionals. Unfortunately, many contractors spend the bulk of their time giving estimates and completing projects, leaving them with no time to promote their businesses.
Even if you set aside time for marketing, a lack of marketing knowledge can make it difficult to define your target market, choose appropriate marketing channels, and connect with people in a way that makes them want to hire you. Putting more of an effort into marketing can help you generate more revenue, increasing your business profit.
You may not have the budget to run a TV commercial or take out a full-page ad in a local publication, but there are many things you can do to promote your services and expertise. To make your business more profitable, try some of the following marketing methods:
- Social media: Create profiles on all the major platforms and use them to share information about your business. One easy way to market your services via social media is to post photos of projects you've completed. Use high-quality photos and write a short description of the work you did to help potential customers understand why they should hire you.
- Lead magnets: A lead magnet is something of value that you give away for free in exchange for the recipient's contact information. If you offer remodeling services, for example, you may want to publish a report titled "10 Tips To Keep Your Remodeling Costs in Check." Potential customers will be able to read the report only after they give you their contact information, giving you more opportunities to market your services to them.
- Local SEO: Search engine optimization is the process of making your website more visible to potential customers, increasing the number of people who visit your website each month. Local SEO focuses on optimizing your website for local search results — the pages displayed when customers search for terms like "HVAC technician Miami" and "general contractor Minneapolis." You can make your website more attractive to local customers by creating content that demonstrates your connection to the communities you serve. City-specific landing pages, testimonials from local customers, and photos of projects completed in each neighborhood can all help you show potential customers you have a strong local presence.
- Postcards: You may not have the budget to advertise in a local publication, but that doesn't mean you can't do some advertising. Postcards are small, so they're cheaper to mail, and they also cost much less than other marketing materials. You can use postcards to generate leads, maintain relationships with previous customers, offer discounts, or introduce new services to your target market.
- Lead generation: A prospect is a general member of your target audience, while a lead is someone who's shown interest in what you have to offer. Leads are more likely to turn into paying customers because they've already indicated some level of interest in your services. A prospect, on the other hand, may have no need for the services you provide. To make your business more profitable, you should focus on nurturing your leads and showing them how you can help them. If you need more leads in your pipeline, CraftJack can help. We screen every lead thoroughly and provide tools to help you connect with potential customers, taking the guesswork out of marketing.
3. Lackluster Networking Efforts
No matter what type of service you provide, referrals are critical for growing your business and staying profitable. When you send out a postcard or add a page to your website, you have to capture the reader's attention and convince them you have the expertise needed to help them. If you have good relationships with other service providers, however, those providers can warm up potential leads by telling them how skilled you are and giving them an overview of the services you provide.
In most cases, you should focus on networking with professionals who offer complementary services instead of competing with you directly. After all, unless they're overloaded with projects, carpenters probably won't provide many referrals for other carpenters. They'd rather get paid to do the work themselves.
If you've ever worked with a real estate agent, they may have referred you to an appraiser, a home inspector, or a home staging professional. This is a great example of an effective referral network. The real estate agent doesn't compete with any of the other professionals directly, but their services are closely related, meaning clients are likely to trust them simply because the real estate agent offered a recommendation.
4. Bookkeeping & Accounting Issues
It doesn't matter how much revenue you generate if you don't keep your expenses in check and understand where your money's going. If you don't have a full-time bookkeeper or accountant, it's worth spending a few hours with an accounting professional to learn how to manage your business finances. An accounting professional can help you learn how to read financial statements and find ways to control your direct, fixed, and variable costs, making you more adept at small business budgeting.
Financial statements are documents that provide information about a company's performance. The balance sheet, income statement, and cash flow statement are used to provide a snapshot of the company's finances at a given point in time, such as the end of the quarter or end of the year. Reviewing these statements regularly can help you identify potential pitfalls and adjust your business strategy accordingly.
Your balance sheet lists your company's assets and liabilities. Common assets include cash, inventory, and accounts receivable; liabilities include things like wages owed to employees and debt owed to a bank or credit card company. Subtracting your total liabilities from your total assets shows you how much money you'd receive if you liquidated the assets and paid off all the debts. This is known as owner's equity.
An income statement outlines your company's income and expenses. In some cases, it's referred to as the profit and loss statement for small business. Reviewing this statement can help you determine if you should expand the business, sell some of your assets, eliminate unprofitable services, or take other actions to make the company more profitable.
The cash flow statement shows the movement of cash into and out of the company. It's typically used to understand how effective you are at managing cash. You can also use a cash flow statement to predict cash flow in future periods, making it easier to create an accurate budget for the business.
A direct cost is any cost that's directly related to the completion of a project. For example, if you provide carpentry services, you may need to purchase lumber, pay a laborer to help you with the work, and buy or rent specialty tools. These are all examples of direct costs. Although you don't have 100% control over prices, there are a few things you can do to reduce the cost of materials and labor.
- Negotiate with vendors to reduce the per-unit cost of lumber and other materials.
- Hire experienced laborers to reduce the amount of time it takes to complete a project. If you pay by the hour, you'll spend less on labor.
- Minimize the amount of overtime needed to complete each project.
- Buy materials in bulk to take advantage of bulk discounts. Only do this for materials that you use frequently, such as nails or screws. Otherwise, you may end up wasting money on materials you never use.
- Use high-quality tools to prevent damage to lumber and other materials.
Fixed costs are costs that don't change from one month to the next. Your rent, marketing budget, and professional memberships are examples of fixed costs. You can minimize your rent expense by negotiating with your landlord or subletting a smaller space from another business owner. If you need to reduce your marketing budget, you can focus on low-cost marketing methods until you have the funds needed to launch a more expensive promotional campaign.
Variable costs are difficult to predict because they change from month to month. Travel, office supplies, and printing are examples of variable costs because they change based on what's happening in your business. For example, if you get a new customer whose home is an hour from your office, your travel expenses will increase. If you decide to market with postcards, your printing costs will increase accordingly.
Increase Your Business Profits
The principles of running a profitable business are the same whether you work as an electrician or a house cleaner. You need to generate as much revenue as possible and manage your expenses carefully. "How do I grow my business?" is a common question. If you need a little guidance, reach out to an accounting professional or a lead generation service like CraftJack to help.