Fortunately, there are things a contractor can do to ensure they make more money. Most people can agree that it is a good thing in business to be consistently profitable. Read on to learn how contractors can be profitable consistently.
Revenue vs. Net Profit
Many contractors make the mistake of conflating revenue and net profit. Revenue is the total amount of money earned by a business. Some of this money gets invested back into the company and goes towards salaries, cost of materials, or debts.
Net profit is the money a business earns that is not meant to be reinvested in the company. This money is pure profit.
Net profit is the actual profit that is made after all other expenses in the business have been paid; it’s what is left after you have everything squared away and is separate from the owner’s salary. If you are a contractor, you want as much net profit as possible if you want to be profitable. Unfortunately, a lot of contractors do not net as much profit as they should.
As a contractor, net profit is your money. You can do what you wish with it. If you want some ideas on some valuable things to do with it, however, some great ideas are:
- Invest in your company
- Better training for workers
- Better benefits for employees, like healthcare or vacation
- Better equipment
- Bonuses for yourself and your team
It’s Okay to Make More Money
Contractors often don’t realize their full potential or believe other factors are causing them to have lower pay. Common reasons given for this are the going rate in their industry or the need to give low prices to customers. These reasons are not good reasons to lower prices.
Making a high profit is a good thing. It doesn’t have to be about greed; it’s about being paid fairly for your hard work, paying your employees a better wage, having better tools and equipment, and other investments in your company that make it worth the price you charge. As a contractor, you take many risks. The profit you make needs to be worth the risks you take.
Net Profit vs. Owner’s Salary
We know that net profit is what is left after everything else is paid. If you are the owner of a business, does that mean the net profit is your salary? No, the owner’s salary is a separate thing and is included in the business’s expenses. The owner pays themselves a fair salary, and the net profit is money on top of that.
How to Make More Profit
If you are a contractor, most likely, you want to make as much profit as possible. If you do, there are several steps you can take to make consistent profit a reality:
- Decide to make a profit – You must decide that you will make more money and that you will accept nothing less. Decide that you will find good customers, get paid what you deserve, don’t blame others. If you do a good job, your customers will appreciate it and be happy to pay your quoted price.
- Plan your strategy – Plan the marketing, plan the most profitable jobs, plan to market to the right customers who are willing to pay for quality work.
- Don’t focus on the negatives – Don’t make excuses. Don’t tell yourself that you must accept lower pay, whatever the reason.
- Set goals – Have a vision for both the short term and the long term. Know where you want your company to go. Set goals for what you want to accomplish, and stick to them.
These tips are just a starting point, but they are significant first steps to take on your way to being consistently profitable.
Why the “Going Rate” Doesn’t Matter
The “going rate” is the average cost of a job that contractors are charging in an area at present. Many contractors factor the going rate into their own prices, and some even lower their costs to ensure they are getting jobs.
Determine what your goals are. How much net profit do you want to be left with after the job is done? How much is the cost of the job? Once you figure these things out, you can determine how much you should charge for a job. Clients that are unwilling to pay that amount are not worth pursuing.
Invest in Marketing
Investing in marketing is one of a contractor’s best things to ensure they get high-paying jobs. Making sure potential clients know that you will meet their individual needs goes a long way towards sealing the deal.
Many contractors are underpaid for their hard work. Fortunately, there are some measures a contractor can take to make sure they are being paid well and that they have enough money to invest in their business to make it even more profitable.