Are you having trouble making a profit? Are your expenses devouring your revenues? Most companies, including professional service firms, like engineering, are always struggling to make a profit. Most professional service companies' expenses are related to labor. 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 company understands that there are certain costs they cannot avoid. Such as staff salaries, business licenses, professional licenses, business insurance, professional insurance, office expenses, and on and on the list goes. It is possible to adjust the company budget in order to keep some of the revenue.
Here's a list with the top 5 strategies that will increase your company’s profits without reducing staff.
1: Increase Service Fees This might seem counterintuitive during a recession but it can have a significant effect 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's also possible to outsource. 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 run their own businesses and can get work from many sources. The government will not approve of the arrangement in which an independent contractor has an office within your company. You should discuss any questionable 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 ever comes along, do not focus your marketing efforts on those sectors that constantly contract with the firm with the cheapest offer. Engineering firms and professional services firms shouldn't compete solely on price. A good metal fabrication malaysia engineer will save a developer thousands to even millions of dollar, and that amount will almost always exceed the engineer’s fees. Sectors that try to negotiate their service fees are often not worth the cost. You don't buy the job. Clients will expect that you make concessions to them in times of difficulty. They may ask for reduced or no fees to continue being your client. It is almost never a good idea buying a project just to have work. Determine your company's break-even point and the sectors and services that make the biggest profit. Anything less will force your business to possibly close.
Key 4 - Contact Previous and Existing Clients for New Contracts. This is the best way to find new work. 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. Losing clients to other engineering firms, means an immediate loss in revenues and can only be regained by finding new clients. Finding new clients will require you to invest additional funds in marketing them. This will reduce your bottom line. Your current clients can help increase your revenue by either assisting you with finding new clients or by awarding you new projects.
They may be so satisfied with your performance that they may not have noticed that you need additional work. Clients may know others in the industry who are dissatisfied by their professional designers. Your clients will be your best marketer. When their referrals call you they are already sold on your firm's abilities and services. Sometimes clients have so many engineering firms that they require the services multiple engineering firms. They may offer you a larger percentage of their jobs if you impress them. Your existing clients are the best source for new work.
Key 5 - Deliver on Your Promises Clients expect the engineer to provide the services stated in the contract. It is important to have a proposal. The proposed services should be as clear as possible. It should also be clear and concise. Also a section in the proposal should include what is expected of the client. Make sure you both understand the terms of the Agreement before you sign it. 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 does not matter whether the economy is doing well.