Net Profits - Four Major Levers

Increasing net profits for contractors comes down to four major levers that can be pulled.

D. Brown Management Profile Picture
D. Brown Management
April 17, 2018 2 minute read
Share
Leadership Tools: Four Basic Profit Levers. Like operating a backhoe; use all four levers simultaneously.
  1. Increase quality revenue up to the point where it stretches your operational capacity.  Not revenue for the sake of revenue but revenue in alignment with your market strategy and capabilities.  Not stretching to the point of breaking but just enough to allow you to grow. 
  2. Increase the “Sold Margin” on projects by finding the customers that will pay the most for the capabilities that you have and by building capabilities that the market places a higher value upon like advanced preconstruction services. 
  3. Decrease the cost of building project through investments in talent, training, process streamlining, tools and technology.  
  4. Decrease the cost of overhead and indirects in both absolute dollars by looking at every cost and asking how it truly adds value to the customer.  Be careful not to “over-cut” and create a hollow organization that will impact future growth.  

All are interrelated and seem simple on the surface. 

A 3rd party perspective can be helpful for assessment and planning purposes

Production Tracking - Lessons Learned
Look at productivity as a daily “Jar” where your objective is to pack as much “Earned Value” into it as possible. Look at your costs in three major categories and focus on tracking what matters the most.
Related Article
Competitive Advantage
A contractor’s market strategy is the most highly leveraged decision leadership can make. Getting this right then executing effectively can easily have a 2X+ positive impact on earnings over the next 5 years.
Related Article
Three Questions About Growth
A construction business can not be managed like a project even though the primary work of a contractor is building projects. There are three questions that illustrate these differences.
Related Article