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. A majority of professional service firms' expenses are labor-related. Many companies have chosen to do one or more things to increase their profits: increase work load or reduce staff. There are other strategies that can achieve the same effect.
A typical engineering company aims to achieve a profit between 10 and 15 percent after taking out all expenses, including salaries. These margins can be reduced by a very competitive market or a drop in demand for engineering services.
While many companies are trying to reduce their fees due to the current market, is this really the best solution? Every engineering firm knows that certain expenses cannot be avoided. These expenses include staff salaries and professional licenses. A good understanding of the company budget can allow for adjustments that will help retain some revenues.
Below is a list of the top 5 key strategies to increase your company's profits without cutting staff.
Key 1: Increase Service Fees - This may sound a little counter intuitive right now during a recession, but a small increase can have a significant impact on your profits. Your firm offers a $1000 service with a 10% profit margin ($100). Your profit would rise by 50% if you increased the fee by 5% ($50). The fee increase will not be noticed by your clients but can be very noticeable in your company's Profit And Loss Statement.
Key 2: The workload determines the company size. Your engineering business should include both permanent staff members and independent contractors. Depending on the work load, the number of independent contractors required can vary. It's also possible to outsource. The only permanent employees are those that are absolutely necessary. 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 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. Don't pay the service fees. Clients will expect that you make metal fabrication malaysia 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 thing to just get work on a project. Know were your company's break even point, and what sectors and services make the most profit. Anything less will result in your business having to close.
Key 4: Contact Existing and Previous Clients for New Contracts - The best source of new work is from existing or previous clients. If they were satisfied with your work in the past, they may be willing to hire you again. Even if they have previously contracted with another engineer they might be interested in contracting with you again. You may not have treated them the same way as before. In some cases, clients may have lost your contact information. In these instances, clients would be pleased to hear back from you.
Nothing is better than happy clients. This is the number one marketing tool for the engineering profession. You can't lose clients to engineering firms. It will cause a loss in revenue immediately. You will need additional funds to market your clients to find new customers. This will further decrease your bottom line. Your existing clients can increase your revenues by either awarding you with new projects or by assisting you in finding new clients.
Your performance may have been so satisfying that they didn't notice that you needed additional work. Your clients may know others who work in the same industry and are also unhappy with their professional designer. Your clients are your best marketer. Your clients will be your best marketer if they refer others to you. Sometimes, clients are so large that they need multiple engineering firms. If they really like your performance, they might just give you a larger share of their available jobs. Your existing clients are always the best source of new work.
5: Keep Your Promises- Clients expect that an engineer will perform all services described in the contract. This is why the proposal has such importance. The services to be provided should be as explicit as possible, and every attempt should be made to restate any vague language. The proposal should contain what the client is to expect. Before you sign the Agreement, make sure both the client and you understand what each other expect. The customer may believe that you are obligated to provide a service they have not agreed to. This can lead to serious problems in the future and could cause discontentment among the client. It doesn't really matter if there is good economic news or harsh explicit language in your contract.