Are you having trouble making a profit? Are your expenses devouring your revenues? Companies, including engineering firms and professional service providers, are constantly struggling to make profit. The vast majority of expenses for professional services companies are labor related. This is why most companies opt to do a couple of things to increase their profit or increase their work load. However, there are many strategies that can produce a similar result.
A typical engineering company usually strives for a profit or 10 to 15% after all expenses including salaries. These margins may be even lower if there is a lot of competition or a decrease in demand for engineering service.
Although many companies have seen a decrease in their fees because of the current market, this is not necessarily the best option. 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. One example: A service you offer costs $1000 and has a profit margin 10% (100). The fee could be increased by 5% ($50), which would result in a 50% increase in profit ($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 decades, the federal government has made it very clear who is an independent contractor. Independent contractors are independent contractors who are self-employed and can obtain work from multiple sources. A contractor who is independent from your business but has a contract with your firm will probably be considered an independent contractor. Discuss any unsavory agreement with your tax advisor.
Key 3 - Don't Focus on Small Profit Margin Sectors - While companies might have to do more in a difficult economy, don't focus your marketing efforts only on the sectors that are most likely to contract with the company with the lowest price. Pricing should never be the only consideration for professional services like engineering companies. An engineer who is a good one can save developers thousands, if not even millions of dollars. This will often far outweigh the engineer's fees. Sectors that haggles the service fees are usually not worth the expense. The job is not yours. Clients may expect that, because times are tough, you will make even more concessions. You can offer them free or significantly reduced fees to keep their business. It is almost never a good idea just to get work. 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. They will likely return to you if they have done a good job in the past. Even if the engineer they used was not as good, they may still want to work with you. They may not have been treated as well by the new engineer. 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 engineering company in Malaysia clients to find new customers. This will further decrease your bottom line. You can increase your revenue by having existing clients help you find new clients or award you new projects.
They might be so pleased with your performance they do not realize that you require additional work. Your clients know other people in the same industry who maybe also dissatisfied with their professional designers. Your best marketer is your clients. Their referrals will have already heard about your company and are ready to recommend you. Some clients might require multiple engineering firms to assist them. They might give you more jobs if they like your performance. Your existing clients can be the best source to find new work.
Key 5: Deliver on your Promises – Clients expect that the engineer will deliver all the services specified in the contract. This is why a proposal is so important. Every effort should be made not to make vague statements. In the proposal, a section should outline what is expected from the client. Before signing an Agreement, ensure that you and the client fully understand each other's expectations. You may be accused of providing a service the customer does not agree to. This may lead to problems later on and can make the client unhappy and unwilling to do more work. It doesn't matter whether the economy has been in good times or not.