Do you find it difficult to make a profit? Are your expenses devouring your revenues? Companies, including engineering firms and professional service providers, are constantly struggling to make profit. The majority of professional service company expenses are labor related. This is why most companies opt to do a couple of things to increase their profit or increase their work load. 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. Such as staff salaries, business licenses, professional licenses, business insurance, professional insurance, office expenses, and on and on the list goes. If you have a good grasp of your company budget, it is possible to make adjustments to preserve a portion.
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). You can increase your profit by 50% by increasing the fee by $50 ($50). This small increase in fees will most likely not even be noticeable to your clients, but it can be very noticeable on your company's Profit and Loss Statement.
2: The Workload Determines the Company Size Your engineering company should have both permanent staff and independent contractors. Dependent on the amount of work, the number and type of independent contractors needed can vary. Out-sourcing, also known as independent contractors or subconsultants, is also possible. Only those employees who are absolutely essential are permanent. Outsourcing allows the company flexibility to manage a large number new contracts, and reduce the number when it is difficult to find contractors. An example is to have one or two CAD Designers as permanent employees and then a pool of CAD Operators that are independent contractors.
In recent years the federal government has really cracking down on who is an independent contractor. Independent contractors operate independently and are able obtain work from many sources. Having an independent contractor sit-up an office within your business and only contract with your firm is probably not an independent contractor, and the government will seriously frown on this arrangement. Any questionable agreement should be discussed with your tax advisor.
3: Don't Concentrate on Sectors With Very Small Profit Margins . During a hard economy companies may have to accept whatever is offered. However, you shouldn't be focusing your marketing efforts on sectors with low profit margins . 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. It is usually not worth it to pay for service fees in sectors that negotiate. The job is not yours. There are those clients that will expect that since times are rough you should provide even more concessions; free or drastically reduced fees to keep them as a client. 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. If they were satisfied with your work in the past, they may be willing to hire you again. Even if the engineer they used was not as good, they may still want to work with you. You may not have treated them the same way as before. Sometimes clients might have lost their contact information. In this instance they would be glad to hear from you again.
Nothing is better than happy clients. This is the foremost marketing tool used in the engineering profession. In order to recover lost revenues, you must find new clients. Your bottom line will be further affected if you don't have the funds necessary to market new clients. 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 are your clients. Their referrals will have already heard about your company and are ready to recommend you. Sometimes your clients are so big that they require several engineering firms. engineering company in Malaysia You might be offered a greater share of the jobs they have if they are satisfied with your performance. Your existing clients can be the best source to find new work.
Key5: Deliver on Your Promises The client expects that the engineer will fulfill all terms and conditions of 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 the Agreement make sure that both you and the client understand what is expected of both parties. 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. Whether the economy is in good times or tough explicit language in the contract is extremely important.