Are you finding it hard to earn a profit? Are your expenses devouring your revenues? Even professional service firms such as engineering struggle to make money. Most professional service companies' expenses are related to labor. Many companies have chosen to do one or more things to increase their profits: increase work load or reduce staff. But there are many other strategies that can have a similar effect.
A typical engineering company strives for a profit of between 10 and 15% after expenses include 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. There are many expenses that must be paid, including staff salaries, business licenses and professional licenses, insurance for business, professional and office expenses, as well professional licensing and business insurance. A good understanding of the company budget can allow for adjustments that will help retain some revenues.
Here is a list highlighting the top five strategies to increase your company’s profit without cutting staff.
Key 1 - Increase service fees - While this may seem counterintuitive in a downturn, a modest increase can make a big difference to 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). While your clients may not notice an increase in fees, it can make a big difference on your company's Profit & Loss Statement.
Key2: The workload determines company size. - An engineering firm should have both permanent staff as well as independent contractors. Dependent on the amount of work, the number and type of independent contractors needed can vary. Outsourcing is the term for hiring independent contractors or sub-consultants. The only permanent employees that are required are the ones that are absolutely vital. Outsourcing allows the company the flexibility to restructure and handle large numbers of new contracts in good times, while reducing the number of contractors during difficult economic times. For example, a company might have one to two CAD designers as permanent employees and then an independent pool of CAD operators.
In recent decades, the federal government has made it very clear who is an independent contractor. Independent contractors can work with many sources and are in business for their own benefit. 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: Do Not Focus on Sectors with Very Little Profit Margins. Although companies may need to accept whatever comes their way during tough economic times, it is important not to focus your marketing efforts in those areas that have the lowest profit margins. Engineering firms and professional services firms shouldn't compete solely on price. A good engineer can save a developer thousands or even millions of money, which will usually be far more than the fees. The expense of service fees that are not competitively charged is almost always prohibitive in certain sectors. Do not pay for the job. You may be expected to offer more concessions in difficult times. For example, a reduction in fees or a free service. 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. Any less than that will cause your business to 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 job for them in the past, they will be more than willing to use your services again. Even if they have gone with another engineer, they may want to contract with you again. The new engineer may have not treated them as engineering company in Malaysia well. Some clients may have lost contact information. In this instance they would be glad to hear from you again.
Happy clients are the best kind of client for any business. This is the best marketing tool for engineers. 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 either help you to find new clients or give you new projects.
You may think they are so happy with your performance, that they don't realize you need more work. Your clients may know others who work in the same industry and are also unhappy with their professional designer. Your best marketer is your clients. When their referrals call you they are already sold on your firm's abilities and services. Sometimes your clients are so big that they require several engineering firms. They may offer you a larger percentage of their jobs if you impress them. The best source of new work is always through your existing clients.
Key5: Deliver on Your Promises The client expects that the engineer will fulfill all terms and conditions of the contract. The proposal is crucial. The services to be provided should be as explicit as possible, and every attempt should be made to restate any vague language. A section of the proposal should also include the expectations for the client. Both you and your client should understand the expectations before signing the Agreement. 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.