Are you finding it hard to earn 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 strives for a profit of between 10 and 15% after expenses include salaries. A very competitive market or a significant drop in the market demand for engineering services can drive these margins even lower.
Many companies have reduced their fees in response to the current market. But is this really the right solution? Every engineering company knows there are some expenses they cannot avoid. 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.
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. 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. As an example, one or two CAD Developers could be hired as permanent employees. Then there would be a pool of independent contractors who can assemble CAD Operators.
In recent decades, the federal government has made it very clear who is an independent contractor. Independent contractors operate independently and are able obtain work from many 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. Engineers and other professional services firms should not compete on price alone. A good engineer can save a developer thousands if not millions of dollars which will usually far exceed the engineer's fees. The expense of service fees that are not competitively charged is almost always prohibitive in certain sectors. You don't buy 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 not a good idea to buy a project simply 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.
Keyword 4: Get in touch with previous clients and existing clients to get new contracts. These are the best sources of new work. They will likely return to you if they have done a good job in the past. Even if they have previously contracted with another engineer they might be interested in contracting with you again. They may not have been treated as well by the new engineer. Sometimes, clients might have forgotten your contact information. In such cases, they will be delighted to engineering company in Malaysia hear from again.
Satisfied clients are the best thing for business. This is the number one marketing tool for the engineering profession. It is difficult to regain lost clients if you lose them to other engineering firms. To find new clients, you will need to set aside additional funds for marketing them. This will further lower 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. They may know people in the industry who are unhappy with their professional designers. Your best marketer will be your clients. Referring clients to you will already be convinced of your company's capabilities and services. In some cases your clients may be so large a firm that they require the services of several engineering firms. They may offer you a larger percentage of their jobs if you impress them. Your current clients are your best source of 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. It is important to clearly state the services being provided and to clarify any ambiguities. The proposal should contain what the client is to expect. 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.