Are you finding it difficult to earn a profitable business? Are your expenses devouring your revenues? Many companies, even professional service firms like engineering, struggle 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 firm strives to achieve a profit of 10% to 15% after deducting all costs, salaries included. 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? Ever engineering firm knows that there are certain expenses that they can not escape. 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: Workload determines the Company Size - Your engineering business should be sit-up with permanent staff level 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. 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 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. Any less than that will cause your business 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. If you did a good work for engineering company in Malaysia them in previous years, they will most likely be happy to use your services again. They may be willing to contract with you again, even if they've used another engineer. The new engineer may have not treated them as well. Sometimes, clients might have forgotten your contact information. In such cases, they will be delighted to 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. 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. 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 you sign the Agreement, make sure both the client and you understand what each other expect. A customer who believes that you are obliged to provide a certain service is likely to cause major problems and cause client dissatisfaction. It doesn't really matter if there is good economic news or harsh explicit language in your contract.