Are you finding it hard to earn a profit? 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. This is why so many companies decide to do just one or two things to increase profit, work load, and/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. Margins can be reduced due to a competitive market or a decline in market demand for engineering products and services.
The current market has driven many companies to lower their fees significantly, but is this really the answer. Every engineering firm understands the importance of paying certain expenses. Staff salaries, professional licenses, business and professional insurance, as well as office expenses are just a few of the many costs that engineering firms must pay. 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). The fee could be increased by 5% ($50), which would result in a 50% increase in profit ($150). Your clients will probably not notice the small increase in fees but it can be very noticeable on the Profit and Loss statement of your company.
Key 2 - Workload is a determinant of the company size - You should have a permanent staff and independent contractors for your engineering business. The workload will determine the number of independent contractor. 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 a company to restructure in order to handle many new contracts when times are good, and then decrease the number contractors when contracts are scarce or difficult. One example would be to have one or two permanent CAD Designers and then a pool independent contractors of CAD Operators.
The federal government has been cracking down on independent contractors in recent years. Independent contractors can work with many sources and are in business for their own benefit. It is unlikely that an independent contractor will set up an office in your company and only have a contract with your company. This arrangement is considered illegal by the government. Your tax advisor should be consulted about any doubtful agreement.
No Focus on Sektors with Very Low Profit Margins. While it is possible for companies to take on more work in times of economic hardship, your marketing efforts should not be focused on those industries that contract with the most expensive firm. Professional services companies like engineering firms should never compete on price alone. A good engineer can save a developer thousands or even millions of money, which will usually be far more than the fees. The cost of services that are negotiated is often not worth it. In essence do not buy the job. Some clients will expect you to make more concessions, such as offering a reduced fee or free services in order to retain them. It is almost never a good thing to just get work on a project. You should know what your breakeven point is for your company and which sectors or services generate the highest profit. Anything less than this will make it impossible for your business not to close.
4: Call Existing and Past Clients to Get New Contracts. The best source for new work is existing clients or past clients. If you did a good work for them in previous years, they will most likely be happy to use your services again. Even if they have gone with another engineer, they may want to contract with you again. They might not be treated the same by the new engineer. Some clients may have lost contact information. Clients may lose your contact information in these cases.
Client satisfaction is the best marketing tool in business. This is the best marketing tool for engineers. The loss of clients to other engineering companies results in a immediate decrease in revenue. This can only be recovered by finding new clients. In order to find new clients you will have to sit aside additional funds to market them, which will further reduce your bottom line. Your existing clients could help you find new clients, or they can award you projects.
You may think they are so happy with your performance, that they don't realize you need more work. You may be able to refer clients to other professionals in the same field who might also be dissatisfied with your professional designers. Your best marketer will be your clients. Referring clients to you will already be convinced of your company's capabilities and services. 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 current clients are your best source of 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. The services to be provided should be as explicit as possible, and every attempt should be made to restate any vague language. 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 matter whether the economy has been in good times or engineering company in Malaysia not.