Are you finding it hard to earn a profit? Are your expenses devouring your revenues? Most companies, including professional service firms, like engineering, are always struggling to make a profit. Most professional service companies' expenses are related to labor. This is why so many companies decide to do just one or two things to increase profit, work load, and/or reduce staff. You can also try other strategies to achieve similar results.
A typical engineering firm strives to achieve a profit of 10% to 15% after deducting all costs, salaries included. 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 understands the importance of paying certain expenses. Such as staff salaries, business licenses, professional licenses, business insurance, professional insurance, office expenses, and on and on the list goes. You can make adjustments to the company budget to keep a certain percentage of the revenue.
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. As an example, your firm has a service which charges $1000 with a profit margin of 10% ($100). If you increase the fee by 5% ($50), your profit would increase by 50% ($150). While your clients may not notice an increase in fees, it can make a big difference on your company's Profit & Loss Statement.
Key 2: The workload determines the company size. Your engineering business should include both permanent staff members and independent contractors. The workload will determine the number of independent contractor. Out-sourcing, also known as independent contractors or subconsultants, is also possible. The only permanent employees are the absolutely necessary. Outsourcing allows the company flexibility to manage a large number new contracts, and reduce the number when it is difficult to find contractors. For example, a company might have one to two CAD designers as permanent employees and then an independent pool of CAD operators.
In recent years, the federal government really cracked down on independent contractors. Independent contractors run their own businesses and can get 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.
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. Professional services companies like engineering firms should never compete on price alone. A skilled engineer can help developers save thousands, if perhaps millions of dollars. The engineer's fees will almost always be more than the engineer's. It is usually not worth it to pay for service fees in sectors that negotiate. You don't buy the job. Clients will expect that you make concessions to them in times of difficulty. They may ask for reduced or no fees to continue being your client. It is almost never a good idea just to get work. 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.
Key 4: Contact Past and Existing Clients - This is the best source of new work. They will likely return to you if they have done a good job in engineering company in Malaysia the past. Even if their previous engineer was less than satisfactory, they may choose to contract with your services again. You may not have treated them the same way as before. Sometimes, clients might have forgotten your contact information. In such cases, they will be delighted to hear from again.
Client satisfaction is the best marketing tool in business. This is the most important marketing tool in the engineering industry. Losing clients to other engineering firms, means an immediate loss in revenues and can only be regained by finding new clients. Finding new clients will require you to invest additional funds in marketing them. This will reduce your bottom line. Your current clients can help increase your revenue by either assisting you with finding new clients or by awarding you new projects.
They might not be aware that you may need to do more work because they are satisfied with your performance. Your clients may know others who work in the same industry and are also unhappy with their professional designer. Your clients will be your best marketer. Referring clients to you will already be convinced of your company's capabilities and services. Sometimes clients have so many engineering firms that they require the services multiple engineering firms. They may offer you a larger percentage of their jobs if you impress them. Your existing clients can be the best source to find new work.
Key 5 - Deliver on Your Promises Clients expect the engineer to provide the services stated in the contract. The proposal is crucial. The proposal should contain as much detail as possible. Any vague language should be clarified. Also a section in the proposal should include what is expected of the client. Both you and your client should understand the expectations before signing the Agreement. 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.