We can extort workers to show up and work harder for less, in order to underbid a competitor. We can take advantage of less sophisticated customers and trick them into buying items for short-term satisfaction and long-term pain. We know how to do this. There’s always the opportunity to cut a corner, sacrifice integrity and quality and suck it up as we struggle through this lean period.
This might bring more cash-flow for now, but not for long and not without dire consequences down the track. Someone will always find a way to be cheaper or more brutal than you.
The race to the top makes more sense to me. The race to the top is focused on marketing design and respect and dignity and guts and innovation and sustainability and client-centric generosity.
The race to the top is the long-term path with the desirable profit outcome.
Your margins give you lifestyle and options, a few percent in Gross Margin could mean plenty on your bottom line. For example if you’re turning over $2 Million and you move from a 15% to a 20% Gross Margin, that’s a $100,000 and probably around a 50% (or more) increase in your Net Profit. So how do you go from 15% to 20% you ask? here’s five ways;
1) Design a “marketing system” which allows you to put 1% on your pricing.
2) Identifying your biggest inefficiencies on jobs and saving 1%
3) Shopping around and shaving 1% of your materials and subbies
4) Targeting higher margin jobs for another 1% increase ie. Jobs with higher labour or carpentry content.
5) Shaving 1% of your running costs
This all takes a little time and analysis but its well worth the additional bottom line result.
If someone selling a flatscreen TV can give you options and delver value to the exstent that you’re prepared to pay more (ie. Extended warranty or free delivery), you should be able to do a hell of a lot better on a new home or reno. Don’t settle for lower margins because the that’s what everyone else is doing. The big problem with the race to the bottom is that you might win.