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Chances are good that if you’re reading this, you’re an entrepreneur. An essential aspect of entrepreneurship is the idea of capitalism and, thus, a clear understanding that profit is not only the “carrot” that drives ambition, it provides the necessary resources to grow one’s business in good times and perpetuate it when times aren’t so good.
Keep in mind that you can’t enjoy a profit unless you know your costs and shoot for the right margins. For those of us who make our living in professionally installed home improvements, knowing what to charge and generating a profit are essential to ensure a smooth project and a happy customer.
Much of this has to do with the fact that we sell an after-market tangible and even with the best set of plans and most detailed scope of work, it all boils down to client expectations and their constant management.
When things don’t go as planned—and rarely do they ever—you have two choices: argue with your customer or take what is typically the least expensive alternative and attempt to make them happy. With the former, considering today’s “social” climate, an unhappy customer can damage an otherwise stellar reputation. Worse, a dispute can land you in court. Consequently, in addition to an unhappy customer, you can count on time off work and big legal bills.
The latter, on the other hand, requires that you take a deep breath, rely on the contingency you should have built into your project cost, and/or give up a little of your profit, which is typically a lot less than what you would otherwise give up arm wrestling with the client. In the long run you’ll have a happy customer, your reputation will stay intact, and you won’t spin your wheels and resources defending what’s “righteous.”
Now, we by no means suggest that you run your business as a charitable operation. Rather, we propose that you consider the obvious and focus on techniques that will anticipate the inevitable and understand how to successfully overcome them.
You see, knowing what to charge and generating a profit gives you terrific power. It provides your business with the resources necessary to be as picky about choosing your customers as they are in evaluating you and your business. It gives you the power to step up to the plate and problem solve and demonstrate leadership.
On the flip side, working on thin margins and not focusing on generating a profit makes you and your business weak and vulnerable. Everyone loses when you can’t step up to the plate and problem solve because you simply don’t have the resources.
Think about it. Instead of wondering where you’ll get your next job or cutting your price to land a project, you’ll have the resources to generate leads that will allow you to weed out the tire-kickers and focus on the prospects that appreciate your professionalism and value the security that you offer in helping them get through what is typically one of the largest investments—and potentially one of the most disruptive experiences—they’ll ever endure.
Many pros are embarrassed to reveal overhead and profit in their estimates. Ironically, doing so serves as another terrific means of qualifying a prospect. If the prospect balks at your overhead and profit, that’s a BIG red flag! It’s your cue to head for the door and politely thank them for their time—and for helping you get one “no” closer to being told “yes!”