How to make more money as a contractor
You can make more profit in your contracting business…
One of the most impactful lessons I learned from my millionaire mentor was to prioritize profit.
When I was first starting out, I just wanted to find jobs.
I thought the solution to making more money was just doing more projects. Sometimes, I’d even lower my price just to book a job and stay busy.
When I told my mentor that I had lowered my price on a bid, he almost slapped me across the back of my head.
Here’s why you should NEVER lower your price as a contractor
He said to me “Whenever you cut your price, YOU are the only one that suffers. You still need to pay for materials, you still need to pay your employees… The only one not getting paid is you - what’s the point in doing a job where you make no money?”
He was right…
I’d sell these $10k projects that took my guys two weeks and I’d make less than they would.
But all that changed when my mentor said:
“There is no honor in being the cheapest contractor. If you want happier clients, charge them more and do a better job. You’ll be happier and so will they.”
Here’s what happened when I raised my prices…
Every extra dollar I added to my price was 100% profit. All my costs stayed the same.
And, because I wasn’t so worried about making money, my team wasn’t rushed and my clients were happier. It also let us go the extra mile to make sure the client is over the moon about our service.
So the way I doubled my profit was simple. Let me walk you through an example…
Let’s assume you sell a job for $20,000 and you would expect to keep 20%, meaning you keep $4,000 of the $20,000 for yourself. If you raise your price to a mere $24,000 you'll double profit from $4,000 to $8,000. A 100% increase in profit for a 20% increase in price!
Now before you get excited and just start raising your prices…
How to know when to raise your prices as a contractor
In order to be able to sell your services for more money two things need to happen:
You need to provide HIGHER quality work.
You need to be very in demand. You need to be booked at least 3 months in advance.
Trying to raise your prices won't work when your team isn’t doing great work, or you’re struggling to get booked out months in advance.
If you need help finding great employees or tons of work, go back and read my last few blog posts - I cover both of those topics in extreme detail.
Now, we’ve talked about increasing your profit, but there is another term that is even more important.
Charlie Munger, Vice Chairman of Berkshire Hathaway famously said that business’s had profits that were…:“Good until reached for” – What he was talking about was cash flow.
In your contracting business, you could do a million dollars in sales with 30% profit ($300k)
And have no money in your bank account.
That’s why “profit” isn’t everything. CASH FLOW is.
But I’ll talk about that in my next blog post.
You can check it out by clicking here.