How do you measure up against your competitors? What sets you apart from your competition? I often hear landscape contractors say they have the best customer service or their work in the field is done better than their competition. A less obvious, but effective way to compete is to track and reduce overhead expenses.
Lets look at an example of how this works. Company A and Company B are competing in the same market, and perform the same services. Company A’s overhead is 28%, while Company B’s overhead is 20%. When estimating for the project each company needs to recoup their expenses, then build in a profit margin. Assuming each business builds in a 20% profit margin, Company A will need to quote the customer a higher number in order to recoup the larger amount of overhead expenses. Company B will win this account and maintain 20% profit margin, while Company A will lose the opportunity. In order for Company A to gain accounts in this market, they will either need to find ways to reduce overhead or accept a lower profit margin. Accepting a lower profit margin is not a viable long term option, which highlights the importance of tracking and reducing overhead.
This is an example of why increasing pricing is not always the answer. With excessive overhead you will run the risk of pricing your jobs above market rate.
Often times businesses that don’t track or reduce overhead are astonished when they don’t get a potential job or contract, and wonder how the winning contractor could make a profit. Don’t let excessive overhead be the reason you are losing jobs or profits.