Here is a recent article Posted on Remodeling Magazine that I wanted to share.

The Story
I see many remodeling businesses searching for the magic solution on how to generate more leads, more revenue, and higher profits. What is the solution? One remodeling company chose to focus on increasing profitability before planning to grow. Magically, when this happened, the growth came along with the targeted profit increase. 
This company has provided bath and kitchen remodels, additions, windows, roofing, siding and sunroom services in the western Pennsylvania area for 31 years and had a solid reputation. The company was profitable and the owner was earning an income, but he knew he needed to improve profitability to sustain the long-term business that he needed for his retirement. He began by establishing a more accurate financial statement in Quick Books to give him better information to assess his profitability on the range of remodeling projects, as well as provide a snapshot of overhead and expenses.

Breakdown of Profit
I worked with him to review the profit margins from the financial statement. We discovered that the larger remodeling projects were time consuming and had a minimal profit that ranged from zero to 5%. The project’s original sale looked great on paper. A $30,000 sale is exciting, but true test of success is the profit margin at the end of the project—a margin that should be set at the beginning. Dedicating a month to a large project with zero or minimal profit is not worth those 30 days.
The revenue from home improvement projects such as windows, siding, roofing and sunrooms, were more profitable and easier to accomplish, but they were not the focus of the business. The company’s employees spent the majority of their time on the large projects.

The Dilemma
The owner knew he had to make a decision about the future direction of the business and place profitability before growth. Could he survive without the revenue from the larger projects? Removing the unprofitable projects and focusing on the ideal projects, or sweet spot of the businesses target projects instead, may mean loosing revenue, but removing the projects that are causing lost time, energy and profit dollars, means more time focusing on the ideal projects and what makes the most profit. The answer may have seemed clearer in the financial statement because it provided more accurate information. If 70% of your projects have a net profit of 15% to 25%, and the other 30% revenue is at 0-5% profit, losing or dropping the unprofitable 30% will result in lost revenue or a decrease in sales. Is that a bad situation? No! Now, the personnel can be more focused, maybe overhead will lower and your business will be more productive to produce the profitable projects.

The Decision
The owner decided to narrow the company’s focus to its most profitable projects—the home improvement work. Not only were the projects more profitable, the staff was better able to create a positive experience for customers, which is another positive outcome. The team updated the pricing on these projects to increase the profit margin by 3%. With this focus on home improvements, the company’s marketing message also became clearer and it was able to target ideal clients and enhance the experience of these ideal clients.

The Future
The owner discovered that he could increase profitability without initially increasing sales. However, in the six months since the change, the company has seen an increase in both sales revenue and profit. The business now accepts smaller and more selective remodeling projects. With the increase in profit percentages and a clearer approach, the company does not waste time on sales that don’t lead to profit.