One of the lesser-known ways to increase your profits is by nailing your job mix – proactively choosing a mix of ideal custom-home and remodeling jobs based on the highest value. It’s a mindset change mostly. You can become more proactive with an annual business plan with a “best case” job mix defined. Then pursue and choose your ideal jobs – while tossing the others. It’s like being dealt a hand of cards of available jobs on the market, then deciding which ones to keep and which ones to toss. All to build your winning hand.
After all, not all jobs are created equal, right? Just like a Jack of Spades is different from a 10 of Hearts in composition and value. Some builders prefer or excel at certain jobs more than others. If you’re really tech-savvy, maybe you have a passion or special talent for media rooms and digital home offices with nice built-ins to hide wires and cables. Some of you might be more entertainment-driven and love building game rooms and covered outdoor patios with built-in BBQs. Others might want to focus more on green building and energy-efficient transformations.
Think of Each Job Type as a Card with a Unique Value
Whatever your passion, some jobs are simply more profitable than others. A kitchen remodel may deliver 45% in profit margin versus a basement remodel at a 30% profit margin. (Remember, your profit is the money left over after backing out the materials, labor, and sub costs from your total revenue. Your profit margin is expressed as a percentage of overall revenue.
Margin is a very different beast from markup – which means marking up your price. Profit margin is NOT about charging your customers more. It’s simply an expression of the money you keep versus the money you earn. Aspire helps you put together the right job mix to maximize your profitability.
Again, putting together the optimal job mix is a lot like putting together a strong hand of cards. Except luck doesn’t play a crucial role. Strategy and patience do.
Top 3 Ways to Get Your Job Mix Right
1. Classify different job types.
Your best job mix should really feed your business model and profit goals. To do that, it’s important to start classifying different jobs into categories, then look back at how much each of them brought you in profits. One of Aspire’s $2 million-in-revenue remodeling firms did a deep dive on 120 jobs completed in 2020. What they discovered came as a shock. They found 50% of their jobs brought in less than 10% of the company’s profits.
This begs the question: Do you really need to say yes to all those lower-value jobs? And how much more money could you keep if you gracefully said No and put that time into the jobs that brought 90% of profits?
2. Choose winning jobs that fit your profit goals.
Bad jobs are the ones that don’t make a fair profit. Or worse, you barely break even or lose money. It happens. It’s part of a contractor’s life. The trick is to learn from it and prevent it from happening again. As a service industry, contractors can be natural pleasers. You want to say yes and take on more jobs – especially if you’re convinced that Boom times won’t last forever. Of course, they won’t. But even in the toughest times, there’s plenty of work out there.
Let’s take the housing crisis of 2008. Even with surplus inventory, and homeowners underwater, there were a lot of remodeling projects and $500 million worth of available work. So don’t react or say yes to the first or noisiest customer. Choose the right jobs that fit your profit goals – the money you keep – and your cash flow goals – the timing and length of those jobs. That way, you’ll be profitable every month — not just at the end of the year – and have no problem making every payroll.
3. Set different profit goals for each job type.
Clever contractors realize that not all jobs are created equal – they each bring in different profit margins. Before joining Aspire’s two-year Coaching Program, some of our clients barely pulled in 13-15% in profit margin overall. Hey, listen, if you’re in the single digits or teens – say 2, 6, or 15% as we see so often – you’re not bringing home what you’re worth.
For example, your ideal job mix might have kitchen, laundry, and bathroom remodels earning 34-45%; specialties like media rooms, home offices with built-in bookcases and desks at 26-34%; and a couple of whole-house remodels at 20-25% in profit margin.
Remember that profit margin is expressed as a percentage of revenue – meaning 25% gross profit margin on a $1 million job equals $250,000 in profit for that job. That’s before you take out fixed overhead like office space, computers, and bookkeeper salary. Set your targets based on what makes sense to your business. Just realize that each job type is different.
Sort Your Cards by Suit and Value, then Recombine for Strategy
Like in a deck of cards, sort your remodeling job types into categories such as kitchens, bathrooms, offices, basement additions, whole house remodels, and so on. Just as you would sort your cards into spades, clubs, hearts, and diamonds. Then decide which jobs have the highest value – just like you decide which cards have the highest value, i.e. Ace is high or low, then 2, 3, 4….9, 10, face cards. If your cash goal is $5 million in revenue and $1.5 million in profit, you’ll quickly see which jobs not only add up to your revenue goal but which ones bring in the highest margin based on value.
You may discover that you can choose fewer jobs with higher margins, versus high job volume with small margins. Your $30,000 bathroom remodels (hearts!) might be worth 45% profit margin, $100,000 kitchen remodels (diamonds!) 38%, and your $50,000 covered patio expansions (spades!) 26%. Throw in three $1 million whole home remodels (clubs!) at a 22% profit margin. Then, see what combinations move you the fastest to $1.5 million in profits.
If you play each of those cards and still come up short, it’s okay to take a couple of lower-margin jobs to shore up the difference.
Just No Jokers!
The question to ask yourself is this: If you found 10 good high-profit jobs and 10 poor, low-profit jobs, but you only had capacity for 10 projects in a year, what 10 jobs would you take? Would you say yes to any of the loser jobs? Of course not.
So, classify, sort, and choose different job types for the right overall mix – your overall hand of cards – to maximize your chances of profitability (pssst, keeping more of the money you earn). Don’t feel bad or fearful of tossing the least valuable cards – or jobs – away. Set your job mix strategy every year or even in two-year intervals knowing which jobs you are marketing for, going after, and landing.
Like most card games, it’s about strategy and patience – and knowing you can pass on a bad job with the confidence that the right one will be dealt.
Busyness is Not Business
Being far too busy to the point of burnout does not define business success. Taking on more and more work might lead to greater revenue or sales – but that doesn’t mean your profitability or pay become any better.
Understanding what each job brings into your business is a surefire way to nail down your numbers. Having a full slate of rewarding work…and being paid what you truly deserve for your time and talent…now, that defines success.
Aspire business coaches love to talk profit goals, job mixes, and putting together the best hand possible for residential contractors. Then, they personalize an optimal mix of jobs for each builder or remodeler based on what you like to do, what you’re good at, and what maximizes your profit.
VP, Marketing at Aspire. Contact me: [email protected]