The Profit Builder Unscripted

Why More Sales Won’t Save You

• Vicki Suiter

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Many contractors believe that selling more jobs at a lower price will lead to higher profits. On the surface, it seems like a smart move—more work coming in, more money out the door.

But that strategy can quietly destroy a business.

In this episode, I share a story about a contractor whose revenue exploded from $2 million to $12 million… yet profits disappeared. The lesson?

Volume doesn’t equal success if your margins are shrinking.

Tune in to learn the key mistake that caused the losses—and the simple shift that turned things around.

If you’ve ever thought you could “make it up in volume,” this episode will change how you look at pricing forever.

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Hello, and welcome to another episode of the Profit Builder. I'm Vicki Suter with Suter Business Builders, and I'm your host. And in today's video, I'd like to talk with you about volume over margin and how if you choose volume over gross profit margin, it can kill your contracting business. So what do I mean by that? Well, ⁓ you know, I've seen a lot of times where I have a contractor who thinks, well, if I just sell enough volume, but I can keep my overhead costs down. If I sell enough volume at a lower price, then what I can do is I can make up for my profits and I'll have higher profits because I've got higher volume. And there's this fallacy that they think, well, if I have higher volume and I just sell it at a lower price, I'll close more jobs and then I'll have more profits on the bottom line because I got more volume.

I'm going to tell you, I've seen this time and again over the last 30 years, that this is a bankrupt theory that does not work. Every time I've seen somebody who ⁓ attempts to sell more at a lower price without understanding their numbers and understanding what it really cost them to run their contracting business, I've seen that it affects their bottom line ultimately. And I've seen sometimes people go from
I had one client who went from making a quarter of a million dollars a year to losing almost a half a million dollars a year because they employed that strategy during a recession. 

I had a client that I met with a couple of weeks ago, Sandy. And when I met with Sandy, he first explained to me that they had gone from doing like about 2 million to 8 million to now they were doing nearly $12 million last year. But they went from, and it was a similar situation, they went from making a quarter of a million dollars to losing money last year. And here's all I said, you so their revenue, right, their revenue was going up, their bottom line was going down. And their overhead was part of the issue because they had increased their overhead. But here's where the real problem was their gross profit margin was declining year over year over year. Now, how does gross profit margin decline? Well, they were pricing their jobs less expensively because they thought, well, I'm doing these bigger jobs. That's what the market will bear. Here's what I explained to Sandy. I said, you know, here's the thing. There's only two ways to affect the bottom line, increase revenue or decrease cost. And there's only two ways to do that. 

The only two ways to increase revenue are either to sell more or to increase your prices. And there's only two ways to reduce costs, become more efficient in production or literally cut costs, cut overhead costs. So in Sandy's situation, he had increased revenue, but the bottom line had declined. His profits, he went from making money to losing money. So how did that happen? His pricing went down and he decreased his prices without having a clear understanding of the fact that it was costing him a certain amount just to keep his doors open. And he was ignoring the fact that it was costing him more to run his business than he was charging for work in terms of a markup or a profit. So what does this mean to you? The thing that you want to know is that as a contractor, you live and die by gross profit margin. Your rate of return or gross profit margin is the critical number that drives your success as a contractor.

And as soon as you think and have some idea in your head that if I reduce my prices in order to sell more, I'll make more on the bottom line, it won't work. It will bankrupt your business. So the thing that you want to really hold dear in your business as a contractor is holding onto gross profit margin and making sure that you set a stake in the ground about what is the gross profit margin that we're going to get on jobs when we bid jobs.

And then what's the gross profit margin we're going to manage those jobs to to make sure that that translates into what we make in profit on jobs and what we get on the bottom line in profitability as a business. That is your contractors, again, live and die by gross profit margin. Your ability to produce a consistent profit on the bottom line, that is critical. And in order to do that, that comes in the way that you price a project and the way that you manage a project.

So you got to price it at the front end to make that much. And you need to make sure that you manage the cost during a job in order to be able to actually get that gross profit margin that you bid it at. So one thing that you may want to do is to look at before you send bids out, make sure that you have a strategy for checking those bids or have a system for checking those bids to make sure that they're meeting your gross profit margin goals.

I highly encourage you to take a look at your thinking about how you're approaching bidding and are you doing it with a mindset of I have a goal to reach or letting what you interpret, what the market will bear dictate how you bid projects. That whole topic of what the market will bear is a completely a different subject that I think would be good for us to go into at some point. But what I want to invite you to do is that you need to look at what does it really cost you to run your business and be clear that you have to break even, you have to mark up a certain amount on jobs just to make nothing on the bottom line. You want to know what that number is. And then you want to build into it that you're making a profit of 10 to 12 % on the bottom line.

After all, that is said and done. After you paid for overhead, after your salary, if you're an owner making sure that you have a good salary built into that overhead cost, that's how much you should be getting on the bottom line. So if you're not re-look at what am I bidding, what's my pricing strategy when I'm bidding jobs? ⁓

Keep in mind that if you think that you're going to make it up in volume, you won't. And that you really want to make sure that you have a stake in the ground number for how much you want to have in gross profit margin every time you bid a job before you get that contract signed. Feel free to go check out some of my other videos ⁓ on the topic. ⁓ I'm actually going to put a link below in this ⁓ YouTube video and in my blog post. I'm going to put a link to an article I have called Beyond Breakeven that will actually show you exactly how to calculate the correct overhead breakeven percentage. By the way, a lot of people get that number wrong. So make sure to check it out and calculate that for yourself. I think that will help you. And the other thing that you might do is to go check out pricing for profit. There are a number of different articles under that category or videos that might help you out in terms of your pricing strategy.

I hope you found this topic helpful. I'd love your thoughts and comments below.


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Vicki Suiter

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