“My labour and subcontractors are earning more than me"
by Peter Searle Mar 05 2018
Good tradesmen, for example those who install kitchen units which look good and work flawlessly soon decide that they can make more money by setting up a business, becoming a business owner and getting other fitters, who they trust, to fit the units for them.
Many are successful with this and make a small mark up on the fitters they subcontract the work out to. The mark up is at a level that someone is prepared to pay for the reputation of the business owner.
However, the success can lead to the owner spending more time organising the subcontractors and doing less and less fitting themselves.
As the expert everyone goes to them to solve any problems and because they can, they do, which takes up more time. As their volume of fitting decreases the business owners pay will decrease and the mark-up they are making on the subcontractors does not cover the difference. The owner will be reluctant to increase prices as they believe the work will dry up. At this point many business owners think they might as well go back on the tools as their fitters are earning more than them.
If they have got lots of work in the pipeline then what they need to do is review their business strategy. To run a good business, you need to be a good business person, just as a trades person needs to know their trade, a business person needs to know their business. So what simple steps can be taken to get out of the cycle? Let’s look at the lessons learnt.
Think about the first step you took, employing other fitters. They are the best you know. All the other activities you do such as marketing, book-keeping, organising the subcontractors can be done by specialists. Aim to become an expert at “employing specialists for everything”. life will become easier and you will only pay the market rate. But you will need to learn how to delegate.
Achieve the best price for your offer. Business owners from a trade background are often reluctant to raise prices, but if you have a full order book, raising them is the best way of making the business controllable.
Be brave and raise prices, it will allow you to “employ more specialists”.
In any case, people will keep recommending you, if your service is good or you are offering something special they are prepared to pay for.
Be brave with the pricing but always remember what makes you stand out in the market place and sell the benefit of using you.
Employing a good sales person or surveyor/ estimator, if you don’t like asking for a high price, could be the best thing you do.