Episode
241
Tue, 02 Apr 2024 08:00:00 +0000
If you’re wondering how to make the most of your money…
Or if you want to find out what do the wealthy contractors do that the ones who struggle don't…
Then this is for you.
Recently I met with Taunya Woods Richardson, who shared the 3 things wealthy contractors do differently when managing their finances.
As a serial entrepreneur with eight businesses behind her, she knows her stuff.
In 2011, she became a lender, diving deep into cash flows and credit reports - and she quickly realized what makes businesses succeed.
Now Taunya is on a mission to help other founders with money management.
Even National banks are taking notice, sending struggling business owners her way.
So, when banks say, "Talk to Taunya first," you know she's got the goods.
The first thing wealthy contractors do differently is they plan for net profit.
That means they know what their profit margins will be before starting a project.
Then they manage their projects to exceed their profit goals.
So, if you want to manage your money like wealthy contractors do, start thinking about your profits upfront.
When you're building something for a client, you're renting out your entire business for that project.
And just like any rental, there are costs involved.
You need materials, labor, overhead expenses, and of course, you want to make a profit on top of that - so you need to plan for it.
It's that extra padding that ensures your business remains healthy and thriving.
Think of net profit as building up your emergency fund or becoming your own bank.
You can invest it back into your business to create value for everyone involved—your crew, your family, and your clients.
Taunya jokingly calls gross profits “The Bermuda Triangle of Budgets” and here’s why…
Everyone brags about their gross profits but gross profit alone doesn't mean real, money-in-your-pocket profitability.
So to avoid losing money you need to get laser-focused on your revenue streams.
Understand which projects bring in the bulk of your revenue.
Keep track of the direct costs that each project incurs.
For example, let's say you're a cabinet maker.
Chances are projects you do for residential customers have different requirements than commercial ones.
So you should calculate the direct costs associated with each project type, so you can focus on projects that actually make you money.
There are also sneaky soft costs that can really eat into profits.
For example, the merchant fees you pay when customers use credit cards to pay you.
They can add up, usually around 2.79% of the transaction.
Most contractors don’t include these in their pricing.
Then there's the interest on any debt you might have.
Let's say you're using credit to buy materials or equipment - well, you've got to pay interest on that, right?
That's another expense that's often overlooked when pricing a job.
And then there are supplier costs. They change all the time.
So if you're still using a price list from last year, you might be undercharging because those little increases in costs over time add up.
So to avoid getting lost in the Bermuda Triangle of budgets make sure to factor in all these soft costs along with the direct expenses.
Knowing your numbers for every project is the only way to ensure you're not selling yourself short.
Last but not least comes the weighted pricing model wealthy contractors use to charge premium prices.
Instead of just looking at what your competitors are charging and blindly setting your prices based on that, a weighted pricing model takes into account something far more crucial— what your customers value.
Different customers buy for different reasons.
For some it’s price. For some it’s safety. For others it’s speed.
So let's say you're in the business of residential home builds.
One of the biggest pain points for homeowners is projects running over time and over budget, right?
So, what if you could offer a solution where you not only complete the project on time but also under budget?
That would immediately increase the perceived value of your services (and therefore charging more would become easier).
Here’s a creative way to do it:
One of Taunya’s clients was determined to build a reputation for always delivering projects under budget, knowing full well that this was a pain point for many homeowners.
So, they came up with a brilliant idea.
They decided to budget for a refund check within their direct costs.
At the end of each project, if they managed to complete it under budget, they would surprise their clients with a refund check along with a heartfelt thank-you gift for trusting them to build their home.
Imagine the shock and delight of those homeowners when they received a check for $4,372.63, all because their project came in under budget!
It wasn't just about the money — it was about the goodwill and trust that gesture generated.
Needless to say the referrals came in pouring.
And even if they went slightly over budget, they had already accounted for that refund in their costs.
So, in the end, everyone was happy—the homeowners got more than they bargained for, and Taunya’s client earned a reputation as a contractor who not only delivers quality work but also goes above and beyond to deliver under budget.
And that's the beauty of our weighted pricing process.
It's all about delivering value… and then pricing accordingly.
So how does the weighted pricing model work?
The first step is to identify criteria that are important to your customers.
These include things like project completion time, adherence to budget, quality of materials, level of customer service, or any unique value propositions you offer.
Once you've identified things they value, you assign each of them a score on how important they are to your customers.
For example, if completing projects on time is a top priority for your clients, you might give that criterion 5 out of 5
Then honestly evaluate how well you perform in each area compared to your competitors.
This step requires a bit of introspection and honesty, but it's crucial for understanding your strengths and weaknesses.
Once you've given yourself a score out of 5 for each capability, you'll have a clearer picture of where you stand in terms of value delivery.
Then you can adjust your pricing strategy based on this assessment.
If you're offering superior value in certain areas, you can justify charging a premium for your services.
But it's not just about charging more — it's about communicating that value to your customers effectively.
You want them to understand why you're worth every penny and why choosing you over your competitors is the best decision they can make.
And if you encounter price resistance chances are you’re not talking to the right people.
Instead, target customers who truly value what you bring to the table.
So, that's the gist of the weighted pricing model.
It's all about understanding your customers, evaluating your value proposition, and pricing accordingly.
When it comes to commercial clients or high-end residential buyers, what they value the most might not be what you expect.
It's not just about the quality of the work or the pricing - it's communication.
Nobody likes surprises.
They want contractors who have a preset communication schedule.
They want to be in the know every step of the way, even if there are delays or issues.
Surprises throw a wrench into their plans, but they can plan around problems if they are communicated on time.
Taunya was recently working with a client who had a lightbulb moment when they mapped out their progress-based billing cycle.
By clearly outlining completion phases and communicating this schedule to the client and all subcontractors involved, they were able to become the best-in-sector performers.
Everyone knew what was expected of them, from when to show up on-site to when to invoice for their work.
And you know what's interesting?
This approach mirrors the professionalism and communication standards that commercial clients and high-end residential customers are accustomed to in their own workplaces.
So, when wealthy contractors implement structured communication schedules, easy-to-understand agreements, and clear progress payment systems, they're meeting their clients where they are at. This level of service is something clients gladly pay extra for.
And finally, when asked about the most important thing out of everything she shared Taunya said: Pay attention to your direct costs.
Because ultimately knowing exactly how much money you're spending to provide your services is key for wealth management.
If you want to delve deeper into effective money management strategies for contractors, don't miss out on the full Profit Toolbelt podcast episode with Taunya Woods Richardson.
Show Notes:
Links and Resource
.svg.webp)
