So many contractors are grinding out there. They're pulling the wrong levers, they're getting frustrated, but if you could do things the right way, you can be so much more profitable. You just have to know which levers to pull.

In construction, you don't need more jobs to grow your profit, you just need to pull the right levers. But here's the deal, most contractors are playing defense, reacting to problems, hoping there's money left over at the end of the day, which is a terrible way to run a business. Profit doesn't happen by accident, it happens by design.

And I'm going to show you the four levers you can pull in your construction company to boost your bottom line. I will also show you the two common ones that most people pull, including myself back in the day, and which ones are the best. And I'm also going to direct you to a calculator where you can enter two simple numbers from your financial statements and get a personalized look on how these levers will impact your company's numbers.

So let's go ahead and jump in. There are four levers, I'm not going to go in any particular order because I want you to guess which one is the most impactful. Number one is volume.

That's the first lever to influence your profit, which means you just go out there and take on more work. You do more projects, you increase your top line, you do more sales. That's what we're talking about when I refer to volume.

The second lever includes pricing. So this involves increasing your pricing, adding more to your bids, right? Number three is cost of goods sold. So it's reducing your costs such as material costs, negotiating your pricing with your vendors, for example, reducing your labor costs, becoming more efficient, increasing your production rates, buying better equipment so your team can go out there and do jobs in less hours, etc.

Just be more efficient with your labor. It means being more efficient with your subcontractors and the whole buyout process. So maybe you use contractors who are less expensive, for example.

And then there's other direct and indirect costs in cost of goods sold that you can optimize. That's what I'm referring to there when I say cost of goods sold. It's your cost of delivery, in other words.

And then the fourth lever includes your operating expenses, also known as OPEX for short, or overhead. So it's just reducing your overhead. All right, those are the four levers.

Which one do you think is the most impactful? Take a guess. Just shout it out. If you're driving down the road, just shout it out.

Just own it. You could be a total weirdo. If you're at the gym, just shout it out.

If you said volume, that's what most people think. If you said reduce overhead, OPEX, that's what most people think. And in fact, when I was 16 years old, I started a landscape company.

I had no clue what I was doing other than from a technical standpoint. I knew how to build projects and I was just figuring out as I went along, but I had no clue how to read financials. So I was just relying on sheer heroics and grit to make things work.

Terrible. Okay. Terrible.

But it worked for a little bit, but I left a lot of money on the table. But here's the deal. Anytime my business would get into a profit squeeze and we're doing millions in revenue.

The first thing I would point to was sales. I just tell my team, we need to go sell more jobs, go sell more, go close more. And we just need to fill up our schedule.

And the second lever I'd look to pull was reducing our overhead. I'd always complained that our overhead was too high in comparison to our sales. All right.

So those are the two levers, volume and OPEX. But guess what? Those are the least effective, but so many contractors pull them because it's easy to think, just go do more work, take on more projects, reduce your overhead and profit will magically appear. There's a better way.

All right. So if you go to Coltivar.com, I'm going to link it down below in the show notes as well. Click on that link, go to the website and under tools, there's a calculator called the profit lever calculator.

So open that up. It's totally free, right? Very easy to use. There's two numbers you need to put in and you're going to pull these numbers from your income statement.

Pull the income statement for the last 12 months. All right. The first number you'll need is your cost of goods sold expressed as a percentage of revenue.

So look at your cost of goods sold for the last year, divide that by your revenue for the last year, same period. Do the same thing with your operating expenses, your overhead, take operating expenses divided by your revenue. And that will express it as a percentage.

It's going to express it. In fact, as a decimal point, you'll get 0.3, for example, just multiply that by a hundred and that'll give you the percentage. Okay.

All right. So after you do that, enter that into the calculator and down below, it will spit out exactly what a 1% increase or improvement will have on your bottom line. So I'm going to give you an example here.

If you're just listening to this and you're not pulling up the calculator, let me walk you through this and I'll show you why it's so important. If you plug in 65% into cost of goods sold, let's just say I run a landscape business, a plumbing business, electrical company, whatever it is. And my cost of goods sold are 65%.

Remember COGS represents material costs, field labor, subcontractors, et cetera, all the costs related to completing the project. So in my company, in this example, I'm using 65%. Then for overhead, op-ex as a percentage revenue, I'm going to put in 30%.

So 65% on costs, 30% on op-ex, that leaves me with a 5% profit margin, which in fact is probably better than most contractors out there. Here's another cool little side note. If you want to know where you stack up from a profitability standpoint, in the same section on the Coltivar website, we have the benchmark report.

So you can see by trade where you fall with profitability. So you can see whether or not you're earning above or below industry average. So for this company, let's just say they're earning a 5% profit margin.

So they're slightly below average. What this will show you is a 1% improvement in any of these areas. So in other words, you increase your pricing by 1%, it will have a 20% impact on the bottom line.

Or if you reduce your cost of goods sold, it will have a 13% impact on the bottom line. If you increase your volume by 1%, it will have a 7% impact on the bottom line. And if you reduce your overhead by 1%, it will have a 6% impact on the bottom line.

Pretty cool, right? So pricing is the best lever. And it's my favorite lever. Because check this out.

Let's say you do a bid for $1,000. We're talking about adding 10 bucks. That's nothing, right? And if you did that, it would have a 20% impact on your bottom line if you have the same ratios that I just shared in this example here.

That's why pricing is so powerful. So anytime I work with a contractor, one of the first things we do is we look at their margin gap. But then also we get into their bidding and estimating.

Because I want to understand what method are they using? Are they recovering enough of their overhead? And are there opportunities for optimization? Now, it's not as easy as just going into your bids and saying, okay, we're going to bump everything up by $1, $2, $5 here and there. Because remember, your value or the perceived value in the marketplace still has to exceed your price. So there's strategy.

Which markets are you going to pursue? What type of customers are you going to go after? Who is your ideal customer profile? What is the value proposition of your company? Can you convey that when you're doing bids, when you're submitting bids? Or are you just going after jobs that are going to be one on low bid, whatever it is. There's strategy behind pricing. But as you can see here, pricing has a major impact on your bottom line.

I'm less of a cut guy. Some people out there, they're like, let's go cut overhead. Let's go cut costs.

I'm like, instead of cutting, cutting, cutting, let's go expand. I believe in abundance. And I believe there's so much opportunity out there in the construction industry.

You just have to know which levers to pull, right? If you want, I wrote this book, it's called Cash Flow. And if you go to Coltivar.com, you can get it for free. If you live in the continental US, you just cover shipping and we'll pay for the price of the book and the printing.

But in here it's neat because I make it really simple. It's for non-financial people. I even drew some pictures and this will walk you through the different levers you can pull in your business.

And it'll give you very specific action items and steps you can take to improve your profit. So here you have the calculator. So number one, you're going to want to put your numbers in.

So you can see what 1% impact will have on your bottom line in the different areas and which lever is best to pull for your company. You have this cashflow book, which will help you to understand what are the levers of profit and more importantly, cashflow, because I want you to be successful. And in the process, you could benchmark yourself for free, just by looking at the different ranges that we've published on the website.

So many contractors are grinding out there, right? They're just getting work, doing work and grinding. And they're not taking time to slow down, to look at the numbers, to make adjustments to their bidding methodology, and just to make their labor more efficient. They're pulling the wrong levers.

They're getting frustrated. At the end of the day, there's not enough money. There's cashflow issues.

Debt is blah, blah, blah, blah, blah, et cetera. Right. And it's like your head wants to explode.

But if you could do things the right way, then you can be so much more profitable and you can worry less about cashflow because I've been there before where you're stressed out about money. And it's terrible. Like, I don't want you to be in that position and you can get out of it.

So that's what I've prepared for you today. Be sure to check out those tools. And it would mean world to me.

If you find value in this podcast, if you share it with others, help me get the word out there in the construction industry, there's so much opportunity for improvement and financial literacy is a massive gap. And that's what I'm hoping to solve. All right.

Until next time, take care of yourself. Cheers.