Focusing on Profitable Work

      Shop owners brainstorm about keeping their companies targeted on the work they do best and make the most money on. November 5, 2007

Looking at my year end for 2006, I find I've doubled revenue but made about the same salary and profit as the year previous (barely enough to live on). In 2005 I had myself and one part-time apprentice. In 2006, I had myself, one high skilled, high wage guy and a full-time apprentice. I'm now trying to figure out whether it's a matter of not charging enough, or a matter of employees not contributing sufficiently to cover their wages and allow me to make a profit, i.e. inefficiency. One problem may be that I'm not specialized. We do custom doors, trim, cabinets, anything in wood, really. Does this type of structure (one boss, two employees) even work?

Forum Responses
(Business and Management Forum)
From contributor L:
Yes, the structure works. Because you had a high skilled employee in the shop, you might have done a lot more in the office. Did you notice if your hours are getting shorter, or were they the same?

The hard part of not focusing on a certain specialty is that it is real hard to train employees quickly and get the shop knocking out widget after widget. But on the other hand, I bet you have a good deep schedule. If so, raise your prices on the next bid.

I kind of have the same setup as you, but both employees are very skilled, so I am giving them a heck of a lot more responsibility - measure, order, fabricate and install, while I'm doing other jobs and working them into the shop, and of course we all pitch in to knock the jobs out. I figure this type of growth is where I want to go.

I looked at the same type of figures you did and the biggest win for me is more family time and less stress. It didn't happen overnight, and it's still not easy, but it sure is nice knowing cases, tops, furniture, or anything else we have on the floor is getting knocked out while I'm installing or working on a bid or making a sale.

From contributor Y:
When I first started I would do most anything that came in the door. After almost starving in spite of always being busy, I finally sat down and figured out what I made money on and what I didn't. Stopped doing the losers, charged more for the things that I ended up specializing in (custom short run moldings with hand ground knives on a shaper, period architectural details, odd parts for other shops that required shaping or working in lots of curves). The first year after I started turning down all work that didn't fit, I made a passable living and had an awakening... I was filling a niche that was empty in my market area. Truth of the matter is, it was more by accident than a brilliant plan. To this day we do much the same - lots of curves, custom moldings (curved too) - only now I've got 20 employees doing it.

We now formally evaluate every job for performance. Jobs that fail to make our profit goals are examined for cause, and changes implemented. True, sometimes the change is raising the price to the point we don't get the same or similar job again, but that solves the problem too. The same customers come back over and over, so I know they feel they are getting what they are willing to pay for. If there is ever an issue with our quality, we fix it - free and quickly.

But we will not cut our price to get a job. Very few of our customers even ask how much. We treat them the same - fairly, always aiming to make a decent profit consistently. We rarely do bid work, as what that asks for is cutting everything as much as you can get away with, not the thing I want to become noted for! Your problem probably isnít the number of employees, itís what you are doing or how you are doing it. Lots of people start off selling themselves short, so you arenít alone. Now that you have realized it you can change it.

From contributor P:
What contributor L said. For me it was pretty much the same thing and I had an epiphany - we needed to do certain types of work. I look at every job that goes through the shop for profitability and I track the labor and material on every job. I would say for most of the guys that have been around for a while, that is one of the key things that they do differently from the newer shops. That is, they *look.*

From contributor I:
I have a question for you guys who say they only do certain work. How do you turn down work? If a long time customer requests you do an odd job, and you know it is going to be difficult and not really your line of work, do you overprice it and risk changing your image to that of being overpriced? Do you just say no and risk having him find another shop that is more willing to do a variety of work?

From contributor Y:
You don't usually lose a customer by being honest with them. You don't over price. If it is not something in your line, a simple explanation will suffice along with a referral to another shop that has that type of work as a specialty. We have established relationships with other shops that we feel comfortable dealing with. We do their wild ass curved work; they do our turning, or residential cabinetwork. I'll scratch yours, you mine, and we'll both make a buck!

From contributor I:
We refer all our bad customers to our competitors, but I really haven't established a relationship with a shop that I would refer our good customers to, that wouldn't try to steal them.

We are known as a high end custom shop, but we have so much work now that I would like to turn down the more complicated custom stuff. I really don't know of a shop off hand, and I have been stabbed in the back before, so I am hesitant.

From contributor W:
If you don't specialize, you should be doing stuff that no one else will do, and charge out the wazoo for it; that turns into a specialty itself. Don't do a lot different things that are covered by other specialists in your area. I suggest you find your niche, what you see a strong market for, with continuing growth opportunities, and what you can make easily.
If you are busy, you are not charging enough. It is a myth that after you raise prices 8%, you will lose all your customers. News flash: making more money will relax you, and being relaxed will help you make even more money in lots of ways.

I think the only way to make a good living with two employees is to have no overhead to speak of: no rent or very little mortgage, all equipment paid off, well trained crew with good attitudes and attendance, charge what the market will bear and no fear of raising prices. And no, I do not consider $50k per year a good income for a business owner. Inflation sucks, doesn't it?

From contributor T:
We have three criteria for evaluating prospective projects:
1) Is it local?
2) Do we already know how to build it?
3) Can we sell it direct?

If we can hit all three points, we make a lot of money. Anytime we compromise one of those requirements, the job starts to suffer. Local is important because we like to visit jobsites several times. While many questions can be answered with just a phone call, a field trip is always better because it's this face time that builds relationships. This extra effort also reduces mistakes on our part and at the jobsite. It's a cost we absorb in lieu of advertising.

Already knowing how to build what we sell makes the job a lot easier to produce. We've never yet come out ahead the first time we've tried anything. Research and development is very important, but we want to be in charge of the outcome and budgetary outlay for this department.

Selling it direct is critical now and in the future. Minimizing the number of filters between us and the real customer makes for a more nutritious project and creates more referral work in the future. Since all problems (design and engineering) are going to land on our plate anyway, we might as well be in control of the semantics also.

From contributor Y:
Contributor T's criteria are interesting from my point of view.
1) Is it local?
2) Do we already know how to build it?
3) Can we sell it direct?

Taking them in relation to what we do:
1) 80%+ of our work is out of state.
2) I hope so, but we will push the envelope here.
3) Almost never.

The result is, we exceeded our target profit percentage last year on sales of 2 1/4 million. Moral of the story is, there's more than one business model that can work. Ours includes heavily reinvesting in our plant and employees. Pushing the limits of what can be done with our current technology and obtaining the next level of technology to be able to push it more. The result can be reduced competition and better margins. It can be a risky game, but following the herd and being in the safe zone is a bit too boring for me. Give it hell; you only go around once!

From contributor P:
Earlier I said to concentrate on the type of work that makes you the most profit. That said, it is a good idea to be diversified also - not all things to all people, but niches in different markets. This will keep you more stable. It is harder, but more stable.

From contributor T:
The Harvard Business Review had an interview with John Peterman of the J. Peterman Catalog Company. This was a retail company that enjoyed stratospheric success for a short while, then flamed out just as quickly.

When they asked Mr. Peterman why it crashed, he boiled it down to three causes:
1) His company grew faster than his management systems could support.
2) He strayed from what he was good at.
3) He failed to communicate his vision in a way that was useful to others.

We have been focusing on developing protocol at my company. When we get that in position, we will then look at how best to direct excess capacity. This may take the form of diversification, or it may take the form of finding more customers for our current product offering.

A weak spot in my company is that if you don't own a house, we don't have anything to sell you. Contributor P could have a good point.

From contributor T:
That same HBR magazine has an article entitled "Decoding the DNA of Toyota." One of the things they observe about Toyota is that they have a protocol of asking questions in a way that you always get a simple "yes/no" answer. If you can't get an unambiguous answer, you have to rephrase the question until you do.

An example of this might be crown molding selection: If you ask your customer what kind they like, you have no idea what their answer will be. If you point to some examples and ask them which one they prefer, you can check the box next to allowable option #3.

Properly formatted, this list of allowable options might also include information about horizontal and vertical dimensions. You end up spending less time talking about specifications and you get your math figured out at the first meeting.

There is no question that doesn't ultimately get answered. Sometimes you ask the question when the customer is on the way to the airport, sometimes you just assume the answer, sometimes the assumption you make is correct. This is what I mean by protocol. When we stop burning dollars because of stupid communication systems, we will become ready for more variables (diversification).

From contributor Y:
I totally agree about having both a diversified customer base and market. Easier said than done! We could be hurt big time because 40% of our work is in one market area, at least twice what it should be at most! I think this is a common problem with store fixture shops. You get started with a company that does a few stores a year, then they want to go to 40. What are you going to do, tell them you will only do 15? It will likely be all or none.

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