Question
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.
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 isn’t the number of employees, it’s what you are doing or how you are doing it. Lots of people start off selling themselves short, so you aren’t alone. Now that you have realized it you can change it.
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.
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?
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.
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!
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.
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).
