Saving your way to Profitability

Saving your way to Profitability

John Graves
Contributing Writer
BuyMax Alliance

 

Profitability is the name of the game when it comes to running any business.  Home service contractors only think of increasing sales to increase profitability.  While that can help, another way to increase your profitability is to decrease your expenses.  Do both and you have a better path to profitability.

Most contractors typically focus on selling more, because they believe that’s the easiest way to increase their profitability.  Saving and cashing rebate checks might not be as exciting as selling, but it might be much easier.  Often times there are savings and rebate opportunities right before your eyes within your current business.

How can it be easier to save or rebate your way to profitability rather than selling your way to profitability?  You first have to understand what that savings amount would equate to in additional sales.  In order to do that, you’ll need to know what your net profitability is.  Once you have that, you can then do a simple comparison of how much effort you have to invest to save a certain amount vs. generate sales to equal that amount.

Let’s look at an example to illustrate the point.  Let’s say your company generates $7,500 in savings and rebates on products and services you already purchase.  If your company has a net profitability of 5.0{938cd9e8dae860e800efc538277d4f7684e6f6981618ba70d1c34357a53c2e1f}, that $7,500 in savings would is equivalent to generating $150,000 in sales.

Here is the math:

$7,500/ 0.05 = $150,000

So if you want to use your numbers, plug in your estimated savings/rebates and divide it by your net profitability.  This will tell you your savings to selling ratio.  It’s then up to you to determine which is easier, saving your way to profitability or selling your way to profitability.  Only you will know how many leads you must run in order to close enough sales to generate that $150,000.

And at the end of the day, that $7,500 drops straight to the bottom line.  You can do with it what you wish, reinvest it back into your business, spiff your employees or take that well deserved vacation.

There are many ways a company can decrease expenses, such as cutting out waste, taking advantage of payment terms, utilizing discounts, and also participating in buying groups.  Affinity groups can help contractors decrease their expenses by offering discounts and rebates on many products and services you are using each and every day.  Many of these savings and rebate opportunities are with vendors you are already utilizing today such as:

AIG, American Standard- Plumbing division, A.O. Smith, Barnett, Bradford White, Bryant, CareerBuilder, Coleman, ExxonMobil, GE Capital, Graybar, HomeAdvisor, In-Sink-Erator, Luxaire, Mitsubishi, R.E. Michel, Rheem & Ruud HVAC equipment, ShuBee®, Staples, White-Rogers, Win Wholesale, York, and many more.

So how do they do it?  By putting the purchases of thousands of home service contractors to work to benefit the entire group.  There are on-line member organizations that provide national buying power with over hundreds of national vendors.  Some offer an entry level opportunity for home service contractors to gain access to special pricing and rebates.  They help contractors become more competitive and profitable in their market place.

John Graves is the Vice President of Group Buying for BuyMax, LLC. which provides buying group services for its HVAC, Plumbing, Electrical and Roofing members.  For more information, visit www.BuyMaxAlliance.com