5 Reasons Why Contractors Aren't as Profitable as They Could Be

Contractors can't control everything, but these causes of poor profitability are well within reach.

There are a lot of reasons why making a sweet profit in landscape contracting has gotten harder. Many of them are largely out of your control. But even during the Green Industry's boom era, many contractors were not as profitable as they could have been—for reasons that are well within their control. Here's a look at five of those reasons which can cause major headaches in today's market.

1. Aren't focused on profit

Too many contractors are just not focused on profit. They're focused on hustling for more customers and growing their businesses at the top line. Each new client is a huge victory that feeds the desire to acquire yet another customer.

This is all well and good, as a steady flow of new clients can be essential to survival in today's market. But a state of reactive management can ensue. The contractor is constantly responding to leads, putting out fires, and scrambling to service existing clients adequately. No time or attention is spent on how this extraordinary, often chaotic effort is impacting the financial well-being of the company.

2. Don't know costs, can't price correctly

A lot of contractors also lack a firm grasp on their costs. They have a pretty good handle on direct material costs for things like fertilizer, seed or pavers. But overhead is a mystery. Without an understanding of what your overhead costs are, and how to recover those costs job by job, you could still end up making a profit—but it would be due to sheer luck.

3. Not watching for profit leaks

Some contractors don't watch for profit leaks. Things like worker's comp rates, employee downtime, excess overtime, and poor marketing investments can drain your profits away. You have to keep an eye on these things, manage them scrupulously and look for savings.

4. Too many loser accounts

Contractors should scrutinize each division/service of their company separately to see which are and are not profitable. They should do the same thing with their clients.

For example, let's say you have 50 customers. What if 10 are actually money-losing accounts, meaning that they don't pay you enough to help recover any of your overhead? You are basically charging them for your employees' time and the materials you use (direct costs). You'd be no less profitable if you didn't even do the job. Unless you're strategically servicing a no-profit account because of doors it could open in the way of additional work, take a hard look at dumping it.

5. Trying to do too much, or maybe not enough

Some contractors spread themselves too thin in an effort to branch out. Their overhead goes up, customer satisfaction goes down, and the erosion ensues. Sometimes it's simply better to find good subcontractors to work with. Then, you can still offer clients a myriad of services, but don't have to take on all of the risk of investing in new equipment and training, etc.

Conversely, some contractors sacrifice profit by not doing enough. Their clients are asking them to do more, but they want to remain focused and specialized. They see potential openings in the market, but want to remain focused. See a good opportunity for what it is, and realize that you don't always have to invest tens of thousands of dollars in new equipment to jump on it. Build a plan—with profitability at the core—and start working it.