Too much overhead will reduce your profitability, while efficient overhead can help you compete with your competition and maximize profits. In this article, we’ll be briefly explaining how important it is to know your overhead and how it can impact your business.
What is overhead? We’ve got a companion article about Overhead, Margin, and Profit here that will help fill in the blanks!
Every business will have a different overhead amount, and this will often vary from month to month. You can take steps to minimize the impact of your overhead to increase profits and win more work. If your pricing reflects high overhead, customers may look elsewhere if they believe the quality of work is similar. Most customers will want to pay for the work being done and not feel like they are paying too much for your operational costs. ConGenius allows you to markup in your estimates and proposals, which accounts for your operational costs. You have to be sure you only make what you need to from each project, otherwise, customers might be turned off by your proposals because they can sense they're paying more than they ought to.
It is important to consider ways you can lessen your overhead. This might be finding ways to complete jobs faster, considering how to save time when performing duplicate tasks, or what reinvesting profit back into your business would look like.
Your business needs a certain level of overhead costs to account for employees, equipment, and an office space that will allow you to properly and efficiently run a business. Cutting back on too many items will decrease your operational efficiency, meaning the business owner or employees will have to shoulder more work to make up for it, or the work will have to be delayed and put off, lowering income for a set portion of time.
With a limited amount of time, you have to weigh each item’s efficiency and contribution to your success. Do you need a fourth truck in your fleet if it is used twice a month? Is the equipment rental worth it over an outright purchase? Do you need two part-time office staff or just one? These items might be worth testing month-over-month to find out what is worth your financial investment.
One of the best ways to minimize your overhead is to increase the amount of work your business can complete. The faster you complete jobs, the faster you can get paid and accept another one. This reduces how much overhead is tied to each job and will result in more profit for your business. Increasing your overhead in the short term can reap dividends if you can turn your increased overhead into higher production value and quicker job acceptance and completion.
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