How To Set Annual Goals For Your Construction Company
By Brenden Melanson
Setting and tracking goals for your contracting business should be a year-round exercise. Staying competitive and driving growth hinges on establishing strategic 12 month goals. By breaking down long-term objectives into more manageable chunks, contractors can monitor progress and make adjustments to ensure your project budgets, and your corporate budget, stay on track
We recommend setting monthly, quarterly, and yearly goals, and then you should set longer term goals for 3, 5 and 10 years out. For our purposes, we’re going to focus on those yearly goals – the realistic 12-month targets that you can start to make progress on right now.
We always recommend setting goals in three main areas:
- 1. Finance
- 2. Marketing
- 3. Operations
These are the three key functions of almost any business, and we recommend that you set goals in the order shown above. By setting your financial goals first, you’re then able to determine exactly what you need to do in the areas of marketing and operations in order to hit the targets you’ve set for your business.
We use a tool called the Profit Calculator as the first step to setting goals for your contracting business. You can get your hands on the tool here and start to establish your goals as you read through the article. By the end, you’ll understand exactly what needs to happen in the next 12 months for you to get comfortable with your numbers, hit your profit targets, and start taking control of your business.
1 – Establish Your Overall Profit Goal
Have you ever heard the saying “Revenue is vanity and profit is sanity”? Well it’s absolutely true for any business. You can push $10million in revenue through your company, but if you’re not making a decent profit then what’s the point? You need to understand how much profit you want to make first, and your revenue should follow from there.
Many contractors make the mistake of setting a revenue goal first, and then trying to figure out how much profit they’re going to make based on the markup for each project. Although this seems to make sense at first glance, it’s hard to determine your profit in this way. Start by asking yourself “how much money do I want to make in the next 12 months?”.
Determine your overall profit goal and enter it into the box below the Gross Profit Goal.
2 – Break Down Your Profit Goal
Your overall goal might seem intimidating at first, so you need to break that goal down into more manageable chunks. We always prefer to separate goals into small, medium, and large projects.
Depending on your business, small projects may be smaller renovations or commercial fit out’s. Medium projects could be bigger renovations, single family homes, or large tenant improvement projects. Large projects may include custom homes, multifamily builds, or concrete towers. This breakdown structure will work for you whether you’re a subtrade or a general contractor. You need to determine what a small, medium, and large project look like for your business.
3 – Determine Your Project Split
The first step to registering your business is to choose a name. When choosing a name you need to consider your marketing as well – is the domain name available? Does the name represent who you are and what you do? What usernames will you use for social media? Remember that your business name will be with you for the long haul, so choose wisely. Conducting a brainstorming session with a partner or business consultant is a great way to generate ideas and get feedback.
You’ll also need to follow the naming guidelines for your area and ensure that the business name is available in your province or state. If you google “Name Registry (enter your location here)”, you should get some results on naming guidelines and resources to help you determine what names are taken and what’s still available. Registering your new contracting business could also come with obtaining a business license and permits before you can begin work.
4 – Determine Your Key Project Metrics
Now that you have your projects broken out into divisions, you need to establish the key metrics on each type of project. Some basic numbers to consider include:
- Profit Margin
- Average Project Size
- Close Ratio
- % of Leads Quoted
Your profit margin should be the percentage that you expect to make on each type of project. Don’t forget, your profit markup is not the same as your profit margin – if you need a quick rundown of how markups and margins differ, you can book a live call with us here to see how they affect your business.
Your average project size, or average job size, is the average amount that you charge for each type of project. As an example, if your medium jobs range from $10,000 to $30,000, then your average project size is $20,000. Don’t stress about getting the average exact, round the numbers to the nearest $5,000 or $10,000 depending on the size of jobs you complete.
Next, consider how many projects you submit estimates for compared to now many of those estimates you are awarded. If you submit 5 estimates, and you win 2 of those jobs, then you have a 40% close ratio. If you win 3 out of the 5 jobs, then your close ratio is 60%.
Finally, you need to determine the percentage of leads that you quote on. In this scenario, “leads” are the requests you receive to bid on projects. You should have a target market, and a way to qualify leads, in order to commit resources only to those projects that fit your target profile. Sometimes leads are not qualified or they fall through the cracks, so a 80-90% of leads quoted is fairly typical for our industry.
Enter your profit margin, average job size, close ratio (%), and the % of leads quoted into the calculator.
5 – Track Your Progress
Now that you’ve completed the Profit Calculator, you now know your key performance indicators for your small, medium, and large projects. You know how many leads you need to generate, how many estimates you need to submit, how many projects you need to complete, and ultimately how much revenue you need to drive in order to hit your overall profit target.
You need a tool to help you break down exactly what needs to happen, month by month, for you to hit your profit target and track your progress throughout the year. We’ve developed the Strategy Blueprint specifically for contractors so you can create a customized game plan for you to follow throughout the year.
If you want more information on the Profit Calculator or you’re ready to take the next step in understanding how the Strategy Blueprint can benefit you and your business, book a free strategy session with us here.
Next Steps
In order to hit these targets you need to be pricing your labour profitably, estimating and bidding accurately, and obsessively tracking your budget and schedule to ensure your projects are staying on track. Having a business strategy plan is a great place to start. We’ve developed our Strategy Blueprint created specifically to help contractors set goals, track their progress, start understanding exactly what’s working in their business (and what isn’t).
