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Avoid The Trap Of Getting Bigger Without Making More Money

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If you decide to grow beyond one crew, are you sure you’re going to actually be more profitable?
If you decide to grow beyond one crew, are you sure you’re going to actually be more profitable?

Since getting kicked out of school in 1986 and then starting a career in the wood floor business, I’ve been through some ups and downs. I started our business being the only employee, and from there I’ve grown to include more than 36 crews installing more than 80,000 square feet per month year after year—but it didn’t come without a lot of pain, hard work and sleepless nights. Our wood flooring company has grown over the years to do sanding and refinishing of old floors, installation and manufacturing engineered wide plank hardwood flooring, as well as having a UV prefinish line for supplying prefinished flooring to our own stores. And we wholesale out to a few high-end flooring contractors here in the western Canada area, too.

Through all of that, one thing that has always concerned me is the struggle and hardships I watch most flooring entrepreneurs go through when deciding to grow their business from a one-crew operation to a multiple-crew operation and then having the desire to have a storefront location. The success rate for this is much below 10%, which is a shame, because it’s not usually from the entrepreneur not working hard enough. It’s because there is no manual written on how to scale your wood flooring business and understand it as it grows. This is what I’ve learned over the years, and maybe it could help others.

When you and your helper are installing, sanding and finishing, and you are gaining a good reputation, and the work is starting to flow in, and you are getting more jobs than you can handle … the first thing that comes to your mind is, “I need to hire another crew!” Just rounding off numbers to be easier to understand, let’s say that you and your helper are making a profit of $100 per day. Then you hire a second crew and get them set up with a van, tools and equipment. Now the second crew you hired are making $25 per day—after their expenses. But because you have a second crew to manage, your own production has now gone down to $75 per day. So you are still making the same money as you had been with one crew, but with twice the payables and twice the receivables. 

Even so, you continue to get busy, so you add another crew to your company. This third crew is now making an additional profit of $25 per day, but your own work ability is dropped to $50 per day because you have to manage two additional crews now. This means you are still making $100 per day. But you continue to keep getting busier, because jobs keep rolling in, so you decide to hire a fourth, making a $25/day profit. But now you can’t get anything done yourself throughout the day because you are so busy running around getting supplies, doing estimates, trying to collect money, dealing with job issues and doing touchups and putting up with the runaround from your customers because payroll is coming again—and coming really fast.

So you are now making $25 off each of your four crews you added, which means you are making $100 per day… which is the same amount you made when you were working by yourself with a helper. And all you can think of is how easy it was back then, how you got to go home for supper every night, how you didn’t have to work every weekend, and how you got paid for all your jobs and your customers were all happy. You didn’t have a list of receivables and an even larger list of payables. This is usually when most people do one of two things: They go back to working alone with a helper, or they go broke, and everyone involved in their business gets hurt.

I’ve seen this more times than I’d like to, but it’s the truth in this line of work we are in. Just remember, when growing your business, you could be going in the hole and losing 10% per year, but if you are growing more than 10% per year, it feels like you’re making money. A good bookkeeper is the best investment you will ever have.

It is in every man born to want to be a big shot among his crowd of people, and to be the guy who says he has 10 or more guys working for him. It’s natural. We’ve all been there, but the older you get, the more you realize that profit in the bank is truly the best. So when you’re working with your helper and you have no additional crews, and jobs are rolling in and your reputation is good, instead of hiring another crew, increase your price 10% on the jobs you don’t really care if you get or not. Then, when you start landing those jobs, put all estimates up 10%. If work continues to increase, do it again: for the jobs you don’t really want, increase your estimate 10% again. Whatever you increase your price by is pure profit. After a while, you laugh at yourself for how cheap you thought you should be working for. 

Work hard, do good work and charge lots, because people love to pay for good work. 

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