The Three Tenets of Making Profits

The history and future of our business has been shaped by three profit guidelines. The specifics of these guidelines vary from company to company, but the general philosophy is applicable to most businesses.

1. Maintain a double-digit revenue growth rate . Revenue is the great enabler for performance improvement. We operate in a highly fragmented industry which provides ample market share improvement opportunities for our company. If we maintain outstanding field service, we are confident that we can continue to expand our customer base and maintain a high growth rate.

2. Manage job margins at current levels. A critical element of our companys program is to ensure that we do not dilute our business with ever less profitable work, or that we do not allow the profitability of current work to decline over time. We aggressively and consistently review all jobs to make sure that we are maintaining our overall margins at all times. Awareness of individual job margins provides the key impetus for a company to identify trouble spots and develop solutions to reach this goal.

3. Capitalize on the inherent operating leverage of the business. This final guideline focuses on managing the resource growth of selling, general and administrative expenses (SG&A) and support activities. The key is to make sure that these resources grow at a slower rate than sales. The earnings before interest and taxes (EBIT) margin of our company today is about 10 percent.

The margin on incremental sales growth is about 20 to 25 percent because of the need for less incremental SG&A and support costs for that sales growth. The combination of our base EBIT margin plus our incremental EBIT margin will lead to an increased total EBIT margin for the company over time. Until the new base margin is at the same level as the incremental margin, this margin growth will continue. As long as the total EBIT margin is growing, total profits are growing faster than the revenue growth rate.