What are your Profit Margins?

 |  26th Jun, 2019  |  Author: Andy Welch  |  Category: Business Systems  | 


Design

As a small business owner our focus is usually on quoting, winning the next job, getting materials to site and scheduling for future jobs.

When someone asks us what our profit margins are, we usually stumble through a reply and end up saying ‘we’re doing pretty good’ or ‘we’re making ok money’!

The question we need to ask ourselves is, ‘Do we know what we know, or do we know what we think we know?’ Most of us simply know what we think we know, when in fact the truth is usually that you are just getting by!

Understanding our profit or profit margins on each job is crucial to having an on-going successful business that can provide you a lifestyle not just a living from week to week.

Many business owners will say that calculating a profit margin by job is all too hard, however, it can be simple. All we need to do is track the cost of materials and labour that went into completing the job. Most of our suppliers will ask a job name or number when we order our supplies, so this part is handled. We should also know the amounts we’ve paid in labour from either sub-contractors or employees – make sure you include your time and wages in this calculation!

Your (Gross) Profit and Profit Margin for the job is then a simple calculation. See example below:  

Job 1234 – East Malvern

 Invoice Amount

5,000

 less Materials Cost     

2,300

 less Wages/Subbies

1,700

 = Gross Profit

1,000

 Profit Margin

 20%

 (Margin is a % of profit vs. Invoiced Amount)

 

So, your Profit Margin in the above example is 20%. If we can complete this calculation for each job, we will have a better understanding of which jobs make us the greater % of Profit.

This is especially important if we compare our basic jobs to those a bit more complicated or require a higher skill set. You should find the jobs that require a higher skill set returns you a better profit margin. If not, then you need to increase the price of your quotes!


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