As a trade business owner, there could be several reasons you feel like you’re working hard but not making enough money. We’ve already explored poor cashflow and not charging enough and I’ve given you some quick and easy tips to help with both situations.
But it’s also important to know what percentage of your sales is accounted for by materials and other costs in the business. And to track and manage that. Typically, 28-35% is the normal range for materials as a percentage of sales. But there are three common errors that can drive that percentage up. And your profits down:
Once you know the percentage on which you generally operate you will be well placed to spot any anomalies. And you’ll probably find yourself becoming more mindful about what you use! Wastage is often caused by not having a proper handle on the ordering or purchasing of materials. If you store stock or have multiple vehicles then it’s worth assessing what materials you already have and taking these into account before more are purchased. Review who is responsible for ordering and who instructs them to do so. Make sure materials are accurately recorded against jobs so you can continue to monitor productivity.
Once again, proper processes around purchasing and ordering could help to protect you (and your team) here. Formalise who is authorised to use trade accounts/submit orders and implement a system for recording this information and assigning materials to specific jobs. These things need to be tracked on an ongoing basis and such systems will help prevent anyone associated with the business (now or in the past) from ordering materials to use on the sidelines!
I cannot emphasise enough the importance of factoring the cost of materials into your pricing structure. Using a profit calculator to quote can help keep these costs in line or just calculate what the cost of the materials are to you as a percentage of what you are charging the customer each time you prepare a quote. And check that the job makes financial sense! If the figures show that you’re not charging enough then why not have a read of my previous blog on the topic of pricing?
If this information strikes a chord with you then there are lots more top tips and practical advice in my book ‘Build and Grow – How to go from Tradesperson to Managing Director in the Construction and Trade Industries’ And you can buy it from Amazon via this link http://amzn.to/2CBok2L.
The next blog will be all about taking too much out of the business/not planning for tax.