How Much Margin Should Tradies Make?
How much margin should you make?
Margins are important and if this feels like I’m making a whole video to make one tiny point I’m not even sorry. As a business coach, the number one problem I see people frustrated by, is having sh*tty skinny margins and the effects that has on their business.
Margin is the difference between what you get paid for a job and what it costs you (your business) to do that job. It should be expressed as a percentage of the revenue (what you got paid for the job).
What it costs your business to do a job is made up of;
- Labour, (your skilled trades people and any other workers, laborers and apprentices;
- And any subcontractors you used.
So if you invoice $10,000 for a job and the labour costs you $5,000 and the materials $2,000 and that was it (no subcontractors, no skip hire, no scissor lifts, etc), then your costs were $7,000, your gross profit is $3,000 which is 30%.
If you then go and measure your revenue and your labour and materials over a whole month, you can see your gross profit and (gross margin) for the month.
The gross profit is what you have to pay for everything else.
- Office staff
- Your wages
- Your business coach
- The rent
- And all the rest.
And there needs to be some left over for bad debts, bad weather, bad mistakes, bad decisions, bad customers, all the things that can go wrong on a job or in a business (there are so many!).
So the answer to the question of how much margin you should be making is enough to cover your overheads and some risk allowance and some profits.
You can f*ck about trying to measure your overheads as a percentage of revenue, if you like, but I’m not sure it’s very helpful – your overheads will change as you make investments for growth and as you grow.
Here’s my guide, though.
For all trades businesses, your net margin should be 10% of the revenue of the business (after everybody gets paid a fair wage including you). So if your revenue is $2 million, you should get a fair salary and $200,000 profit.
To get a 10% net margin, your gross margin needs to be bigger than that, doesn’t it?
My view of a good target margin is this:
- For builders: 20%-30% gross margin
- For other trades: 30%-40% gross margin
Margins for builders can be less than for other trades because revenues are higher for a similar size infrastructure.
Where’s yours? Do you know? Do you have systems to measure it? Are you measuring it properly? What are you going to do about it?
Are you going to get some business coaching? Book a 10-minute chat to start that process.
Too scary? Check out our Control Your Numbers Webinar.
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3. Attend my next Tools Down workshop.
4. Book yourself a 10-minute chat with me. We’ll talk about whether coaching is right for you now and if it is, we’ll go further into the process before you have to make your mind up.
See you later.