Small Changes, accumulated, make a big difference to your profit
Click on the video to watch it (Runtime 7 minutes).
If you’d rather read the transcript it’s here below.
Okay, what I really want to talk about here is is the power of cumulative, small changes. You don’t have to re-invent the wheel in order to make a big difference to your bottom line.
Lots of trades businesses are doing alright but not great. And that’s very frustrating. And I will help you understand the power here of making different small changes that are more manageable and easier to make without necessarily reaching for the sky and thinking that that’s your only option
I’m Jon. I’m from Small Fish Business Coaching. I run this program called the ‘Tradies Toolbox’ Coaching Program and it’s for trades business owners who want to grow, and want scale, and want to make more money. And part of that, is using this power of the small change, and recognizing that you can go make a small change here, go make a small change there, go make a small change there, and go, “Oh look, I’m making significantly more money.”
I’m going to step you through a simple example of how this works.
There are a number of levers that we can pull when we’re looking at what we can change. And these are just a few of them. But when we’re looking into making more money… (let’s go with making more money).
Let’s go with selling more stuff at better margins and making more money.
I’ll show you a little table. I’ll work some numbers with you.
- You do a thousand jobs a year and each job in life on average is worth a $1,000.
- That gives you a $1,000,000 of revenue in a year. And if your average margin is 10% then your total gross profit is $100,000.
- If your overheads are $50,000 that leaves you with $50,000 in your pocket to spend on your stuff. (Now don’t worry about whether $50,000 is a livable wage or not. I made the numbers up because they’re easy to add up.)
- If we make 5% difference to the number of jobs, so there is 5% more. 5% higher average job value and 5% better margins, we make a lot more money.
Take a look at this. Here’s what I made.
So 5% better, right?
- 5% more jobs = $1,050 a year.
- 5% better average job value = $1,050 a year
- Makes $1,102,500 revenue, right? An extra 100k!
- If your average margin is 15% then you’ve got a total gross profit of $165,375.
- If your overheads have gone up by 5%, you’ve got $52,500 leaving you with $112k.
So you’ve more than doubled by going 5%, 5%, and 5%.
Now for the pedantic upon you, we’re going, “Jon and increasing margin from 10% to 15%, isn’t 5%, it’s 50%. Yeah, whatever.” I don’t agree.
But I think increasing your margins by 5% is kind of realistic and reasonable but I’ll do this calculation too.
- So if you increase your margins by 5% that gives you 10.5%.
- So $115,762.50.
So even if you’re only adding half a percent onto your margins, you’re still making an extra $13,000 on your $50k.
Which is 20% – 25% or something like that, right? More net profit.
They’re big numbers. 5%, 5% ,and 5% rolls up quite big. So happy days!
Now I’m sure you’re all sitting there going, “Yeah Jon but how do we do that?”
And obviously, you hire a business coach because that’s a great thing to do.
But you can also get more jobs by doing better marketing. I have a whole heap of things to say about how you should be doing that and that’s a big part of my coaching.
Even if you’re doing something as simple as calling more people up, calling more builders up if you’re a subcontractor, calling more architects if you’re a builder. That kind of thing. Even if you’re only doing simple things like that because it’s cheap, you can still find more jobs in a year.
How do you get more revenue per job and more average job value?
- Well you can charge more. Put your prices up a bit which also helps with your margins, doesn’t it?
- And you could also do some upselling. And the big strength of trades businesses is that you go to someone’s site and it’s often possible to upsell. I know a lot of Sparky’s and plumbers and the like, and maintenance type work, who get a lot of their business by saying, “Is there anything else you need me to do while I’m here?”
The same is true with builders, variations, and the like. If you’re a project trades, variations can add a little bit to your revenue per project as well.
Recommended Reading: Are you guilty of not charging enough?
You can contribute to better margins like I said by increasing your price, and also by having a good go at your costs and managing those properly. And negotiating properly on materials, negotiating properly with subcontractors if that’s what you do.
So look it’s not difficult.
I don’t mean to be unreasonable with your subcontractors. Those relationships… are important but I do mean keep them on the toes, keep them honest, make sure you’re getting fair prices from them and you’re not neglecting that important discipline.
So look I’ve made a little excel sheet so you can plug your own numbers in there. You can go into your Xero, or your MYOB, or your QuickBooks and work out how many jobs you do per year. And work out what the average job value is . You should know your revenue. You should know you average gross profit. And you’ll get these numbers. And then work out what happens if you increase them by 5%.
Or if that’s too scary, stick 3% in and see where you get.
And if you want the little excel sheet, download it below by clicking on the image.
And think about how you can go off and make some small changes that if you make a few of them will make a big difference to you. See you!