I have been on the “inside” of hundreds of home improvement businesses, and I know that many - if not most - are not making anywhere near the kind of money they should be making.
For the amount of work and risk you take on being in a home improvement business, not only do I believe you are entitled to MINIMUM NET PROFIT of 10%, I also believe you are setting yourself up for trouble if you are making anything less than that. (NOTE: You are obviously only entitled to profit if you are providing real value, confidence and peace-of-mind for your customers, your team and your community.)
Why Profit to Grow Your Home Improvement Business?
You see, PROFIT is the fuel of your business. Without profit, not only does your family not eat… but, you don’t have the resources you need to grow your home improvement business. Sure, you can go out and borrow money to grow your contractor business, but many of us have learned the hard and painful way how bad debt can be.
When I started in business I kept a close eye on my profit numbers; I got excited when I made money. I had a little bit of debt, but it was very manageable. I used the profit my business earned to buy more trucks, hire more people, do more advertising. I even used my profits to start a new, complementary business. Everything was going fairly well until I put my eye on growth-at-any-cost versus calculated growth through strong profitability. I took on more debt than I should have. I risked our savings, our home and our livelihood. It was a gamble pure and simple, and I busted. Needless to say, I’ll never do that again.
REAL Profit = NET Profit
As I’ve said before, the purpose of The Wealthy Contractor Program is to help you build a successful, sustainable and profitable business so you can build real wealth for you and your family.
In order for your business to be successful, sustainable and profitable, we must first be very clear about NET profit. Net profit is what is left after everything and everyone has been paid. Obviously the goal of your business should be to earn a healthy profit. If it’s not… you probably shouldn’t be in business for yourself.
One big problem I see is that many contractors aren’t clear about what NET profit actually is. This article is by no means an accounting course, but here is a simplified way to determine NET profit:
-$50,000 COGS (Material, labor and sales commission)
-$40,000 Overhead (Office expenses, salaries, advertising, rent, insurance, etc.)
Net Profit = $10,000
Pay Yourself, You Deserve It
Now, just to be clear, if you work in your business in ANY capacity, salesperson, sales manager, general manager, installer… anything, your net profit is the number AFTER you have paid yourself a reasonable salary and/or commission for the job(s) you do in your business. Too many contractors mistakenly think they are making money when they really just have a job.
For example, I recently asked the owner of a $2 million dollar company how much his business made last year; the conversation went like this...
HIM: “about $150,000.”
ME: OK, I said, how much of the $2 million were you responsible for selling?
HIM: “About $1million”
ME: Did you pay yourself a $100,000 in commissions?
ME: Was that part of the $150,000 you claim as profit?
ME: Did you pay yourself a reasonable salary for being the general manager of your business?
HIM: That’s part of the $150,000.
ME: So, I hate to be the bearer of bad news but, your business made ZERO money last year. In fact you have a $350,000 problem in your business.
As you can imagine, at first he wasn’t very happy with me.
However, to his credit he also realized what I pointed out. You see, the reason the business made no money is because if he had to pay a salesperson to run his leads (which he should be doing by the way, but that is for another day), he would have had to pay them about $100,000, which would leave him with a “profit” of $50,000. But wait… he is also the general manager of the business and he deserves a salary for that also.
So, in the end, he has a $350,000 problem ($100,000 sales commission + $50,000 manager’s salary + $200,000 profit). Now, there are a number of strategies for fixing this problem, and over the next couple of months we’ll dive deeper into this topic.
For right now, make sure your business is set up TODAY to make a profit… at least 10%. Doesn’t matter how much sales volume you did last month, at the end of the month make sure you have at least 10% left over.
Remember, your business exists to serve YOU and your family first; the only way it can do that is if it produces a profit. So, take some time now to examine your NET profit and ask yourself - am I producing enough profit to become a Wealthy Contractor?
Could your business use a strategy to grow your business more profitably? Our team at gFour Marketing Group can help you create, keep and multiply your customers AND your profits. To request your free strategy session today, click here.