It’s super important for trade business owners to keep track of their business’s gross profit. Why? Because it shows how healthy and profitable your business is!
A small or negative gross profit indicates that your business is not making enough money. It means something needs to change to avoid business failure, AND QUICK!
Well, that’s exactly what this article is going to discuss: quick-fixes to help you increase the gross profits in your trade business.
Before we get into it, let’s go over a few formula’s (bear with us). It would be a hard task trying to determine your GP or the changes in your GP after using our quick-fixes if you firstly didn’t understand how to work it out. The first is the Gross Profit formula. This tells you how much Gross Profit you’ve actually made over a period of time.
Your Gross Profit is simply Revenue minus the Cost of Goods Sold (COG’s). As shown in the image below.
While this is great to look at to grasp how profitable your business is/was, it’s actually the Gross Profit Margin we want to look at here to determine changes in profitability.
Your Gross Profit Margin your Revenue divided by your (Revenue – COG’s). As shown in the image below.
Let’s get to our quick-fixes to increasing your gross profit.
Be efficient!
Essentially, you need to analyse and determine what expenses can be reduced. We’re not just talking about materials for your trade but also the utilities in your office. You shouldn’t underestimate how much money can be wasted from squandered resources!
For example, the tradies in our plumbing business take all leftover copper pipes, burst hot water systems, and other metals to the metal recycler for cash back. We also have strict stock lists to ensure there isn’t too little stock on the truck (this means too many trips to the suppliers) and too much stock (dead money on items just sitting and collecting dust!) We even go so far as to have our tradies return stock to suppliers if it is unneeded!
In terms of reducing money in the office, ask your staff to turn off the lights if no one is using a room, and to use scrap paper instead of new paper in order to save electricity and utility expenses.
You should take time to brainstorm with your team on how you can lessen the expenses of your utilities, tradie essentials, and many more. You’ll be surprised how being resourceful can yield a better gross profit.
Buy in bulk
If you have a consistent dealership with your supplier, you might be able to get a discount if you purchase in bulk.
For example, we buy copper and PVC piping in lengths rather than by the meter and bolts & screws in packs of 100. We will use these items no matter what, and pretty quickly too, so why not take advantage of bulk buying?
Increase your prices, smartly
One obvious way to increase gross profit is by increasing the price of your product/service.
Now, that doesn’t mean you can just jack up the prices and expect your customers to be fine with it; you need to be smart when increasing your prices.
You should be reviewing your pricing every six months and determining if an increase in prices is viable or not at that point in time. If you do decide that increasing your prices is the way to go… only increase it by 10% so you don’t shock your customers!
For example, if you use a Flat Rate Pricing model and charge $150 for a service, the new service price would be $165. Or, if you use an Hourly Rate Pricing model and charge $70 an hour, your new hourly price would be $77.
What are you waiting for? It’s time to make more money!
Interested in learning more about your trade business’s profits? And more importantly how to increase them?
What’s next?
- Join our Kick-Ass Tradies Facebook Group, for access to trade business specific conversations, tips and resources, plus a like-minded community of tradies.
- Book a 15-minute Game Plan Call with Andy, owner of Dr. DRiP plumbing and co-founder of Lifestyle Tradie, to clarify your priorities and get clear action steps.
