Daily GP’s Targets Are Essential: Here’s ‘Why’ And ‘How’ You Should Use Them
Answer this: Do your tradespeople have clear daily financial targets? If so, can they tell you if they were up or down on these targets for yesterday or even last week? The answer to these questions should be a confident “yes!” – no “um”-s or “ah”-s required.
Why Do You Need Daily Financial Targets?
The fact of the matter is, the regular monitoring of your cashflow has benefits to both you and your tradespeople;
For you… targets provide a quantifiable measure through which you can hold your tradespeople accountable for their performance. In addition, when your daily targets for tradespeople are based on your business’s yearly financial target, daily monitoring gives real-time insight into your progress towards this yearly target. Instead of discovering that you haven’t been making money at the end of the financial year when it is too late to take action, you are in a position to take action immediately throughout the year.
For tradespeople… targets are a great motivator. When targets are achieved, tradespeople thrive. When targets are occasionally not achieved, tradespeople will strive. And, when targets are regularly not achieved, but tradespeople are given adequate mentorship and development to improve, they will work hard to be better. Success and development gives employees great job satisfaction. When you pair the achievement of goals (whether they be those regarding financial targets or development) with incentives, you’ll have yourself a very happy team.
What Daily Financial Targets Should You Monitor?
In our plumbing business we give our plumbers daily Gross Profit Targets – referred to as ‘GP targets’ for short. Although our plumbers cannot influence to the fixed costs in our business, they have a large amount of control over the money we make through upselling, cross selling, the timely completion of jobs, and the adequate completion of jobs (i.e. proper completion to avoid a “call back”). That said, GP targets based on the business’s yearly financial targets, provides more meaningful targets to aspire to.
Generally speaking, Gross Profit (GP) is the money your business makes after the costs to provide the services are excluded. The most accurate GP figures will take into consideration all business costs and overheads. However, for our tradespeople calculate we give a GP estimate using the following formula;
Total invoice excluding GST– cost of goods (materials) = Gross Profit
Notice that the formula only takes into consideration the cost of materials, and not additional overheads. This is tactical and protects the business from being overly transparent about it’s financial position to employees.
How Can You Set Daily GP’s?
STEP 1: Set a yearly financial target with your accountant
STEP 2: Divide this target by the number of working weeks in your year
STEP 3: Divide this by the number of working days in your week
STEP 3: Divide this by the number of vehicles in your team
And, there you have it! Your Daily GP target for your team members is set. Communicate these targets to your team, help them understand why targets are important, provide incentives if you wish and ensure you let them know their progress on a daily basis. Intrigued to know more about your business’s cashflow and money? Check out Episode 4 of The Tradie Show – ‘The Tradies Guide To Understanding Your Numbers’.