Where’s My Profit? – Unveiling Money Mistakes & Mastering Profit Margins in Trade Business

Ange
Well, the reality is, tradies are struggling behind the scenes, aren’t they? And I just don’t want to admit it. We see behind these closed doors, so often, and to be honest, it’s not pretty.

 Andy
It’s not. 

Ange
People reach out to us for advice and come to our live events, often sharing their true heartbreaking stories. 

 Andy
And the thing is, these guys, they’re working their butts off. They’re stressed to the eyeballs and they feel like a slave to their business. And it really hits hard knowing that they’re struggling so much when they just don’t need to be. And for a lot of them, they just don’t know what they don’t know. And they don’t know why they’re struggling. They didn’t anticipate business being as hard as we all know it is, and they definitely don’t know where to start to fix it once and for all.

Ange
Well, that’s why today we’re shining a spotlight on the money mistakes, keeping you from making the profit that you deserve. We’re going to share with you Chris’s story, a plumber from Melbourne, who’s struggling with these exact challenges and asking us, where’s my profit? 

 Andy
Yes. 

Ange
He’s now implementing advice we’ve been giving him and already he’s seeing a huge difference.

 Andy
Yeah. In a very short period of time, he’s turning his struggling business into a thriving one. And some of the changes he’s making are things like, you could literally do next week, you could do next month. And you might not get it perfect right away, but if you do some of these things, you will be getting an extra three times or even 10 times your profit very, very quickly.

Ange
It’s time to stop accepting stress and struggle as the norm. And it’s time to stop being okay with a breakeven business. And start actioning a few strategic ideas that would deliver the kind of profit that lets you live the lifestyle you started your business for in the first place. 

 Andy
Okay, let’s get into the episode. 

You’re listening to The Tradie Show. This is the podcast for trade business and contracting bosses like you, who want to lead with confidence, make more profit and create a better lifestyle. 

Ange
We’re your hosts, Andy and Angela Smith. Husband & wife team and co-founders of Lifestyle Tradie. Are you ready to have some fun? 

 Andy
Hell yeah!  Are you ready to take your trade business to the next level? Imagine transforming your business in just one day. At Lifestyle Tradie on Tour, we understand that being a great tradie isn’t just about the tools you use, it’s about the business you build. Join us for a power pack day where you’ll discover systems to set your business on autopilot, financial strategies to boost your bottom line, marketing tactics that fill your months, and much, much more. This isn’t just another business seminar. It’s a day of learning for real tradies ready to grow their business and improve their life. One day can change everything. Are you ready? Spaces are limited. So secure your spot today and join us at Lifestyle Tradie on Tour. It’s time to build the business and life that you deserve. 

Let’s meet Chris. He’s a dedicated plumber from Melbourne who prides himself on his quality workmanship and reliability. He’s a great guy. He’s built up a solid reputation in his area and his customers think that he’s pretty awesome. Yet, every time he looks at his finances, the numbers just don’t add up.

Ange
And after another long day, Chris finds himself at the kitchen table, overwhelmed by receipts, bills and updating his accounts and reviewing his banking. The numbers are discouraging despite all his hard work and the positive feedback from customers, the expected profits are nowhere to be seen. And of course, he started to wonder why and thankfully came to us for help. 

 Andy
Yeah, Chris’s situation is all too common in the trade industry and most of the time, tradies think the answer is just to work harder and longer, harder and longer, but having personally been there and done that myself. I can tell you, it’s just not the answer. 

Ange
Yeah, look, after digging a bit deeper into Chris’s business, it became apparent that one of the major profit mistakes he’d been making is the fact that he’s stuck in the cycle of undercharging.

 Andy
And this is just one of his issues. But let’s start here because there’s two parts of this that I want to explain. Firstly, he’s charging himself out at too low a rate for his level of experience. And secondly, he’s quoting his hourly rate to the customers on the phone. 

Ange
Uh oh, this is a big no no for us. We never recommend quoting per hour, we quote per job. And yes, there are some circumstances where you may need to quote per hour, but for the most part, we recommend quoting per job, as I said. And you certainly don’t break that down and show them the hourly rate. 

 Andy
And the reason why we say don’t quote yourself out by the hour is because it does lead to making little to no profit. Which we’ll get into in a moment, but it also leads to customers haggling with you about the price of the final invoice based on the fact that they’ve been watching your every move and maybe you’re on your phone doing some work, or maybe you’re watching Instagram, but every second of that day or when you’re having lunch, they’re watching and they’re thinking, I’m paying for this.

Ange
Well, there’s some other things too. It leads to attracting the wrong kind of customers in the first place, because to be honest, they’re actually just price shopping and ultimately you’re the one that ends up just being burnt out. 

 Andy
And honestly, if you continue to do this, you may as well go work for someone else and let go of the stress of running an actual business. Yes, you’d seriously be better off when you work at how many hours you do. Then you work at how that ends up per hour, you’d be better going to work for someone else. 

Ange
Okay, so there’s a bit to unpack here. Let’s start with how Chris figured out his hourly rate. 

 Andy
Chris has been in business for five years and unfortunately he’s been undercharging since the day he started. He was charging himself out at 95 bucks an hour and has never increased his rates. Now I know there’s people out there listening now saying, that’s more than I charge. And you know how he came to the side on that number of 95 an hour? His old boss used to charge $85 an hour many, many, many  moons ago, and he just thought, well, I’ll put an extra 10 bucks on that, mate, and I’ll make it 95. But, You know what, guys? This is not the way to pick your hourly rate because you must work out your own individual hourly rate based on the expenses you have in your personal business. 

Ange
Yeah, exactly. The data doesn’t lie. And that’s why you need to use an hourly rate calculator that works out not only the true cost of your trades people, but also a business expense hourly rate. What’s important is that the hourly rate covers the cost of not only the wages of the team, but also things like your bookkeeping fees, marketing investment, your vehicle repayments and petrol, that kind of stuff. 

 Andy
And don’t forget that you also need to pay yourself for four weeks of holiday and your staff. And then there’s two weeks of sick days and guess what? Staff feel they’re entitled to that these days. And then you have another two weeks of public holidays and still you’re not even thinking about the weeks where it’s raining too hard and you can’t work or you’re a little bit slower this week. This all comes into play. Now, these expenses are different between one business to the next, and that’s why you can’t just copy your old boss or your mate down the road or the guy you’re talking to at the pub. There’s a logic in the data, it’s your data, and that’s how you’d pick your own hourly rate.

Ange
Yes, however, when the hourly rate calculator came back with a new rate that Chris should be charging, he absolutely freaked out. He was saying that there was no way that he could charge what the calculator was suggesting. He completely rejected your idea, Andy. 

 Andy
Yeah, he did. And he actually thought his figures were wrong. So I said to him, go to your accountant and have a chat with him. And he came back and he said, the figures are right. My accountant said, everything is right. I said, well, you’ve got two choices. You either stick on the same path of making no money and have a break even business, or you charge what you need to charge to make the money. And the challenge I see out there is people that are charging an hourly rate and that don’t make that much money on materials. They’re forever struggling. And guess what people? The numbers don’t lie. That’s a fact. This isn’t my first radio, I’m telling you, and I’m used to getting pushback from people when I’m trying to push them out of their comfort zone. Chris was stuck in this belief system and lack of mindset around pricing that he had from his previous workplace. And up until he started working with us, he hadn’t really been around other tradies who had more of a growth mindset. We pushed him to think bigger in a completely different way. And eventually he saw the light and that charging what you’re worth is absolutely okay. Amen. Sorry. 

Ange
Let’s not get religious.  Well, it’s more than okay to charge what you’re worth. It’s essential, actually, for your business to survive. I’d go so far as saying that your customers actually need you to charge more. 

 Andy
What do you mean by that? 

Ange
Well, as we mentioned, undercharging leads to making little to no profit and attracting the wrong kind of customers. And this leads to you being burnt out and not feeling passionate or even satisfied in the work you do, which can lead to underperformance and or potentially losing your business. It can be pretty detrimental, right? Your customers need you and your business to thrive if they want top notch, reliable, clean and exceptional service. You simply can’t provide this if you’re making little or no profit. You need to value your work and start charging accordingly. 

 Andy
You’re preaching to the converted, Ange, I couldn’t agree more. And the other thing about undercharging is customers do judge you sometimes on your pricing. 

Ange
Well, it’s a thing actually. We did a podcast episode all about the psychology of pricing. This stuff is so fascinating to me. And if that’s something that is of interest to you too, then go back and listen to an episode called Pricing Psychology 101 setting rates and attracting A-grade clients. 

 Andy
So back to this hourly rate thing, in the early days, when you’re getting started by yourself, a lot of guys like Chris made their hourly rate low to win a lot of work. We get it. I did it. Most people do. Yeah. But in fact, Chris actually said to us that the way to win work was to be the cheapest. Oh, you know what? He wasn’t wrong. 

Ange
But I know, right? But it’s a sure race to the bottom with that kind of thinking. 

 Andy
And you’re sinking fast, baby. But one of the biggest issues with charging a super cheap price is that you only attract price shoppers. 

Ange
Oh, I hate price shoppers. 

 Andy
Yeah. And if you want a profitable and sustainable business, these are not the customers you want. Because let me talk you through how that all goes. Say you’ve got an absolute gun that’s been working for 10 years, a tradie. Our business owner and he’s charging $120 an hour. And then you’ve got young Billy Bumcrack, who’s only just started going out on his own in business. He thinks he’s the king of the world and he’s charging $95 an hour. Now the customer, when hearing these rates, will probably choose the young guy at $95 an hour. But is she really comparing apples with apples? 

Ange
Exactly. The thing is the Billy Bumcrack who’s charging $95 an hour might actually take four hours to complete the job, whereas you, the experienced guy who charged $120 an hour could do that in two hours. So how can you price like for like in that scenario? It’s totally too hard to compare the two. 

 Andy
And then as time goes on, you start realising you’re not making the money you want because you didn’t think to take into account things like petrol, insurance, the expenses or replacing or upgrading tools and plenty of other business expenses. And you might be working out of your home or maybe renting a garage. So you’re able to keep your costs down low. 

Ange
Well, you may even be doing the books yourself and saving some money there too. I actually did air quotes there just for the record, because we both know how much we feel strongly about you doing your own books. 

 Andy
Yeah, outsource the shit out of that baby. That the longer you’re in business, you realize running your own show costs way more than you ever expected. And all those times where your boss tried to explain so many things to you and you think bullsh*t, now you’re thinking back saying, holy crap, running a business is so much harder than I ever thought. And these expenses now are eating into my profits, or maybe I don’t even have profits. 

Ange
And that’s why we never quote by the hour. This leads to undercharging  and attracting price shoppers who we don’t want, and you making little or no profit per job. 

 Andy
We actually had another Lifestyle Tradie member back in the day. It’s going back a bit now, but his name was Marty and he was charging  $70 per hour back then. 

Ange
That’s a while ago. 

 Andy
And he was struggling, but because he was working so many jobs a day, he was sort of getting an average dollar sale of 150  measly dollars, but he was new at the time. And he sat next to one of our other members who had a very similar business in a very similar capital city. Who’s average invoices were around $750 a job. And Marty was just stunned. And finally asked what the hell mate, can you share your secrets? And of course, John was more than happy to share what we taught him about this process, such as getting your hourly rate right internally, quoting per job, not by the hour and how he never gave prices over the phone.

Ange
Ah, which is the next piece to the puzzle and what we did in Dr. Drip. People wondered why we never gave quotes over the phone and the answer is simple. We wanted to weed out all the D-grade customers and we wanted to do the best job possible, giving A-grade customers amazing service that they became super loyal customers who booked jobs with us repeatedly.

 Andy
And the other reason we never gave our price over the phone is we’re a lot more expensive, probably in the top 20% of tradies out there. So We were never going to get that work anyway if we gave our price over the phone, if they were going to ring three or four people. Not to go off on a tangent here too much Ange, but I do want to say this. You mentioned loyal customers here and increasing your loyal customers just by 5%  Can dramatically increase your profit. And the reason is because it costs less money to get repeat customers than it does to go out and find brand new ones every time. 

Ange
Yeah, very true. Less money spent on advertising equals more money in your pocket. That being said, we all know that it’s still important to attract marketing to find new leads. Yeah. So now back to giving prices over the phone. Or should I say not giving prices over the phone, we actually took this one step further and actually charged a quote fee to go to someone’s home. And to be honest, this ruffled a few feathers when we started doing this.

 Andy
Yeah, it really ruffled a few feathers and it was a long time ago and not many people were doing it in the industry. And I was sick and tired of going to free quotes all the time and then getting to the job and because we weren’t the absolute cheapest. It just felt like it was a bit of a waste of time. And we all know it when that phone call rings, sometimes you can hear that person on the other end of the line and you know, they’re a tire kicker, you know, they’re a price shopper, but you feel obligated that you have to go. Well, we just implemented a very simple process of charging $50, just a call out fee, even for quoting. But if the customer went ahead with the job, we’d waive the $50. 

Ange
Yes. And this is what we now have Chris doing. First, he increased his hourly rate and then he added this call out fee. And combined with this, we taught him how to quote for the whole job in a way that conveys his high quality service and expertise.  Because you can’t just charge 50 percent more than your competition without helping people understand why you’re worth the value you’ve quoted. And we won’t go into this today, but just know there’s certain tactics that we did in Dr. Drip that elevated us so much where people were totally happy to pay our prices. And you know what, if they didn’t, that’s okay, because it meant they probably weren’t our ideal customer anyway. And we at least got paid for the callout fee.

 Andy
And the whole thing here is you want to be working with A and B customers, not C and D customers. We have done a podcast on this in the past. Now, the other thing we’ve been helping Chris with to help him find more profits. And that is with materials cost today. And look, we all know materials have absolutely skyrocketed and I could go on a whole rant about this, but the reality is everyone’s struggling with constant price increases, not just in materials, but everything, but let’s just touch on materials today.

Ange
Well, contrary to popular belief. Pricing your materials is not just about slapping the same markup on everything. And I’m not sure where this idea actually came from, to be honest. Many tradies just use this one size fits all kind of approach, loading all materials by the same percentage. But when you actually take a closer look, it’s not actually the best strategy at all. Andy, what are your thoughts on that? 

 Andy
Yeah, I think it’s a terrible strategy, but let me give you an example. So if you got a $3 part and you put a flat 20 percent markup, and most people in the industry are sitting around this 20 percent markup, some less, some more, well, you’ve only made 60 cents, which is absolute peanuts. And you had to go to the store. You had to pick that part up. You had to keep it in your truck. It stayed in your truck maybe for a week or for months. You know, if you think about Harvey Normans and all those things. They don’t do that. There’s a whole margin around having it in your truck at any time. So you need to be a lot smarter and you’ve got to tweak your margin based on the item’s cost and how long you’re going to have it in your storage as well.

Ange
Agreed. So eventually all these tweaks start to make a real difference to your bottom line. 

 Andy
We had Chris do this to his cheaper items, even doubling or even tripling the cost on some minor parts. And that way his margin made a lot more sense on these little things. So instead of only making 60 cents on a $3 item, he doubled it and he charged it at $6. Now that’s a 50 percent profit margin. Now I know some people will triple it. Some people will do 100%. Some people do 200%. That’s up to you what margin you want to do. But then on the big ticket items like heaters, vanities, whatever they are, you just stick with your standard markup of your 20 percent if that’s what you’re charging.

Ange
Well, the one thing I do want to layer in here is the fact that the words markup and margins actually provide a totally different result. 

 Andy
They do. 

Ange
So when you’re loading your materials, if you’re using a markup instead of margin, Just be sure you understand what profit margin you’re actually making because it makes an absolutely huge difference. Baffling? Yes. Important? Absolutely. 

 Andy
So here’s a pro tip for you. Make sure you regularly review your pricing on your materials you use the most. And guess what? Times are changing and so are materials costs. I know you all know that out there, but start chatting with your suppliers, build relationships and try and negotiate better deals.  In fact,  Negotiating better deals is going to be a red hot topic on this podcast very soon. 

Ange
Yeah, that’s true. And it will help you keep more money in your pocket. 

 Andy
We can’t let the cat out of the bag just yet, but I can say this. I have personally, yes, that’s me. I’ve been working extremely hard in the background. Negotiating some killer deals with suppliers all around the country. And I got some news that every single trade business owner out there is going to want to be a part of. And at the end of the day, I want to help each and every trade business  save money because tradies are hurting big time right now. And to be honest, this just grinds my gears a bit on how much everything has gone up.

Ange
You’re a bit like a dog with a bone when something gets to you. 

 Andy
Yeah, a little bit. But the thing is, sometimes I feel like some of these industries are using us as their sales people to make more profits. And the big guys, like I’m talking, the big, big guys are absolutely making squillions.  And we’re getting screwed as tradies. So I don’t always want to sit back and do nothing. So I’m actually getting out there and doing something about it. Like I said, I can’t reveal anything just yet, but I’ll share more details and how you can be involved very soon or be revealed on the tradie show where we’re ready to pull back the curtains and let off a bomb and it’s going to change the trade industry for the better and for obviously the tradies. 

Ange
Alrighty. 

 Andy
I’m a little bit passionate.

Ange
I know, I can hear it and that’s exciting. So, I want to come back to Chris. So, let’s just wrap up this point about materials, where we need to build stronger relationships with suppliers, learn better purchasing strategies that reduce your costs and increase your margins on specific materials. And you regularly need to track and review your most popular products. You can see how this can lead to considerable savings and boost your bottom line without sacrificing quality in materials, your work, or even the relationships that you have. 

 Andy
In essence, it always comes back to knowing your numbers. You’ve heard me say it many times before. So now that Chris has started to adjust his material prices and he’s added that call out fee, plus no longer is he quoting by the hour, it’s made a huge difference to him. But the next thing we did was we reviewed with him how he was costing his actual jobs. And this was a huge eye opener for us again, because there was definitely room for improvement.

Ange
Yeah, absolutely. We realized his quoting wasn’t hitting the mark. So we asked questions like, did this job take longer in time than you quoted? And was the person doing the job slower than you? And hence there wasn’t enough buffer of time to cater to that slowest tradie, or is the quote that you went ahead with something that was approved a long time ago and maybe those material prices have gone up?

 Andy
And that’s the thing, Ange, with Dr. Drip, when we ever quoted, it was only for 30 days, but I see so many people quoting. But they never have a timeline on it. So customers can ring back six months later and expect that quote to go ahead. But we would re quote after 30 days, look at materials, see if it was still worth our while. And a lot of the time we would tweak our pricing to suit. But guys, understanding all of this might mean building in a bit more time for certain tasks as well, right? Or realizing that one of your tradies just needs more training or support. It’s kind of like a job by job autopsy and it’s very important.

Ange
Interesting word choice. So the reality is trade business owners are actually in such a hurry to quote and then move on to the next job or task at hand or whatever, that they failed to actually slow down and understand if they actually made money on the jobs that they completed. 

 Andy
And this is why we recommend doing these job autopsies to see if your profits are being lost there. Because most tradies, we have a hunt. Yes. But we don’t know. And when I talk to a lot of people, they go, yeah, I think so. Well, diving in and dissecting what went wrong, all right, from a cost perspective in your business will help you make that 1 percent tweak for constant improvement. But the profitability could be a hell of a lot more than 1%.

Ange
Yeah, but missing those 1 percent tweets can slowly kill your business over time. Actually, do you remember discussing this in our interview with Jim Penman? 

 Andy
Yes, I do. Jim is a fascinating bloke and his story of growing Jim’s mowing from a part time job into one of Australia’s largest franchises across all industries is bloody inspiring. No doubt about that. And I guarantee you, he was going over his business with a fine tooth comb to make sure he was making maximum profit.

Ange
Yeah, totally. In our episode we did with Jim, I remember he said that he attributes his huge success to thousands and thousands of these small improvements and micro decisions like these 1 percent improvements we’re talking about here. He made small improvements asking questions. How can I turn the mower faster? And how can I load grass into a grass bag the quickest and most efficient way? And just these changes alone meant that he could make each job more profitable.

 Andy
You know what?  We did the same thing when we looked at the driving routes for the boys in their plumbing vehicles. You know, we asked ourselves. What’s the quickest and most effective way on the road to each job, which made us introduce GPS way, way back in the day. And we also fine tuned our dispatching of our jobs as well, just to make sure that our tradies weren’t weaving back and forth over Sydney and heading past Bondi beach on a 40 degree hot summer day. I  don’t know why. 

Ange
Well, what is interesting is that these are such tiny small tweaks that we often see trade business owners not doing inside their business, yet these small changes literally compound. These small tweaks are what lead to more profit and weigh less stress on you and your business. 

 Andy
At the end of the day, that’s what we want, isn’t it? We want less stress. A business that’s profitable, sustainable, and something we can be super proud of. 

Ange
Absolutely.  

 Andy
It’s Tradie Dilemma time. And this is our Q&A segment where you let us know what you’re having troubles with in your business. And we give you our best advice. 

Ange
All right. Today, we have a question from Charlie in South Australia, and he writes. We’ve just employed our first office admin. Woohoo! I have a question on task assigning software or apps that you use for communication between office and the field team, where after features such as office assigning a task to a trade member, Like drafting a quote, for example, and office set a due date, trade staff get a notification or reminders that task is due. What do you guys use? 

 Andy
Okay. So I think there’s a few different things here. If we have our office and say our office admin or our office manager, we’d always have her lined up with Asana. And Asana has checklists, templates, and every day they’d come into the office, they’d open Asana. There’d be a checklist of what needed to be finished in a day and we could keep track of that. Now, when you’re talking in the office to field staff, well, most people these days have a job management system. Think of your ServiceM8, Simpro, AroFlo, Fergus, just to name a few. And most of that dispatching to the tradie is done through there. But the other one is how does the office talk to the staff out in the field? Now we’ve always used an app called Voxer. It’s very similar to WhatsApp. The reason being, if the office admin girl was always on the phone talking to the tradies, then we could potentially be missing phone calls, or we’re always putting the tradie on hold. And that wasn’t great for the office and added to extra stress in the office. So it’s a lot easier. And even for the tradies to send them a message through WhatsApp or Voxer, you can see when they’ve read it. You can see they’ve understood it and then we know they’ve received it. Now, let me just say, when you get on a phone and ring someone, they say, how’s your day? Is it sunny? Is it wet? How are you going? There’s like five minutes of bullshit that you don’t need to ask. And it just drains everyone’s day. 

Ange
Well, especially if your team’s big. 

 Andy
Especially if your team’s big. So you just need to be straight to the point. Now we could look back on that at any time. And the tradie goes, you never told me that. Well, we could see that they’d already read it. So it holds them accountable. That’s what we use within our office and without our tradies. I think I probably answered that question there correctly, Ange.

Ange
I’ve just read over one tiny section of the question, which was about after features such as the office assigning a task to a trade member. So I just want to answer that one specifically, which is actually through your job management system. So most of the job management systems allow you to obviously have notes, but you can actually set tasks and assign them to someone so that they actually end up with a notification because that’s where your trade team functions, don’t they? They all stay in contact through the job management system because all those notes are all job specific. They’re either about a job you’re currently doing or they’re about quotes maybe they’ve done or a job that’s been approved so they need to go and organize materials. So all of that does actually sit inside your job management system just to answer that part of your actual question.

 Andy
Yeah, and I think that’s a wrap. That’s perfect, Ange. And I just want to say thanks for writing in and sharing your dilemma, Charlie. I mean, remember, if you have a question or a dilemma in your business, reach out to us and let us know what we can do to help you. 

Ange
Or alternatively, if you want to come and meet us and ask your question in person, Then grab a free ticket to our one day event where you’ll learn how to get off the tools, make more profit, and gain back your time. Go to lifestyletradie.com.au or check out the show notes to book your seat today to Lifestyle Tradie on Tour. See you there.  

 Andy
Subscribe to The Tradie Show, wherever you get your favorite podcasts.  Rate and write us a review or for more information about Lifestyle Tradie, head to lifestyletradie.com.au.