Here is the second installment in a three-part column on common mistakes business owners make contributed by Danny Kerr, a managing partner at the Breakthrough Academy.
Lack of focus on gross profit margin
Gross profit margin (revenue less your variable costs: labour, subcontractors, materials, etc.) is the #1 indicator of how well your business is running. In the landscape construction industry for example, attaining a gross profit margin of around 36 percent is critical in achieving a profitable year.
In busy times, it’s easy to get away from regularly tracking your gross profit margins on the jobs you’re completing. Successful business owners track the gross profit of each job as soon as it is completed, and often partway through. These results are measured against goals and help make changes in day-to-day operations. For example, we may notice that a particular crew is always over budget on labour, and then investigate why that is happening. This way, changes can be made early on to bring jobs back to that 36 percent gross profit and help bring in a profitable year.
Over the years, we’ve developed a simple yet highly effective system for tracking variable costs and gross profit margins on jobs. Our members use it to track their numbers weekly, and it’s helped raise profitability of dozens of trades businesses in our program. Best of all, it’s available free of charge. Contact me and I’ll send them right over.