How Much Profit Should You Be Making As A Contractor?

  • Home
  • /
  • Blog
  • /
  • How Much Profit Should You Be Making As A Contractor?

Clients always ask us… 

“How much profit should I be making?”

To which our response is...

“Well, what's your target?”

And this is where we typically run into trouble, as most business owners don’t actually have a profit goal… they have no target to aim for!

Many claim that their goal is to just "make a much money as possible!", or even to just make more than they are currently making now, but here’s the problem… 

Is as much money as possible a target? Is it a quantifiable number? Is it measurable?

Your goal in business should be to always make a profit and always making a profit starts with having a clear target.

A target allows you to work backwards to see exactly what is required to hit it. It gives you something to aim at, and most importantly something to measure your results against.

If every week and every month, you’re comparing actual results to your target, you can know whether or not you’re on track and can make the necessary adjustments in approach and strategy when needed to ensure that you actually hit it.

This means that before any work starts for the year, you should be setting a net profit target AND know exactly how many jobs on average are needed to make that number become a reality.

Setting a sales target is, at its core, gaining clarity… and it will be the foundation of everything you do.

One of the worst things you can do is look around you and go "Oh everyone is doing 1.5m in my industry so I need to do 1.5m too!" or "Everyone is charging $75 an hour so I need to charge that too!"

Forget all of that.

There is no magic number when it comes to how much you should be earning as a contractor.

The only thing that matters are your goals! What results do YOU want to achieve?

Net profit is your personal financial pat on the back.

It's the financial reward for doing all the stuff it takes to market, sell and run a trade business – so again, clarity is key, you have to know what you want.

What numbers do you want?

For example, if you wanted to achieve $100,000 Net Profit, your numbers may look something like below (curtesy of Trade Business Success):

Once you figure out what you want and set a profit target, the next hurdle to overcome is actually hitting it… right?

The biggest issue we see over and over again is that trade business owners lack consistency.

They lack the consistency of doing the things that they need to be doing on a daily basis…

If you have a $500,000 sales goal, and you divide that buy 12 months – that’s $41,666.66 a month or divide it by 20 days a month (working 5 days a week), you’ve got to sell at least $2,083.33 a day on average to hit your target.

While this may seem overly simple, the reality is, the large majority of trade business owners out there AREN’T DOING THIS.

They don’t have clarity on how much they actually want to earn a year, they just go about their business, work their asses off with little direction and HOPE to make a profit come EOFY.

But that’s just not how it works, focus delivers results… not hope.

Set a goal and break it down.

If it’s $2,083.33 on average a day needed in sales, what are you doing daily to make that happen?

If you make attracting more leads and converting more sales a priority in your business, you WILL likely hit your sales targets and reach your profit goals.

Make the calls, build the marketing material, get in front of the right people, reach out to past clients, strengthen relationships with loyal customers, improve your sales process and customer experience and so on…

And by having daily, weekly and monthly sales targets, you’re able to both track and measure your progression towards your annual profit goals.

Monitoring your performance will tell you if you’re failing to quote and win the amount of jobs necessary to reach your profit goal, and with this information, you can determine whether or not you need to begin changing your approach in marketing and sales, etc.

You want to be aiming for a target and not operating at random.


If you're an electrician, plumber, painter, carpenter, or any other trade business owner who is looking for an accountant who actually cares about your business - click here to learn more!


Tags


Bayley Peachey | Accountant & Client Advisor

About the author

As an accountant with a background in construction, Bayley has specialist experience advising trade businesses anywhere from start-up to $20M+, helping clients to simplify financial management...


GET IN TOUCH

Book Your Free Consultation