Why Contractor’s Gross Profit Is Their Engine Room Of Growth

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In every trade business, gross profit is the engine room of growth.

And gross profit is simply, sales – the cost of goods sold.

For example:

$270,000 - $162,000 = a gross profit of $108,000 or 40%

Now, why is this important?

Because this is your job profitability!

It’s how much money your business is making off the jobs that you’re doing.

And really, this information gives us a matrix of three key considerations:

Number (1): How effective is your pricing? Are we over or undercharging?

Number (2): How is your productivity? Are you being quick and efficient?

Number (3): How is your utilisation? How billable are you and your team?

So, as you can see…

Measuring your gross profit gives you some very powerful data to play with…

How well are you pricing?

How productive are you?

How billable are you?

Which opens up the deeper conversations to improve profitability as a business…

Are your jobs profitable?

Are you doing enough jobs?

How efficient are you?

What’s your billable vs non-billable time looking like?

Are you pricing correctly?

Are you focusing on the right work types?

Are you working with the right clients?

How are your resources being used?

Etc.

If you have a profit problem, it typically starts with gross profit…

Because a business doesn’t run on sales revenue; it runs on gross profit.

So, make sure you're measuring this number at a business level, AND at a job level.

This means not only looking at your profit and loss statement, but also back costing individual jobs and projects...


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!


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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...


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