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Sussex County Roof Cleaning

Busy vs. Profitable

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This was written by a very successful Pressure/roof cleaner.

 

How To Make More and Do More

Numbers analysis is a tricky thing. There are guys that will take up arms when you say their company nets 25% of gross billing. These are usually one man shows and are indicative of not understanding what each number means. I'm going to show you how raising your prices ten percent will increase your net profit by 40% as well as ultimately increase your volume. What?? Raise prices AND get more work? Read on. 

Definition of Net Profit 
First its important to clarify what net profit is. This is whats left over after ALL expenses. I think where many people get confused is that they add in the amount they take out of the business (salary) as part of the net profits. Net profit is what your company makes at the end of the year, not what you make. If your business is setup properly, you pay yourself a salary. That salary is a constant. Its your compensation for your role in the company (your job). Let's make it simple and say you pay yourself $1,000 per week, every week all year. That's $52 K per year. That's barely enough to support a two kid household with a mortgage unless you have a wife/partner that also makes money but its a round number.

That money disappears from the business every week as an indirect labor expense regardless of whether you do 20 jobs or just one. Understanding the terms overhead, direct costs, indirect costs, depreciation, gross profit and the ilk, I'll leave for another conversation. For now we'll just call them "expenses". Back to the topic at hand. 

Lets say you billed for $150,000 in 2007. Your "expenses" totalled $115,000. Again that includes materials, owner salary, employee payroll, insurance, truck payments, equipment depreciation, advertising.. everything. The money left over is 35,000. This is the company's money also known as "cash flow" or "net profit". It represents 23%. 

Here Is Where One Should Take Notice 

Now, in 2008 you decide to raise your prices. The first thing you have to do is factor your cost of doing business and raise based upon that. This compensates for increased gas prices, rising chemical costs etc. I add 3% every year. This is a profit neutral raise. It breaks you even for last year. But lets say you are tired of doing 300 jobs per year to make your gross of $150K. You decide to raise your prices by an additional 10%. Your Housewash goes from $.10 per s/f to $.113 per s/f. Your decks go from $1.50 per s/f to $1.69 per s/f. You think your customers are going to abandon you for that little of an increase? Some may, but so what.. here's why. 

Scenario One 
Its unlikely you will lose much business with a 10% increase. To keep things simple to understand in scenario one, we'll say everything stays the same. You still do your 300 jobs. Instead of doing $150K in '08 you'll do $165,000. 

All your other expenses are also the same (your cost of doing business price raise compensated for any rises in gas etc). Now your company net profit went from $35,000 to $50,000. There's your 40% increase. 

Guess what you can do with that extra $15,000? First, give yourself a raise of $5,000 per year (try getting that in the corporate world). That means you now have an additional $10,000 sitting in your company coffers. Upgrade your equipment, enhance your image or what I like to do.. invest it in advertising. $10,000 will yield me $100,000 in work. 

"So let me see if I am summing this up correctly. By raising my prices ten percent I can make more money for myself as well as nearly double my volume?" Yep. 

Last Note: Some guys may say "if I raise my prices I will close less sales" Perhaps. But all your other expenses like payroll and materials will also drop so in the worst case scenario, you still get the raise and don't work as hard. 

I know this sounds too good to be true but it is what it is. Please, ask questions or throw out your thoughts. I am far from the be all end all authority in business. I'd like to hear from you guys.
---------------------------------------------------------------

Above article copyright Ken Fenner and PressurePros, Inc
__________________

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I remember seeing this article. It's great advice for sure. Spending extra income on marketing is a winner for sure. Henry Ford said:

 

“A man who stops advertising to save money is like a man who stops a clock to save time.†– Henry Ford

 

Nice quote...I like it.

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Good overview.

 

I have talked to many who have employees and are hardly making it because they have not done the proper cost analysis.

Many forget, in any business, there is a set cost to turn the key in the door everyday you are in business. If you don't know what that cost is you are in trouble out the gate.

That is the base to consider before any other analysis can go forward. What does it cost to put the key in the door everyday.

 

I have had others ask me what my rate is to clean a roof. In reality there is no set rate, per se, because everyone's operating cost will be different.

Operating cost are based upon a yearly figure, not daily or weekly or season, etc. There are baked in yearly cost to be in business.

 

The profit I make, net, on a $1,850.00 gross service charge, may take someone else $2,250.00 to gain the same net.

Again subjective on operating cost.

 

Then there are those who can charge $1,450.00 gross for the same service I have to charge $1,850.00.

 

It goes back to the issue/complaint of low ballers. There is the other side of the coin with that because their cost analysis for operating may well allow them to be cheaper for the average same net profit.

 

I know this may be a little off topic, given the above example, but it is a factor I learned years back. Always do a detailed cost analysis of your business and you should check it quarterly.

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I think many of the people charging much lower prices just don't know their actual costs. They think making some money is better than nothing, and often severely undercut themselves and in turn, the industry as a whole. A smaller business may have less overall overhead, but as a percentage, it's basically the same as everyone else. You can cut corners here or there, and trim a little fat, but the same operations cost relatively the same in overhead.

 

I used to use a program years ago called "your cost estimator". It was a website that allowed you to input all of your cost variables, as well as make projections for what you want to make in income, and then gave you an analysis of how much you needed to bill per hour, and how many hours you needed to bill out per year to get there. It was very helpful in comprehending real world costs, but it no longer exists. 

 

Of course, once you've used something like that once, you can figure out how to do it on your own. 

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It's refreshing to see actual business discussions on a forum, instead of the same 'ol same 'ol 12v vs air and hose diameter debates  :-)

 

Operating margin and operating profit.  Those two KPIs sum up a majority of what's been offered up in this thread.  And although I've mentioned the next item multiple times, it bears repeating - charge what your market will bear!

 

Another very often overlooked topic when to comes to profitability is efficiency - speed (without sacrificing quality).  Think like a NASCAR pit crew on the job and and watch your profit margins increase accordingly.

 

(Or you can be like Half Priced Harry in my neck of the woods.  I figure he'll be closing up shop soon like many others around here have done.  Check out the scrape from his website in the pic below.  LOL)

post-3-0-33731000-1416144789_thumb.jpg

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It's refreshing to see actual business discussions on a forum, instead of the same 'ol same 'ol 12v vs air and hose diameter debates  :-)

 

Operating margin and operating profit.  Those two KPIs sum up a majority of what's been offered up in this thread.  And although I've mentioned the next item multiple times, it bears repeating - charge what your market will bear!

 

Another very often overlooked topic when to comes to profitability is efficiency - speed (without sacrificing quality).  Think like a NASCAR pit crew on the job and and watch your profit margins increase accordingly.

 

(Or you can be like Half Priced Harry in my neck of the woods.  I figure he'll be closing up shop soon like many others around here have done.  Check out the scrape from his website in the pic below.  LOL)

Every area is different, as far as how much you can charge. 

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Hence charging what your market will bear.

All things being equal it's THAT simple.

I get asked all the time "how much shall I charge for roof cleaning, in my area".

I always tell people, it like playing football. You never run the ball, when there is a stacked box, and you never throw the ball, into double coverage.

No, you take what the offense allows, exactly what you do when selling roof cleaning.

Like you said Ted "Charge what your market will bear" :)

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It's refreshing to see actual business discussions on a forum, instead of the same 'ol same 'ol 12v vs air and hose diameter debates  :-)

 

Operating margin and operating profit.  Those two KPIs sum up a majority of what's been offered up in this thread.  And although I've mentioned the next item multiple times, it bears repeating - charge what your market will bear!

 

Another very often overlooked topic when to comes to profitability is efficiency - speed (without sacrificing quality).  Think like a NASCAR pit crew on the job and and watch your profit margins increase accordingly.

 

(Or you can be like Half Priced Harry in my neck of the woods.  I figure he'll be closing up shop soon like many others around here have done.  Check out the scrape from his website in the pic below.  LOL)

Man Harry must need money for his next fix. 

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It's refreshing to see actual business discussions on a forum, instead of the same 'ol same 'ol 12v vs air and hose diameter debates  :-)

 

Operating margin and operating profit.  Those two KPIs sum up a majority of what's been offered up in this thread.  And although I've mentioned the next item multiple times, it bears repeating - charge what your market will bear!

 

Another very often overlooked topic when to comes to profitability is efficiency - speed (without sacrificing quality).  Think like a NASCAR pit crew on the job and and watch your profit margins increase accordingly.

 

(Or you can be like Half Priced Harry in my neck of the woods.  I figure he'll be closing up shop soon like many others around here have done.  Check out the scrape from his website in the pic below.  LOL)

 

I just might subcontract Half Price Harry and make a killing without leaving my house...LOL.

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