Let me first say I am NOT the best with words.
So if something I say does NOT make sense please speak up and say ..............."WTF are you trying to say hillbilly"
I hate the $100 dollar an hour number for many reasons.
The first is that it is an arbitrary number pulled out of a hat ... Its dangerous to try to run a business with numbers pulled out of a hat.
The second reason is it makes business owners think about their businesses in the wrong way.
It makes owners look at their path to profit in a linear fashion instead of cumulatively.
It creates a lot of problems as cleaners are chasing a made up number that means nothing,
instead real consistent numbers that lead to profit.
What do I mean by linear and cumulative???????
Linear is the $100 dollar an hour method. You either pick out an arbitrary number out of a hat OR preferably you sit down and figure out how much an hour you need to make to pay all
fixed and variable costs and then a good
profit margin on top. Then you aim yourself at that target number and you shoot like an arrow towards your goal. In a linear fashion.
This leaves you only taking jobs that will get you to 100 bucks an hour. You feel bad if you dont get to that number and you are unsure if you are making money, or even successful..............l.
What do I mean by cumulative??????
This is the way you will find most businesses run their operations and basic model they use when working future projections on profitability.
First you have to understand your
Fixed Costs.
fixed costs
noun
plural noun:
fixed costs
- 1.
business costs, such as rent, that are constant whatever the quantity of goods or services produced.
Fixed costs also includes Insurance payments, TM loan payments, advertising etc......
So this is how much money you have to bring in each and every month to stay in business.
All other expenses for your business are expenses generated by actually going out doing jobs.
These are called
Variable Costs.
noun
plural noun:
variable costs
Second you need to understand what a Variable Cost is.
variable costs
- 1.
a cost that varies with the level of output.
Variable costs include; Gas, labor, ware and tear on equipment(depreciation), Chemicals etc.
The expenses you generate actually completing each job.
@
Dennis anerson I know you like real world examples, and I am writing this post with you in mind so here goes.
I will NOT posts an actual PnL....... but here is a rough synopsis of my numbers from last year in the example below. Make sure you understand exactly what
fixed costs and
variable costs are or what I say next will still not help you understand your profit. If you do NOT understand how to figure out YOUR fixed and variable costs please ask here or in PM and I will help you.
Monthly Fixed Costs
Shop rent.................................................$0 (use my 2 car garage and a parking pad for 3 vans)
TM Loan payment.................................$0
Van Loan Payment................................$0
Commercial Auto insurance 3 vans.....$680
business insurance.................................$438
Marketing ..............................................$3840
Electricity/water...................................$300
Monthly Total........................................$5258
So to keep my doors open every month I MUST bring in at least $5258 to break even and be able to pay for my
Fixed Costs.
Now for
Variable Costs per job
Cost Per Job
Labor........................................$47
Gas............................................$8
Chemicals.................................$2
equipment replacement.........$1
Maintenance on van/TM.........$.50
Per Job Total costs.........................$58.50
Ok ..................so now I know each month I need to bring in $5258 to cover all my expenses for the month, and while doing the jobs to get to that break even number it will cost me an additional 58.50 to pay for the expenses on each and every job.
Now here is where the cumulative part comes in.
I like using Job Averages as a goal post. Notice I said Average. Tracked per day, week, month and year. You will find this is a very good number to track for many reasons. First off it is consistent when tracked over time. You can see how you are doing with up-sells. You can see if a certain ad drove higher job averages than normal. You can see how efficient your employees or you yourself are working. Nearly everything in your business can be measured up against this number. It does NOT matter if you are an O/O or a multi truck operation.
To figure out your
job average
Take the number of jobs you did last year and divided by your total sales (the amount of money you took from customers)
This is your per job average.
Last year my companies job average was $292. (We do a lot of Duct cleaning so this will be higher than most CC only)
So to cover my Monthly fixed costs I needed to do 18 Jobs (18 jobs X $292 job average = $5256)
And then an additional 4 more jobs to cover the
Variable costs on doing those jobs (18 jobs X 58.50=1053 divide that by job average of $292 =3.6 so round to 4 more jobs)
So that means I needed 18+4 = 22 completed jobs to break even each month.
After I completed 22 jobs each
Month, every job that my company did was profit after I paid for my variable costs of $58.50 to complete the job. So with my $292 dollar job average minus my 58.50 in costs per job, I made
$233.50 in PROFIT for each completed job each month after 22 jobs.
This is where I will not be sharing all of my numbers and using an example.
Last year I had 2 vans average which is accurate.
Lets pretend each van did only 15 jobs per week each so 30 jobs total for the company per week or 120 jobs per month. We know from above I needed 22 jobs to cover my fixed costs each month from the above calculations. So 120 jobs per month minus the 22 to cover expenses = 98 jobs that give us $233.50 in
Profit per job. $233.50 x 98 jobs =
$22,883 in profit per month.
What if you did 20 jobs per week per van.
20jobs x 2 vans =40 x 4 weeks =160 jobs.
need 22 to cover fixed costs. 22-160 = 138 profit jobs
138 profit jobs x $233.50 profit average per job =
$32,223 in profit per month
So now the goal becomes how many jobs can we complete and maintain our job average. This is how a company can offer a $99 dollar 4 room deal. They only need to do so many jobs to cover their fixed costs. Once they get those expenses paid each month, everything after their variable costs for each job is pure profits.
This way of looking at your business is best for the "high end" o/o and the multi truck company and everyone in between.
Job averages
completed jobs
those are the numbers that matter when looking at your business finances and establishing where you are. Once you establish that it allows you to have a way to measure if you are reaching your goals. Be it better upsells, higher job averages, etc which all leads to a better profit. That is because your Fixed and Variable Costs do NOT change on you. They are a consistent you can measure against.
If you start looking at your company in these terms it will be easier to understand where you are and how to get where you want to be as then it will be as simple as I need to do 10 more jobs this month to make the money I want.
