A lot of business owners assume the answer to more profit is more work.
Sometimes it is.
If the pipeline is empty and the team is standing around, then yes, you need more sales.
But that is not always what I see.
I see plenty of businesses that are already busy. The team has work on, the phones are ringing, money is coming in, but there still never seems to be enough left over at the end of the month.
That is when I think it is worth asking a different question.
Do you actually need more work, or do you need to get more out of the business you already have?
Because chasing another $200,000 or $500,000 in turnover can easily mean more staff, another vehicle, more admin, more materials and more pressure.
You can end up with a bigger business without ending up with a better one.
More turnover does not automatically mean more profit
Here is a simple example.
Say a trade business is doing $1 million in annual sales.
Its costs look like this:
- $500,000 in cost of sales
- $300,000 in wages
- $120,000 in overheads
That leaves $80,000 in profit.
Now say the business can increase sales by 10 percent using the team it already has.
Sales move to $1.1 million.
The cost of delivering that extra work still goes up. You need more materials and there may be more subcontractor costs, so if cost of sales stays at the same percentage, that rises to $550,000.
But wages might stay at $300,000.
Overheads might stay at $120,000.
Profit is now $130,000.
So another $100,000 in sales has produced another $50,000 in profit.
The interesting bit is not the exact number.
It is why it happened.
The business did more work, but it did not need to add another employee, another van or another layer of overhead to do it.
It made better use of the capacity that was already there.
How much spare capacity is sitting in the business?
This is the bit I think owners often skip over.
There is a big difference between selling more work with the team you already have and adding more capacity so you can sell more work.
If your team is genuinely flat out and performing well, then growth probably does mean adding people.
Fair enough.
But sometimes there is more capacity there than you think.
Jobs are not scheduled tightly enough.
Paid hours are getting lost.
There is downtime between jobs.
Work has to be redone.
Quotes are not being followed up.
The team could physically do more work, but the business is not organised well enough to get it through them.
If that is the problem, adding another wage may not fix it.
It may just make the problem more expensive.
More sales is only one way to improve profit
There are a few different levers you can pull.
And they do not all behave the same way.
Pricing
A small improvement in pricing can have a big effect because you are not necessarily doing any extra work to earn it.
If you charge a bit more for the same job, your materials do not suddenly cost more because of it.
Your wages do not automatically go up either.
I am not saying everyone should put their prices up tomorrow.
But it is worth asking when you last properly reviewed them.
Are you covering your actual labour cost?
Are you allowing enough for overhead?
Are you pricing risk properly?
Are you still charging rates you came up with two years ago?
Those things matter.
More work through the current team
This is where spare capacity becomes valuable.
If you can put more work through the same team, your direct costs will still increase, but your wages and overheads may not need to move much at all.
That is very different from growth that requires another two staff members and another vehicle before the extra work even starts.
There is obviously a limit to this.
You cannot keep piling more work into the same team forever.
But there is often a gap between where the business is now and the point where more fixed cost is genuinely needed.
That gap can be worth a lot.
Cost of sales
This is another area where small leaks add up quickly.
Materials.
Subcontractors.
Hired plant.
Wastage.
Underquoted jobs.
Variations that never get billed.
You might only be losing a little bit on each job, but multiply it across a full year and suddenly it is a very different number.
Labour
Wages are a big cost for most trade businesses, but high wages do not automatically mean too many staff.
That is usually not where I would start.
I would want to know how many paid hours are actually being recovered.
Are your charge-out rates right?
Are jobs taking longer than they should?
How much time is being lost to travel, poor scheduling or rework?
Could the same team do a little more without working longer hours?
That is a much better question than simply asking who you can cut.
Overheads
Overheads creep up over time.
Software.
Vehicles.
Premises.
Admin.
Subscriptions.
Insurance.
Management costs.
Some of those expenses are important and help the business run properly.
Some do not.
The aim is not to cut overhead for the sake of it.
It is to make sure you know what you are paying for and whether it is earning its place.
You probably do not need one massive change
This is where people can be surprised.
You do not necessarily need to find one huge improvement.
Maybe your pricing gets 2 percent better.
Maybe you get another 5 percent of sales through the current team.
Maybe you get slightly better control of materials and subcontractor costs.
Maybe your labour recovery improves.
Maybe you clean up a few overheads that have been hanging around for too long.
None of those sounds dramatic.
Put them together, though, and the effect on profit can be significant.
The problem is that it is hard to see when you are staring at a P&L.
So we built a simple way to play with the numbers.
See what it could look like in your business
The Rise Advisory Profit Potential Calculator lets you put in your current:
- Revenue
- Cost of sales
- Wages
- Overheads
Then you can test changes to:
- Pricing
- Sales using your existing capacity
- Cost of sales
- Labour efficiency
- Overheads
The important part is that the changes interact properly.
If sales go up, the direct cost of delivering that work goes up too.
If you can handle that work with the current team, wages do not automatically increase.
If you put your prices up without doing more work, your direct costs do not automatically increase either.
That gives you a much more realistic view of what different changes could mean.
Try the Profit Potential Calculator
And when you use it, keep the numbers sensible.
There is no point pushing every slider as far as it can go just to produce a massive profit figure.
Ask yourself what you could realistically improve over the next 6 to 12 months.
That is when it becomes useful.
The number is only the starting point
Seeing that another $50,000 or $100,000 in profit might be possible is useful.
But the next question is more important.
Where would it actually come from?
That is why we also look at where your current costs are sitting.
If wages are taking a bigger share of your total costs than we would normally expect, that does not mean the answer is automatically to cut staff.
It means labour is worth looking at more closely.
Maybe your charge-out rates are too low.
Maybe too many paid hours are not being recovered.
Maybe jobs are overrunning.
Maybe scheduling is poor.
Maybe there is too much rework.
The same goes for cost of sales and overheads.
The numbers point you in a direction.
Then you have to work out what is actually going on.
Before you add more, make sure you are using what you already have
I am not against growth.
Far from it.
But I would much rather see a business understand its current capacity, pricing and cost structure before it starts adding more fixed costs.
Before you employ another person, buy another vehicle or set the next big turnover target, have a proper look at what is already there.
Could the team you have do a bit more?
Could your pricing be better?
Could you recover more of the labour you already pay for?
Could your jobs leave more behind?
Could you get rid of costs that are no longer helping?
Sometimes the next step is growth.
Sometimes it is simply getting better at running the business you already have.
And that can be a lot more profitable than people expect.
