This one is simple: when you estimate a job, figure out the profit you’re going to make on it.
(If you do this already, you pass. Good going. Probably no need to read the rest of this article.)
Knowing the potential profit on a job gives you power. The profit tells you everything about a job.
1. It tells you if the job is worth doing or not.
Would you work for 40 hours to pocket $40? Or $400? How about $4,000?
Knowing the profit also helps you decide between different possible jobs. You’ve only got so much time and resources.
2. Profit is the goal when you estimate.
When you estimate a job, you can make sure that you’re going to make an acceptable level of profit on it.
When you price for profit, if you notice that the profit is going to be low, you take another look at your estimate.
To help achieve the desired amount of profit, you can also offer your prospective customer three different levels of product — we call this “good, better, best” pricing. Levels of pricing can mean different levels of profit to you — and it gives you an opportunity to sell the most profitable level.
There are some sales benefits to offering “good better best” pricing. For one, you can turn the sales situation into “which product will you go with when you hire us?” rather than “are you going to hire us to re-do your roof or not?”
3. Profit becomes the goal for you when you produce the job.
If you’ve estimated the job accurately, then you’ll be able to produce the job accordingly, and you’ll be able to see the estimated profit become reality.
Don’t make unnecessary trips back to the shop, for example, wasting time and money.) That wastes profit.
When you’re producing the job, profit becomes one of your primary goals (along with doing a good job, serving the customer, etc.). Produce the job to realize the profit.
4. Track (and increase) your profit year-to-year.
Finally, when you price for profit, you can track your profit over time and from job to job. This year you’re making an average profit margin of 28% per job, next year you want that average to be up to 32%.
Price for profit. This is the point. This is so important, it could be our rallying cry.
It’s easy to do. But things that are easy to do are also easy not to do.
Don’t price for revenue or for the number of jobs on the schedule. Price for profit.