Are you a home service business owner struggling to increase your profits? Do you feel like you’re leaving money on the table, but don’t know where to start?
In this special anniversary episode of the Profitable Home Services podcast, host Diane Gardner sits down with Lyndsay on her Podcast Production team, to uncover the hidden profit leaks that could be draining your bottom line.
Diane shares insights from her top podcast guests and her own expertise to reveal the strategies you can implement to plug those leaks and start boosting your profits. Whether you’re looking to improve your sales, reduce costs, or better manage your team, this episode is packed with actionable advice that can transform your home service business.
You’ll Learn how to…
- Understand the difference between profit and cash flow, and how to manage both
- Calculate and leverage the fully burdened cost of labor
- Prevent profit leaks through employee theft and fraud detection
- Explore the impact of mindset on a home service business’s bottom line
- Uncover the power of building long-term customer relationships and loyalty programs
- Use business numbers and a profit simulator to find and plug profit leaks
- Document systems and processes to increase the value of your business
Key Moments…
[00:00:00] – Intro
[00:04:22] – The Biggest Myth About Increasing Profits
[00:06:13] – Profit Leaks in Your Business
[00:09:53] – The Importance of Job Costing
[00:13:42] – The Difference Between Profit and Cash Flow
[00:16:29] – Calculating Fully Burdened Labor Costs
[00:21:10] – Tax Strategies to Increase Profits
[00:37:55] – The Impact of Employee Retention on Profits
Profit Mindset: Settling for Whatever Profit is Left Over
Many home service business owners make the mistake of simply accepting whatever profit is left over after expenses, rather than actively managing and planning for their desired profit. This “settle for the crumbs” mentality keeps them from taking control of their business numbers and proactively increasing how much they bring home. By shifting to an abundance mindset and understanding that profit can be planned and grown, you can unlock significantly higher bottom-line results.
Tracking Key Performance Indicators
Successful home service businesses track a variety of key performance indicators (KPIs) beyond just the profit and loss statement. This includes metrics like sales goals, revenue, conversion rates, fully burdened labor costs, and more. By closely monitoring these business numbers, you can find areas for improvement and make data-driven decisions to grow your profits. Regularly reviewing and optimizing these KPIs is crucial for maximizing your company’s financial performance.
Importance of Job Costing
While you may not consider yourself a general contractor, regularly job costing individual projects is essential for understanding your profits. By analyzing the actual materials, labor hours, and other costs associated with each job, you can know which jobs are truly profitable and which are draining your bottom line. Reviewing these business numbers on a weekly basis allows for quick adjustments to pricing, processes, and productivity to make sure you have consistent and healthy profit margins.
Mismatched Financing and Cash Flow
Many home service businesses make the mistake of using the wrong type of financing for their needs, leading to cash flow issues and profit leaks. You must carefully match the financing term to the intended use – for example, using short-term credit for temporary cash flow needs rather than long-term equipment purchases. Closely monitoring these business numbers and making sure that any financing is properly aligned can prevent major profit losses.
Calculating Fully Burdened Labor Cost
Home service businesses often underestimate the true cost of their labor, assuming the hourly wage is the only factor. In reality, the fully burdened labor cost includes payroll taxes, benefits, overhead, and other expenses. By accurately calculating this business number, you can make better decisions about pricing, productivity, and staffing that protect your profit margins.
Leveraging Legal Tax Deductions
As a tax coach, I really want to emphasize that home service businesses can legally reduce their tax burden through a variety of deductions and strategies. This includes using the Augusta rule for home-based meetings, hiring family members, and setting up captive insurance companies. When you proactively manage your business numbers and tax situation, you can keep more of your hard-earned profits.
Reducing Employee Turnover and Negative Attitudes
Employee retention is a major challenge for home service businesses, and the costs of high turnover and negative team members can make a big difference to your profitability. By focusing on building a positive, “all-in” company culture, providing clear expectations, and addressing issues quickly, you can dramatically reduce these profit leaks. Closely monitoring business numbers related to productivity, callbacks, and morale can help you find and solve these problems before they spiral.
Leveraging the Power of Incremental Changes
One of the key insights Diane shares is the power of making small, incremental changes across multiple areas of the business. By using her “profit simulator” tool, she can demonstrate how even a 3-5% improvement in just a few key metrics can have a significant impact on the bottom line.
“When you start putting two or three different areas together, and now instead of impacting it, say, by ten or 15,000, we might be impacting it by 150,000.”
This approach empowers business owners to take actionable steps towards increasing profitability, rather than feeling overwhelmed by the prospect of sweeping changes.
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