We know your margin is the cost of your offsite overheads plus your profit you want to make. It is not created by a figure in your head or current market conditions, there is a little more science to it. And we both know, old mate Tom is charging a different rate too. But there are so many factors each company has and huge variables in overheads!
Offsite overheads are the costs that are not related to a particular job that you have to pay to be in business. Think, uniforms, yard lease, vehicle insurance etc, etc. Down to softwares and subscriptions. These are costs your accountant can easily show you on your profit and loss summary so don’t feel too overwhelmed in asking! Easy to get a report, sit down and really analyse where your money goes in just surviving… Your $60,000 “deal” job for a mate that sounds like a good bank, may truly only just cover your running expenses… If not, go backwards. It PAYS to be aware!
Ok… So, how much do I Charge??
Hold on there! Keep analysing your business! Obviously, a great way to get an idea of these costs is to look at your previous years in business records;
- How much do you usually spend? But you also need to take that historical information and use it as a guide to plan ahead.
- Last year you spent 10k on marketing, do you want to spend more next year?
- Do you need to upgrade plant next year?
- Are you looking to take on an office next year?
Each time you look at your margin calculation make sure the offsite overheads part of it reflects not only how you HAVE run your business, but also how you WANT to run your business moving forward. This is where you can take real control by doing a bit of planning. (Yep… aka paperwork, I tried to make it sound more interesting…)
Show the Business is making money!
Creating value in your business is a multiplier of profit. The more profit, the more value of a business which in turn is more of a successful public view before the relationship even starts.
The profit is NOT a bargaining chip to win a job, and it is NOT there to cover the shortfall of a bad initial measure or a slack staff member who caused the job to run overtime. The profit is there to show that you are running a business that MAKES MONEY, rather than just one that has money running through it.
Smashing your personal life goals, and show it!. It is your reward for having the kahunas to be in business in the first place, it is your reward for holding personal financial risk. It is your reward for being a good business person. It is what you will use to obtain the things in life that will make it sweeter, a boat? A Bach? A trip overseas each year?
If your intention is to get it humming, then sell so you can retire or just do something else with your life, then maintaining profit needs to be high on your priority list.
Pricing your margin for PROFIT is keeping your quality high and giving your business value. Don’t just give it away!