General business finance and economics define profit maximisation as the level at which price, inputs, and outputs provide the highest yield. This definition may sound easy, but it is an extensive topic so let us simplify it for tradies who want to maximise their profits.
Tradespeople are skilled manual workers such as plumbers, electricians, carpenters, and painters. These people have specialised skill sets honed for years to gain enough experience and make a name for themselves in this competitive industry. The 2021 report (on employment amongst Australian tradies) predicted that the recovery for the maintenance trades industry would be easier after the economic dip due to the COVID-19 pandemic. The demand for tradies is now steadily rising. Among the different tradies, plumbers, electricians, and HVAC are the highest contributors to this demand brought on by country-wide real estate emergence.
Now that the demand is rising, people expect that the annual income of tradies will increase in general. This applies whether they are independent tradies or employ other tradies in their own company. With all the money flowing, we are here to teach you how to maximise profit from your jobs effectively.
Take everything into account
The job of a tradie, especially a one-person band, is time-consuming because they do everything independently. As a result, tracking down all expenses and profits sometimes does not make the list of priorities. However, it would help if you did not underestimate the importance of these figures. To easily track all money-related transactions, tradies can use accounting software such as Xero or even a simple Excel file. For tradies with their accountants and team, it is best to keep them updated, send all the receipts as soon as possible, and file them immediately. This way, tradies can track the flow of their income and expenses, identify their spending limit, etc.
Pricing is a prominent issue in a competitive environment like the maintenance trades industry. In most cases, tradies like plumbers, electricians, and HVAC would only base their pricing on the current pricing of their peers to stay competitive. However, by doing so, there is a big chance that they might be discounting themselves and what they can offer to their clients; hence profit is also not maximised. That is why it is essential to know their value in this industry, where finding ways to stand out is difficult. Once you identify the value, tradies can start computing the right price for their services. Aside from the value of service, consider the buying power of the target market and find the middle ground to reach the right price. Once service prices are adjusted, tradies will see how much profit they can make in a year and how much they lost in the previous years.
Deductions and Expenses
Nowadays, almost everything costs money, and running a business means tradies will spend to keep the business growing. The big question is, what business area are you willing to spend on first? For small tradies, this is a big dilemma they should answer because it is most likely that they are not profiting well enough. For the more established ones, they have to plan when to execute additional spending for the business' growth. However, a priority list should always align with the business’s goal for small and big tradies. This way, tradies will be more realistic regarding their spending and overspending and taking loans that may be difficult to pay will be limited. Another note tradies should be aware of, aside from basic expenses, are the deductions. These are primarily government-mandated taxes that business owners have to pay. Before spending, know the deductibles from the profit. It’s also important to know how much you can spend for the growth of the business.
To Hire Permanent Employees, Part-timers, or Freelancers
One of the signs that a business is growing is if it can afford to hire new staff. However, hiring someone for a position can be costly. Depending on the focus, hiring staff can also be an asset. Hiring someone for finance, marketing, or administrative jobs can make tradies' lives easier and help them focus on things that matter more, such as service delivery to clients. If it is impossible to hire several key people, know who to hire first. Calculate how much you can spend on that position, and find the right candidate.
TradesFormation’s founder Adrian Fadini created a calculator for this business strategy. Labour Rate Calculator can help tradies identify how much they can spend on an employee because employers should value them right as well for them to be a significant asset to the business. Want to know more about profit maximisation and other business strategies to help your maintenance trades business grow? Get in touch with us at TradesFormation! We are offering grouped and 1-on-1 business coaching, sales training, and the latest offering in our portfolio, digital marketing services. Call us now at 0448 242 888 or send a message. We’d be happy to talk to you about your business!