In general business finance and economics, profit maximisation is defined as the level at which price, inputs, and outputs provide the highest yield. This definition may sound easy but it is a very broad topic so let us simplify it for everyone, especially tradies who would want to maximize their profits.
Tradesmen or tradies are skilled manual workers such as plumbers, electricians, carpenters, and painters. These people own specialised skill sets that have been honed for years to gain enough experience and to make a name for themselves in this very competitive industry. In the 2021 report on employment amongst Australian tradie’s it was predicted that after the economic dip due to the COVID 19 pandemic last year, the recovery for the maintenance trades industry will be easier and demand for services will surely rise in the coming months. In fact, the demand for tradies is now steadily rising. Among the different kinds of tradies, plumbers and electricians are the highest contributors to this demand brought on by real estate emergence all over the country.
Now that the demand is rising, it is also expected that the annual income of tradies, whether they are independent tradies or have their own companies employing a number of tradies, will increase in general. With all the money that is going to flow, we are here to school you on how to effectively maximize profit from your jobs.
Take everything into accounts
The job of a tradie, especially a one man band, can be time-consuming because they do everything on their own. As a result, tracking down all expenses and profits made sometimes does not make the list of priorities however you should not underestimate the importance of these figures. To easily track all money-related transactions, tradies can use accounting softwares such as Xero or even a simple excel file. For tradies with their own accountants and team, it is best to keep them updated, send all the receipts as soon as possible, and have them file immediately as well. This way, tradies will be able to track the flow of their income and expenses, identify their spending limit, etc.
In a very competitive environment like the maintenance trades industry, pricing is a prominent issue. In most cases, tradies like plumbers, electricians, and carpenters would only base their pricing on the existing 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 maximized. That is why it is important to know their value in this kind of industry where finding ways to stand out can be difficult.
Once identified the value, tradies can start computing for the right price for the services they are offering. Aside from the value of service, take also into consideration the buying power of the target market and find the middle ground to reach the right price. Once prices of services being offered are adjusted, tradies will see how much profit they can actually make in a year and how much they have been losing in the previous years.
Deductions and Expenses
Nowadays, almost everything costs money and running a business means one way or another tradies will have to spend to keep the business growing. The big question here is, in what area of business are you willing to spend on first? For small tradies, this can be a big dilemma that they should answer because it is most likely that they are not profiting well enough but for the more established ones, all they have to do is plan when to execute different spendings for the business’ growth. However, for both small and big tradies, there should always be a priority list that is aligned to the goal of the business. This way, tradies will be more realistic when it comes to their spendings 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 mostly government mandated taxes that business owners have to pay. So before spending, know what are the deductibles from the profit and how much is actually allowed to be spent 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 where the focus is, hiring staff can also be an asset. Hiring someone for a finance, marketing, or administrative job can make tradies’ lives easier and help them focus on things that matters more such as the actual delivery of service to the clients. If it is not possible to hire several key people, know who to hire first. Calculate how much can be spent on that position, and start finding the right candidate.
TradesFormation’s founder Adrian Fadini was able to create a calculator for this business strategy. Labour Rate Calculator can help tradies identify how much they can spend on an employee because they should be valued right as well for them to be a big asset to the business.
Want to know more about profit maximization and other business strategies to help your maintenance trades business grow even more? 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 0480 009 598 or send a message. We would be happy to talk to you about your business!