The Profit Playbook:

In This Episode

• Intro

  Welcome to the Trade Business School Podcast.

  Today we're going to be talking about one of my favourite subjects, and that's how to be more profitable. This is something that comes up a lot, and profit is not the most important thing in business, but it's right up there. Because if you are not making a profit, it's not worth the stress and it's not worth the time and effort that you're putting into it.

  So if we were to ask the question: where does profit start? If I want to be more profitable, where do I start? That's actually a very, very easy question to answer. Because it all starts with mindset.

• Mindset

  My business coach used to say that business is 80% mindset, and he's correct.

  How do you develop the right mindset to be profitable? It all starts with knowing what you want to get out of business and why you're in business. If you don't know what you want and you don't know why you want it, it becomes very, very difficult to turn it into a profitable enterprise.

  One of the things that I recommend everybody does is read a book that changed the way I thought about business and money. It's an old book. It was written in the early 1900s, and what's good about this book is it was one of the first books ever written on this subject. It's called Think and Grow Rich, and the author is Napoleon Hill. What I recommend people do is read this book for five to ten minutes every morning. There's something about the way the words are written on the page that when you read them, your mind starts to think in a very positive and profitable way.

  It's very important when you are developing mindset to make sure that you've got enough good information going into your head. We live in a world where there is so much information that comes into our consciousness, and most of it we don't choose. So if you are not putting really good things into your brain, such as reading good books, listening to good audios or podcasts, or hanging around the right people, your brain is going to be flooded with images from media and advertising. Mindset is so crucial, and if you want to have a profitable business, you really need to spend some time reading and listening to audios and affecting what goes into your brain.

• Energy Flows Where Focus Goes

  Once you've got that under control, or whilst you're doing that, there's a very important principle that exists inside a business and in life really. And that's energy flows where focus goes.

  So if you want to be more profitable, the first thing you've got to do is start focusing on profit.

  How do you focus on profit? Set a net profit goal. Now, if you're one of those people that don't know the difference between net profit and gross profit, or don't really understand your numbers, now's the time to get in and understand them. If you have any issues, we have a free profit roadmap call that you can book, and I'll sit down with you and explain the overview of all of the different numbers in business that you need.

  I have a rough rule in business: after you've paid yourself your wage and you've paid yourself your super, you should be making around about a 10% net profit. Between 10 to 20%. Anything below 10%, it's not really worth the pressure you're under. If it's over 20%, you're probably making too much money and you need some managers to come in.

  Once you've set a net profit goal, you need to figure out what gross profit is required to achieve it. Once you've figured out that gross profit margin, focus on gross profit for every single job. In my business, the focus was 46% gross profit on every single job. Just by focusing in on that, you are going to find ways to achieve it.

  A really important principle to remember: energy flows where focus goes. Set your net profit goal, figure out what gross profit per job is required to get that net profit, and then focus on that gross profit margin for every single job you do.

• Getting Passionate About Profit

  The next important thing to do if you want to become more profitable is to get passionate about it. It's surprising how many people are in business that have an "I don't really care" attitude towards profit. If you don't care about profit in your business, you probably shouldn't be in business.

  So get passionate about profit. What can you do when you're passionate about profit?

  1. Reduce or eliminate overheads. Be really, really stingy here. Have a look at the past 12 months and see how much money you've spent on everything. There are going to be a couple of items in there that shock you. A big one I see with clients at the moment is subscriptions. How many subscriptions have you got to things that you don't actually need? You might only be talking about $30 or $40 a month, but if you have three or four of those, it ends up being thousands of dollars a year, and those thousands fall directly to your bottom line.
  2. Make labour productivity a focus. The technicians you have out on the road, you pay them for eight hours a day. Have a goal to keep labour productivity as high as possible. You want to charge your guys out for the eight hours they charge you every single day.
  3. Increase your prices. Figure out how much your employees actually cost you per hour, and how much your business costs you per hour, because you're going to be surprised at how much that actually is. Increase your labour charge out, and increase the markup that you have on materials. And do you understand the difference between markup and margin? A 50% markup does not mean that you are going to get a 50% margin at the end of the day.
  4. Review every converted quote. Every single quote that gets converted to a job, review it. Did you quote it correctly? Were the hours allowed the same as the hours used? Ask yourself: would we still have won that job if we had quoted more?
  5. Use the materials you have. What materials do you have in the workshop? What materials do you have in the vans? Are you making the most of the stock you've got on hand, or are you going to the wholesaler and wasting time getting there, buying materials you've already got?

• Growing for Profit

  Once you've got all of that up and running and you're focused and locked in on it, now it's time to grow.

  Ask yourself the question: how many vans can the current management structure handle? Can I add more chargeable without adding any more non-chargeable? If you can add an extra couple of vans on the road, you've got extra billable people out there but you're not increasing the overhead of the business. Your profit is going to increase.

  If you are out there looking to grow, don't look for clients that are concerned about the financial figure. Look for clients who value service. You can charge more if you offer great service.

  I also noticed that projects around about the $50,000 mark were generally the most profitable for us when they were run well.

  The best way to grow your business is by growing your own personal network. Grow your referral base, because referrals are highly profitable.

• Bringing It All Together

  One of the things I notice when I'm talking to people and go through some of these points is that they'll pick up one or two of them and run with those. If you really want to create more profit in your business, you need to do all of this at once. All of it.

  You need to make sure your mindset is correct. You need to be focusing on gross profit on every single job. You need to be passionate about profit by reducing or eliminating overheads. And you need to grow the business.

  If you do all of this, you will become a lot more profitable.