How do you know if you are charging the right price?
It is important to sit with your accountant to first understand what you need to charge to break even. Your break even is when your turnover equals the costs you have spent. There is more on break even in this Module in Section Two ‘Numbers’.
Using this break even number your accountant can calculate how much, as a business, you need to make per month, per week, or even per day to keep the business open. This will incorporate the direct and indirect expenses, direct and indirect labour and overheads.
You can then add your desired profit margin and re-calculate the numbers.
As a trade business, we take this one step further and work out a more accurate Gross Profit target per day for each tradesperson.
This is done by first calculating an operational expense per hour (removing the tradesperson wages and materials from your break even number), and add back in our tradesperson wages based on their hourly rate of earnings.
This is based on the number of tradespeople you have within the team, their productive work hours in a day (could be as low as 6!), and the weeks they are capable of working (52 weeks a year less 4week holiday, 2 week public holidays and 2 week sick leave = 44 weeks per year). Total calculation is then: 44 weeks x 6hrs x each employee.
The outcome is a more accurate Gross Profit target by tradesperson based on the hourly rate they are paid. That said, we set an average and give each tradesperson the same target.
You can work out yours by watching “ The Profit Maximiser’ on MyLifestyleTradie. Powerful stuff!