Floor-Number Profit Model for Electricians | 150

Electricians are obsessing over hourly rates and material markups. I scrapped all of that. I run my entire business off one number, and every single day I know at a glance whether I'm in the green or the red. In this episode I break down exactly what that number is, how I landed on mine, and why I wish someone had told me this years ago. It would have made me money a lot earlier. It'll do the same for you.

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Transcript

What's that up in the sky? It's a Northern Star. Let's follow it, we might make a bit of money. Welcome to Simplified Sparky Marketing.

I do things a little bit differently in my electrical business to other businesses, and I work off something that I like to call my floor number. Now, what a floor number is, is the bare minimum that I want to make in a day where I'm happy, I can give it the green tick, and I know that I've had a successful day, a profitable day.

If you rewind this right back to when I started my business, I was working for like $70 an hour, something ridiculously stupid. I was working off an hourly rate, I was working for builders, all of this. And it wasn't until I glued everything together, started putting systems into place and getting the right clients that stuff clicked and I was making money. I sat down and thought about it, and it's something that not a lot of people speak about, not a lot of coaches speak about. They all obsess over your hourly rate, marking your material up by so much, all of this. I like to keep things extremely simplistic.

So what I do, and what is extremely successful in the businesses that I've spoken to that do this, is they aim for a target every single day when they go to work. If you're a single operator, even if you've got an apprentice or a tradesman with you, that's one number. If you've got more staff members, your floor number may actually decrease, because your overheads are going to be watered down by the number of staff members carrying them.

How this all operates is I take what I'm spending on materials for that day, and I deduct it from what I'm charging on the job. So let's say for instance we've got a $2,000 job and the materials are $100. I know that I'm going to make $1,900 in that day after materials are paid. Everybody's got a different floor number, but you have to set what you want to earn in that day.

And my prices and rates can fluctuate depending on how I'm feeling, how my week is looking, how the day is looking, and the items that are on the job. A great example of this is an EV charger. Let's just say your floor number is $2,000 and you're going to make $2,000 in profit in five hours, but you clock that off in four hours. That's up to you. You can call it a day. Your floor number is met. You could finish that job in three hours because it's gone extremely efficiently and you're happy to go home.

Some people starting businesses, their floor number could be $700, it could be $800, it could be $1,000 that they want to make after materials are paid.

Why this is a fantastic model to work off is this: when you figure out the wage that you want to earn as an electrical business owner, one that you're happy and content with, most startup businesses and business owners realistically could be getting a lot more of a wage for a lot less stress. That's why it's extremely important to pay yourself a proper wage.

What you do then is take that wage, figure out your overheads and what it costs to actually run the business, and do the calcs. Be extremely realistic about the days you're going to be working. Realistically, it's going to be nine and a half to ten months. If you were an employee, that's all you would be working. You wouldn't be working twelve months of the year. You'd be working nine and a half to ten months because of public holidays, annual leave, sick days, et cetera. That's what you've got to account for.

When you get that figure, divide it by the days you're actually going to work in the year, and it will give you a lump sum. Let's just say hypothetically it's $1,100. Now, every day that you go to work, as long as you're ticking over that $1,100, you know at a glance that you're profitable and you're in the green.

That is a very simplistic way that I look at my business, and I speak to members about this. That's the way I do things. People get fixated on charging. Do I charge 100% markup on a $7 power point? Do I charge 300% markup on that? Have I got a 60% markup on that IXL because it's more expensive? A 10% markup on a $2,000 material item? I don't look at it that way. Most of the time, I don't even look to make money off material. I look at my floor number, and if I've met that and I'm extremely content with the profit I've made, I don't do a markup on material.

Now, psychologically, you could charge less on labour and more on material and end up at the exact same number. There's more than one way to skin a cat, and when that registers, you realise there are so many different ways you can quote. You can quote time and material, you can quote fixed rate, you can quote whatever way you want, but you basically want to end up at that number that you're extremely happy with. Because if you go to invoice that day, you send the invoice, you take a quick glance at it after materials and you're like, "I only made $700 today," that's a red X. It's not a green tick.

If you want to immediately make profit in your electrical business, I'd be urging you to do this. Figure out what wage you want to make. And be extremely generous when you're figuring out the overheads of your company. Don't be a tight ass. Don't be like, "Oh, I think I'll allow $20,000 a year." Realistically, even for a one-man band that wants to be flexible enough to buy things like subscriptions, like SEO, with little cushions in case they need to do a bit of marketing, it's between $30,000 to $50,000 Australian dollars just to open your doors every year.

You need to figure out the wage you want to take, remembering as well that you've got to pay superannuation on that, you've got to pay tax on that, and you've got to pay all the company overheads and stuff like that as well. And as I said, don't be a tight ass with the company overheads, because there are little things that creep up: van services, van tyres, something happens to your vehicle, insurances, so on and so forth. Nasty icare bills that creep up on you that are a couple of thousand dollars. All of this happens in business, and that's why you have to charge over what it costs to run the business, to make a profit, to run an efficient business.

Hopefully this helps you see things from a different lens. I think it's quite insightful, and I wish somebody had told me this a lot earlier, because I would have been making money a lot earlier. So hopefully this makes you some money.

And as we're coming to the end of the financial year, be sure to speak with your accountant as well. Have a chat with your accountant. Please do not wait until next month, because that is when you'll be sorry you didn't have that little one-on-one session with them. They can delegate your tax and figure it out for you so your tax works out a lot better. And if you have money left over that you want to get rid of on tax, there are some tax deduction dollars there.

If you want to reach out to me, the links are in the description below. Chat to you next week.