Don’t Judge Your Profit Margin
I’m going to show you how your profit margins will change as you grow in scale.
Now when you first start out, you might only be turning over a couple hundred thousand dollars a year – as it’s you that’s actually doing the work. So Your profit margin might be on 40% of $200,000 ($80,000) when you’re a small fish.
As you start to grow and scale, you will find this 40% will get smaller and smaller – and that’s fine. That’s where a lot of business owners get choked up, they don’t like to let go of things, they don’t like to hire people to do things for them because what it looks like from the outside you’ve lost all this money.
In reality, it’s the best thing for you. Imagine if you start turning over $1m at 10%, that’s $100,000. Would you rather have a profit of $100,000 or $80,000?
What you can’t do when it’s just you on the tools is turn over a million dollars. You need people to be doing the work for you, especially in the trades and construction business. And this margin will get even smaller.
This year I’m on track to turn over $26m with around a 7 or 8% profit margin. That might look scary to somebody, but when you’re turning over eight figures, it’s quite normal. Unless you’re a beast like Apple.
As long as it’s a high single digit, it’s good! So start to familiarise yourself with profit margins and how that changes as you grow and scale. I’d rather have ten percent over a million than only you know forty percent over two hundred thousand.
So start to have a think about how that looks in your business and see how you scale and measure up against other trades and construction businesses in your industry.