Smaller home improvement companies can often fall victim to an incorrect mindset: A goal to break even with (hopefully) a chunk of cash at the end of the month. That cash would then likely be used for operating expenses, and then the cycle restarts. MarketSharp Founder and Director of Business Development Tim Musch says this outlook immediately sets remodelers up to lose.
The problem with hoping to break even with a meager profit percentage is that it sets precedence. There’s no goal in mind, so there will be no goal to drive a team toward. “You can’t look at it that way,” says Musch. “You got to begin with the end in mind in your business, in all aspects, and that starts by knowing what you want profitability-wise out of your business.”
Musch says a solid share to strive for would be between 15% and 20% net profit for specialty home improvement professionals—and once trouble spots are identified within your processes, it’s an obtainable profit margin.
Data from the National Association of Home Builders’ Remodelers’ Cost of Doing Business Study, 2020 Edition, which analyzed data from the 2018 fiscal year, found remodelers averaging a net profit of just 5.2%. Musch says the two key factors that help remodelers achieve this goal are keeping marketing costs in check and ensuring your prices support the goal.
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