Episode Transcript
[00:00:00] Speaker A: Foreign.
Welcome back to the Total profit podcast. I'm T2 hostess, strategist and margin matchmaker, and I'm here with the man who's been sniffing out margin leaks since before spreadsheets were cool, Tommy P. You make.
[00:00:21] Speaker B: That sound like a compliment.
[00:00:23] Speaker A: Oh, it is. It is. Today's episode might hit a nerve because we're talking about one of the biggest myths in business.
That low margins are the economy's fault.
Yeah. Inflation, labor shortages, supply chain drama. Those things are real, and I want to acknowledge that. But if you're still bleeding profit, chances are it's not the market, it's your model.
And so we had a client join us last quarter.
Let's call him Dave.
Dave.
Dave blamed inflation for everything. Okay? Rising costs, tight cash flow, shrinking margins, all of the things. But guess what? After onboarding with us and doing our diagnostic, it turned out that his pricing model hadn't been updated in four years.
A lot has happened in four years.
[00:01:15] Speaker B: Oh, my God.
[00:01:16] Speaker A: And his overhead had ballooned, but his bids hadn't really changed.
He was just undercharging across the board. And nobody told him. Nobody told him that hard truth. So he didn't need better luck. He needed better math.
And that brings us to pmz, our profit. I'm sorry, Our performance margin zone phase one, which is curiosity. And we talked about that last week.
Dave started asking, what am I missing? And that one question really changed the whole trajectory of his business.
And so we don't just throw clients down into the deep end of the pool.
Our onboarding experience is really built to reveal the margin leaks that are hiding in plain sight for people.
And one of the first things that we do is we run that margin diagnostic. So it is a complete, very brutally honest look at how the business is actually performing, not how it feels like it's performing. Right. It's not about shame or blame. It's about clarity. And you can't fix what you. What you won't face.
Once you see the truth, you can do something about it. The right pricing, the right job, costing the right line of business visibility.
And that's where.
That's one of the biggest realizations that. That most people have when they work with us. Is that it? You don't have a profit problem. You kind of have a visibility problem into the business. So let's name some internal leaks that we see again and again that hurt your margin more than any external force ever could. What are some of the internal leaks that we find with people?
[00:02:58] Speaker B: Well, that's a great question. And Profit is such a desired outcome, but if you don't want to know what it looks like, it's kind of foreign. So the leaks are.
You're not capturing. What are my costs when it comes to an employee?
If you have benefits for your employee, the government has required deductions. You need to put all those need to be calculated into your rate, your billable rate.
And then from there, once we get all the costs lined up, then we start looking at profit. The other ones are your equipment.
What's going to happen to my equipment now? Because it is a piece of equipment, it gets older, like we do, as much as we deny it, but we also have.
[00:03:41] Speaker A: Speak for yourself.
[00:03:43] Speaker B: That's where the maintenance comes in.
[00:03:46] Speaker A: And the third one is maintenance. Right, Exactly.
[00:03:50] Speaker B: As you go through each job, you need to carry some of those costs forward and recover those. So it's truly understanding that these aren't a static type of number. It's an. It's ongoing, it's very dynamic. It's constantly changing with, as you say, the economy.
[00:04:10] Speaker A: Right.
[00:04:11] Speaker B: And then the last one is, is your material. So knowing what your costs are in material and not missing something in. In your quotes is critical because everything boils down to your labor, equipment and material for your cost of goods. That's where your markup comes in. After that.
[00:04:30] Speaker A: And you're right, things do change. And if you're still pricing like it's 2019, here's a spoiler alert. It's not. That was six years ago.
[00:04:37] Speaker B: Oh, my gosh, where does the time go?
[00:04:39] Speaker A: Seven years ago. And another thing is, like, sometimes your business expands and your business may grow, but your systems didn't. And you're still relying on some old systems, and some of those things don't fit anymore and you're carrying more than you need.
And we have discovered that several business owners think that their business is still profitable. And you think that all of your work is profitable. And guess what? It's not. You're not breaking it down by job or by crew.
And so you've sort of lost sight of that level of detail of it. And you're doing work that is not profitable. You had a client that decided to go out on a run to do just a quick job himself. Thought it would be. Thought it would just be a quick turn and burn kind of thing for him. He came back, you broke that down for him. This was, I believe, a friend of yours. You broke that down for him and let him know that at the end of the day, he made something like $6 on that job. Profit. And blew his mind. Absolutely blew his mind. And he was like, why? Why did I spend four hours on a Saturday just doing this one thing that I thought was going to be quick and good for my business? And I made $6 on that at the end of. Yeah, yeah.
[00:05:59] Speaker B: Your cost don't fall in the same cycle as a census. You need to do it more than 10 years. Every year would be great. But knowing what that is, and it's more of a prediction than an expectation.
Because we in the EMZ or performance margin zone, that P always wants to come as profit.
[00:06:19] Speaker A: I know.
[00:06:20] Speaker B: But that performance margin zone gets you in the mindset of predictability.
You know your cost, you know your targets of where you want your cost to be so you know what your profit is. People may be profitable, but it's not the profit they're anticipating. You know, a markup is different than your gross profit. It's just math.
[00:06:44] Speaker A: It's just math markup. So say that again. Markup is not the same thing as your gross profit. So you mark something up a certain amount, but you come back and your profit is less. And if you don't understand that dynamic, then we need to be talking to you about some math.
That's an important thing for a business owner to be able to make that distinction and understand.
And you expect a certain amount at the end of the month, a certain percentage, but when it comes back a lot less, it's because you haven't included some of those cost in the job that belong there, that should be there.
Some of those government requirements on your employees that you talked about earlier, those need to be included in your bids.
And if they're not, and if you don't know how to do that, then let us help you.
[00:07:32] Speaker B: And if you're expecting profit, where are those expectations deriving from? Ask yourself these real questions. Where am I getting these numbers from? If it's from your neighbor that has a similar business, probably not the place you want to be. Good to know your own numbers, watch your own backyard kind of thing, going back to know your numbers. And then you can evolve into. And it should be under control for.
[00:07:55] Speaker A: The most part, or your competitor. You're looking at how your competitors are costing jobs and trying to align with that. That's not right for your business. Your business is unique and it's different and you do things differently. Maybe you have better processes, maybe you have better relationships with certain vendors to where you've been able to negotiate better costs and things like that with some of your Vendors.
Maybe you don't pay your employees as much as your competitor does, or maybe you pay them more so your business is different. Don't try to compare yourself to your competitors. You need to do your work or.
[00:08:29] Speaker B: Your A team of workers is an A team and they can outperform your competition.
[00:08:34] Speaker A: That's right.
[00:08:35] Speaker B: It's okay to have an A team and a B team and know how to cost them accordingly to their production.
There's a lot of strategies that we talk to. Going through the performance margin zone. It really opens a lot of people's eyes.
[00:08:50] Speaker A: I think that's actually a smart strategy for employee development. Is in your own mind as a business owner. You have an A team and a B team. And the B team might just be young, they're new hires, they're still learning the business. Not that they're. They don't have tremendous potential and great performers, but you're just sort of bringing them up through the business and. And yeah, you're not probably not going to bill them out as at high of a rate as you would your A team.
So this week, don't look at the news, look at your numbers. Okay? And what are you doing that is contributing to low margins? What are you, as the business owner doing that is contributing to low margins? Are you hiding behind market excuses, Be honest with yourself, or are you ready to get clear of all that? And if you don't know where to start, Our onboarding process is designed to show you exactly what is costing you and what to fix first.
Next week, we're going to dive deeper into those blind spots that nobody wants to admit. But for today, know this, all right? You have more control than you think.
And that's not pressure, that's power.
So you can fix this, right?
[00:09:54] Speaker B: Absolutely. And always remember, take her. Cool. It's going to be all right, and we'll help you get through it.
[00:10:01] Speaker A: Don't get too excited. It's all under control.
