What percentage of your income is actual profit?

[gimmeagig]

I took my first class last weekend and I talked to my instructor Sherman Guffy about what my financial goals are in this business.
He said something that surprized me.He said that I can expect to make 100.- per hour and out of that a typical profit might be 25.-
Does that sound right? I realize that I have expenses, like insurance, advertizing,discounts,supplys, gas,repairs,education,phonebills......I'm sure I forgot something. But I was thinking my profit would be higher than 25%.
A good thing is that I won't have any payments on my truck and the tools.But I suppose I have to put money away for that big Vortex that I'm going to buy next (just kidding).
But seriously,I'm not trying to make a killing but I was hoping I would be able to net about 35000.- to 40000.- a year.At 25% that would mean 160000 in sales.I don't think I'll be able to do that.
So here's my question.What percentage of your income is your actual profit.Is it possible I might have misunderstood Sherman?

 

[Scott Rogers]

The leaner you run the more profit you can and will make. But dont say you cant do 160,000 because you can. When I ran a ss truck I hit 300+ a year and only worked 5 days a week and took 4 weeks vacation a year.

 

[Royal Man]

Remember it's not what you make that counts. It's what you keep!

Some of those guys boasting about multiple trucks are making less than a solo operator after expenses.

 

[Ken Snow]

I would assume that he meant after a reasonable allocation for your salary.

Lets say you do 160,000 gross sales.

Now take all your costs of business

75,000 salary, including benefits for yourself (high if you are the technician but what the heck you do all the other crap too.)
16,000 advertising (this includes any database marketing and ads)
20,000 for gas, supplies, lease payments or depreciation on cleaning system, phones, invoices and other office supplies etc.
3000-5000 for the portion of your home used for the business or office if you have one.
2000-5000 for a part time assistant used when needed.

Add those expenses up you have.

116,000-121,000 total expense

subtract these from 160,000 leaving
39,000- 44,000 profit right in the 24.375-27.5% profit.

Ken

 

[Becker]

I'm running 70% profit for 2007.

 

[Ken Snow]

Trust me Dave that is not true

 

[Jeremy]

Becker is right up there with the oil companies.

 

[Mike Brummett]

Lemme see.

This times that ....minus...um....

O.K. ....hold on..........almost got it....carry the one......


My profit is negative 33%!


(Is that good or bad?)

MIKE

 

[Becker]

It is only April man...

But like Terry sez..

No van payment, no machine payment.

Shopping at wal-mart and Big lots does not affect a businesses profit.

Mid, to late year spending will change the numbers. Plus I'm still using supplies from a bulk purchase from last year.

 

[gimmeagig]

Ken,
I was thinking that the salary to myself WAS the profit, but if it is a expense then 25% profit is even better that I thought.Well, I'll find out pretty soon how much I'll be able to do I suppose.I won't go out cleaning until I have taken my IICRC carpet class which is the beginning of May.I'm really looking forward to doing this.In the meantime there is much to do still.Get the Logo, promo material, insurance,truck lettering,....
to Jeremy, Odin and Mike,
You lost me.I have NO idea what you guys are talking about.

 

[Kevin B]

It is only April man...

But like Terry sez..

No van payment, no machine payment.

Shopping at wal-mart and Big lots does not affect a businesses profit.

Mid, to late year spending will change the numbers. Plus I'm still using supplies from a bulk purchase from last year.

It does if their buying TIDE!!! LOL

 

[Becker]

Yeah no kidding.

TIDE? More like some store brand crap.

 

[hogjowl]

Let me add to the ONE beneficial post on this Becker derailed thread by saying that Ken is correct, and the percentages that your instructor quoted you are right in line with what I have experienced.

Keep an eye on your numbers and you'll eventually figure out what you're doing.

It only took me 19 years.

I would've figured it out earlier if Island Boy had come off the hip for a free class.

 

[Becker]

Let me add to the ONE beneficial post on this Becker derailed thread by saying that Ken is correct, and the percentages that your instructor quoted you are right in line with what I have experienced.

Becker derailed? Someone piss in your corn flakes today?

Whatever.

 

[Steve in Omaha]

I for one do not doubt the rough 70% figure Becker dropped. That is very possible (pre tax).

Steve

 

[Guest]

I have been learning lately...Watch those NUMBERS DAILY.


You will be MORE aware of them...and they will GROW more then. Its like the farmer watering, pulling weeds, etc in his garden.


I can honestly say that our numbers have grown 33-40% by watching them daily..and being anal about numbers. This can go from by like Becker said..buying in bulk too. Or paying with CC at the pump for gas, instead of going in and buying something for you and the chimp or eating at home before a job.


I wish I had that low of supply and fuel numbers..and I buy in bulk and pay at the pump. Now I have to cut out the lunches..and I might save an extra 2-3k a year.

Cheapest form of advertising is passing out TONS of business cards...and BEGGING customers to give referrals. Ms. Custy, the biggest tip that you could give myself or our chimps is to pass these cards out to your friends and neighbors. For each customer that WE get from you...we end up giving YOU..bla bla bla. This has help cut adv. money way down along with cranking up referrals and repeats.

 

[Scott Hayward]

Roxy,

I was in the same class with you. I sat behind you and to the right. It is nice to put a face with a name. Sherman did a great job teaching that class. I feel more comfortable now with high end upholstery and I didn't know velvet was so easy to clean. LOL!

I believe Sherman mentioned the difference between the cost of running a large company with lots of overhead vs a one man company as well. Keep that in mind (as he and others have mentioned). Sherman is a wealth of knowledge with his experience and background in running a large and small (specialized) company. Of course, he also has a lot of expertise in cleaning and teaching.

I used to work for a large company. I don't know what their profit was or even if they had one. If they did...it was very, very small because they never did buy me a pre-sprayer or upholstery cleaning equipment but expected the job to be done well. As a one man operation figure out your fixed expenses every month. For me it is insurance, paying off the machine, and the phone bill. Variable expenses are gas and supplies which should increase as the business increases. There are other expense that can be added in like a van/truck-mount replacement fund, etc.

Bottom line, the less you owe, the higher your return on your jobs. If you are just paying for insurance, gas, maintenance, supplies, phone bill, and mailings (thank you cards, etc), then you might get as high as 80%. If you owe more, it may dip down to who knows what. Your toughest hurdle will be to get customers. Remember how much Sherman stressed professionalism with the customer. So true. I am getting customers and making more money then working for somebody else but it is still taking time to build up that customer base. If you need to, keep your day or night job and clean part time until you get to the % that enables you to go full time. What ever that % is, you will know. Take care.

Scott

 

[Kevin B]

I'd save 3k a year if I never stopped at ACE hardware.

 

[gimmeagig]

Hey Scott,
Small world, good to see you again! I sort of have information overload right now, but new questions pop into my head all the time and this forum gives me a sort of a sense of security.So much helpful information.I do save a lot of the responses on my computer (sorry, Becker, not yours)so that I can go over them again.(I was only kidding,Becker)
Tomorrow I'll pick up my truck.Hopefully it won't brake down on my way home.

 

[Ken Snow]

Hi Roxy

It only makes sense if you include your own "reasonable" salary as part of the equation otherwise as some others said it will likely appear to be 60-80% after being established awhile.

Any business model shows profit after all expenses, not before some and after some. Since our biggest bus expense in this industry is Labor whether our own or employees it must be included even if you don;t technically take a "salary".

Ken

 

[Steve in Omaha]

Ken,

Point well taken, salary = expense. OK even so, I believe one could pass through dividend income that could be in the 40%+. Would depend on how each person defined "reasonable salary", the number you pick to pay into the FICA black hole.

Might make a good poll question some day after we get past the poll-itis of the last weekend.

What is the percentage of Salary to Dividends for the owners?

Best,

Steve

 

[enviropure]

If I remember correctly, Sherm managed a multi-truck operation and I'm sure those percentages were more in line with 25%.

As an owner/operator working from home you can bring home a much higher percentage. Becker is very much in line. Depending on your volume and buying equipment strategies it can vary quite a bit. If you are just starting out, your gross income is going to be lower. You overhead will seem pretty high (your profitability will be lower). Once you are established and your gross income has gone up, your overhead % should be lower and your profitability will increase.

Eric

 

[Ken Snow]

Guys call it whatever you want- dividend distributions, salary, money left in pocket at the end of the day~ it doesn't matter. If you want to look at yourself the way thee real world will (not the IRS-that is a whole diff issue), then you must make a reasonable accounting for your salary if you are actually working in the business. To not do so and call everything after other expenses profit is deceiving yourself.

I do not mean to be critical, but if this concept is not sinking in you are in desperate need of at least bus and acctg 101 at your local college.

Ken

 

[Steve in Omaha]

Great post Ken!

Ever so slowly by surely it's sinking in. I will admit to a bit of fudge in the "reasonable salary" calculations. 30% profit for an OO is very possible, not easy mind you, but possible assuming and honest market salary.

Thanks again for the enlightenment!

Steve

 

[Desk Jockey]

SIC Code 56174-Carpet & Upholstery Cleaning Services

Industry Financial data have gross profits at 75% and net profit margin of 15% for companies doing under 1-million.

Becker is on target!

 

[Jim Williams]

Roxy, I consider anything that I can pay myself profit. It's the part that I have to pay taxes on. Last year being my second full year in business I got to keep 50% of what I made. This year I can cut my advertising because of more repeats and referrals plus will be buying less stuff and I know which chemicals I don't need so I should be able to pay myself around 70% of my gross. If you have a van and truckmount payment your figures will be different.