Increasing Your Prices Doesn’t Equal More Net Profit

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In June 2017 we started working with a small manufacturing business where the owner couldn’t understand what was wrong with his business.

12 months ago he had increased his hourly charge rates and his mark up on materials and subcontractors. Despite the price increase, the last year had been very busy.

It didn’t make any sense to him that prices had increased, but his net profit had reduced significantly to the point where he had lost money. 

It made even less sense because the business had an excellent reputation and often won jobs even when their prices were up to 10% higher than alternative quotes.

Our Action:

Our preparation for his strategic Planning Day included a review of the jobs he won and the jobs he had lost in the past year and a comparison to the previous year when he made a good profit.

We could see that he had in fact achieved an increased labour rate and a higher mark up.

We were also able to determine that his Gross Profit per hour (GPph) had decreased and that failure to understand and measure this critical KPI had caused his problems.

The Solution:

We helped him understand and calculate a GPph target that would result in a desired net profit of $500,000 and developed a revised pricing strategy and monitoring system.

He is now winning the right jobs and his GPph has increased by more than the 30% improvement we were after.

He is on track for a profit improvement of more than $230,000.

How can this help you?

GPph is one of two key drivers of trade and construction businesses.

Measuring GPph is the first step and targeting improvements is the next step.

But, this is no use without developing and implementing strategies to make sure the increased targets are achieved.

Contact Us for an obligation free discussion about how we can help you today.

Contact


Unicorn Business Solutions are based in Devonport Tasmania, with clients around Australia.

64 Best Street, Devonport

Mail : PO Box 511 Devonport TAS 7310 Australia