COST OF OPS 📈

Want to learn how the Tradies Success Academy can help you optimise your trade or construction business for profit, growth, and time freedom?

As your business grows and changes, it's important you reassess your cost of operations. Greg sits down with Chantel our Accounting Coach to chat about the importance of having clarity and confidence around your cost of operations. This clarity can really help when making business decisions - things like hiring, hours worked, charge out rate etc. are much easier to make when you know your ongoing cost of operations.

Podcast Transcript

Greg Allan

Yeah, well I'll just check with our accounting coach and make sure that's all good. Ok. Yeah sweet. Alright, no worries man cool. Alright, I'll talk to you later.

Hey Chantel.

Chantel

Hey how you going?

Greg

Pretty good. Just had a member say that two years ago they did their cost of ops and they don't need to do it again. They put on four extra tradespeople. What do you think of that statement?

Chantel

Yeah. No, that's crazy.

Greg

That's what I thought, 

Chantel

That's crazy like it's gonna improve their position but you need to look at what is it costing you to run the business, you know what's the impact of billable hours or non billable hours?

You know, depending on what staff you've got, you might have had an admin that's gonna cost you more.

Everything you change in your business is gonna impact on, not necessarily your ability to charge at the same rate but what you, you know what sort of profit margin you can make, you know what's the end goal? 

Greg

Yeah, how much revenue you can make and as a result how much profit you'll make from that.

But what I find really fascinating is when you scale up.

So every tradesperson, admin, you know, ops manager, whatever the role is you're hiring for will completely change the dynamics financially.

Also to the max revenue you can make.

But also for you as a business owner, handing over that responsibility to someone else means that you no longer have to do it.

And so that frees up your time to do other things.

But usually what we tend to see if you put tradespeople on you get a more revenue being able to be achieved.

But also initially, there's a cost to that.

But what people don't see is that you've got all of this extra capacity to grow into which people don't realise the, the extreme benefit of that as well.

Chantel

Absolutely.

And the other thing that I find that a lot of people do realise is that being on the tools and off the tools, isn't a snap thing.

You know, for some people, it's quicker, for some people it's a longer process.

But having that cost of ops calculator there gives you the ability to say, OK, well, I'm doing 40 hours on the tools plus whatever I hope. You know. Now what happens when I drop back to 30 hours on the tools? What does that do to my overall profit? Can I afford not so much afford, but can I, you know, absorb the impact of having that admin person on? What does that do to my, you know, charge out rate. Can I absorb that? And what do I need to do? Do I need to work on my efficiency? You know, what, what are the key things that I need to work on in my business?

And the thing that I find that people don't realise either is if you're looking back at, ok, not just a charge out rate, it's not just for your cost, you know, your charge out rate, you can see exactly what it costs to run your business. And so you've got that marker, that line in the sand every day, every week.

Now, what do I need to turn over from my labour to actually meet that line? So, you know, if you're, if you've got a goal, a target, if you're struggling, if there's certain things going on, you've got a line in the sand that you can say. ‘Ok, well, as long as I meet this, anything above that, regardless of efficiency, anything above that, anything above that, you know, that's, that's the line I need to make this much in my labour in a, on a weekly basis to cover costs’.

Greg

And what I love about that is firstly, not many people have that they don't have a line. So there's no sense of whether they did well or didn't do well throughout the week. And if you're not readjusting your cost of ops for your team that you currently have, that line will move up and down. And so you need to know how much you need to make in order to make profit.

And this is where people get unstuck is when they, when they have workflow issues and all of a sudden they have a slow week or two and they don't see that it's the result of those slow weeks pulls all of the profit from the business. And so when they look at it from a quarterly basis or a monthly, like, “where's all the money in the bank account? We were so busy for a couple of weeks. Shouldn't that be in the bank?”

It's those inefficient weeks where the cost doesn't change, it keeps going. It happens every single day or every month it's happening. So if you don't understand that line, you are not gonna do what it takes to make sure you got consistency there.

Chantel

Absolutely.

And it's, it's one of those things that, you know, it's not only a tool for pricing for looking at that, you know, that baseline, but, you know, if you're looking at giving your staff performance reviews, you know, what is the impact of the $3 an hour rate change?

You know, what is the, what is the, the impact of you know, putting someone on my admin and giving them more work? You know, what, what does that look like? And what's the impact of increasing my own wage? You know, there's obviously a lot of chats with your accountant around the tax, you know, viability of certain things.

But if you're on a 70 grand wage or some, for some of our members, they're putting the cap at what they physically pay bills. That might be 40 or 50 grand because they've worked out a lifestyle amount that works.

But we're not, yeah, we're not putting you in. If you put yourself in at 40 grand a year, that's what you're gonna make.

You know, if you, if you're putting yourself in at 70 then 80 then 90 like, you know, using that scaling system to, you know, as you get back off the tools also increasing, not necessarily on your real profit and loss, but on your cost calculator, increasing your wage to a relevant amount and then looking at, ok, well, that is a guarantee within the system in terms of, you know, if you can manage those figures and those efficiencies.

But then it's like, ok, well, what's left over and what I wanna wanna do with that, you know, what do I want to pull out of the business? We need to know, even if you don't know the number, we need to know what that baseline is and then we can work backwards and say, ok, well, these are the ways you can go about it.

Greg

Yeah, I remember that triggers me, you know, one of the years I was so busy all year. I was either busy trying to get work or I was busy doing the work for the whole year. I was working 16-18 hour, you know, it was massive days all year when I got to the end of the financial year, got the return back.

And I said I made like $2,000 net profit and that $2,000 divided by the amount of hours I worked over the year was something under a dollar an hour that I made in terms of profit. And I wasn't paying myself that much. And that's when I realised I need to try and figure out how to understand these figures because otherwise, how am I meant to make sure I get consistency in these things?

Chantel

That, yeah, I mean, the business owner is the first person who can make money, but it's generally the last person that does make money and that's a massive difference. And if you have your calculations built up to protect what you want to achieve, then it's a matter of working within those sort of guidelines of, well, can I achieve a better efficiency or can I charge at a higher rate?

And it's really then saying, ‘ok, well, if I can get this, then I have to do that. If I want this, then I need to do that.’ And I think most of the time that calculator, what a lot of people don't realise is it's a tool for you to play with, to achieve the outcome that you want.

And then say, ‘OK, well, what are my guidelines?’ You know, we all need boundaries.

‘What are the boundaries I'm working within?

And which one can I push?’

Greg

Yeah. The best thing about that is when you do know what the goal is, then you can work towards achieving that goal. But if you never have the goal in place, you'll just work your ass off and not really understand if you're making money or losing money throughout the year.

Chantel

And I think that's what a lot of business owners don't see. And what we're hoping, you know, what we're trying to achieve is we have the information at our disposal from like yesterday, right?

Business Day, yesterday. If we have it there and we're utilising it in the right way, we don't need to wait until we get to the end of the year and say, oh, I had a bad year. I, yeah, how did I go?

Because to be honest, what you see on your tax return is actually, you know, if you have a low profit on your tax return, that's actually just good tax management, right? We don't need to know that number is low. We need to know that all the pieces are right.

And if you're waiting till the end of the year to get that advice, then you've lost the opportunity to improve and change 100%.

Greg

Yeah. The more regularly you reflect on your financials and what you can do to fix the situation, the more regularly you improve. But if you wait once a year you make one improvement and it's unlikely to stick.

Chantel

And you've probably got those, you know, those ways you're like, oh, yeah, we're doing well. We're doing well and you've been so ingrained in doing it those ways, it's a lot harder to pivot after a longer period of time and make new habits or new ways of sort of doing things.

Whereas if you're pivoting all the time and you're looking for constant, you know, improvements every time your business changes, look at that tool. It's a lifelong tool.

Greg

So all you guys in the academy, make sure you are resetting your cost of ops scalp every time you put on a new hire. Understand that line and what you're working towards so that you're not jeopardising your own pay on the journey to get there. If you guys want to know more about the cost of ops calculator, we'd love to have you in the academy fill out the form in the show notes and look forward to seeing you soon.