Lever one
Price and value
Are customers paying a fair price for the outcome you deliver? Have you made that value clear, or are you competing mainly on being cheaper?
Start with the uncomfortable possibility
What if the answer isn't more sales?
When a business isn't making enough profit, the obvious response is to sell more. More enquiries, more proposals, more customers, more work. It sounds reasonable, because sales bring money into the business. And sometimes selling more is exactly the right answer. But there's something worth checking before you ask everyone to work even harder.
What if your existing customers, products and jobs could generate more profit than they currently do? What if some of the work you're already doing costs more to deliver than you realise? Or the price you charge has barely moved, even though wages, suppliers and all the other costs of doing business have? You can spend a fortune trying to win another customer while ignoring a modest improvement hiding in the work you've already won.
The quickest route to more profit isn't always another sale.
I'm not suggesting you stop growing. I'm suggesting you understand the economics of the work you've got before you go looking for more. Because if every extra sale passes through an inefficient or badly priced system, growth can simply make that system busier.
The basic maths
Where does the profit actually go?
Let's start with a simple service business. It books jobs, sends people out to deliver them, buys the materials or outside support it needs, and pays the regular costs of keeping the business running. The money customers pay isn't the money the business gets to keep. Some of it belongs to the cost of doing the job; some of it pays for the business around the job. What remains is operating profit, before financing costs and tax.
Sales revenueWhat customers pay
−Direct job costsDelivering the work
=Gross profitContribution left
−OverheadsKeeping things running
=Operating profitBefore interest and tax
You don't have to become an accountant to make use of this. You do need to know what it costs you to deliver a typical job and roughly what you spend keeping the doors open. If you don't know those two things, it's surprisingly easy to mistake a full diary for a healthy business.
Lever two
Cost of delivery
What gets consumed each time you do the work: materials, outside labour, travel, wasted time or additional visits?
Lever three
How the work runs
Are mistakes, unclear handovers and unnecessary overhead eating into the profit before anyone notices?
Interactive demonstration
The Profit Playground: same number of jobs, different profit.
Meet The Busy Business. It completes 40 jobs a month, charging £500 for each job. The usual direct cost is £300, but some jobs need extra work because something was missed, misunderstood or has to be done again. The business also has £6,500 of monthly overheads. It is busy. It isn't earning much profit.
Now see what happens when you improve how the business works, without selling a single additional job. Try one of the suggested experiments, or adjust the four controls yourself. The job count stays at 40 throughout. That is the whole point.
Your experiment
Can you make the same 40 jobs more profitable?
Every figure is illustrative. Changes update the monthly and annual results instantly.
Before: monthly operating profit
£1,212
Baseline margin: 6.1%
After: monthly operating profit
£1,212
New margin: 6.1%
Extra profit per month£0
Extra profit per year*£0
Jobs sold per month40 (unchanged)
See the working
Monthly revenue£20,000
Normal direct job costs−£12,000
Extra rework cost−£288
Fixed operating costs−£6,500
Monthly operating profit£1,212
Try a small change. See what happens to profit even though the business completes exactly the same number of jobs.
*Annual change assumes the same monthly activity and improvement continue for twelve months. Model excludes tax, financing, investment and cash-payment timing. This is operating profit, not money sitting in a bank account. A price change is modelled with demand unchanged: in real life, demand may change too. Costs saved must be genuine savings, not simply costs moved elsewhere.
What did you discover?
A five per cent improvement in price isn't five per cent more profit. Price acts on every one of the 40 jobs, while much of the cost of delivering those jobs may stay the same. Equally, rework isn't just annoying: when people go back to fix something for free, the business consumes time and resources it cannot bill again. And a small recurring cost, repeated every month, can quietly become a sizeable annual figure.
But don't rush from that observation to putting every price up tomorrow. The simulator holds demand steady so you can isolate the arithmetic. Your customers don't have to behave that way. A price increase that causes too many customers to leave might reduce profit; removing the wrong overhead could damage service quality and cost you more later. The maths shows you where a hypothesis is worth testing, not what your business must do.
The missing question
What happens if a price increase costs you customers?
There's an obvious objection to the simulator: people might not pay a higher price. Quite right. Let's use its starting numbers. With a £500 price, £300 of normal direct cost per job and the small rework allowance, each completed job contributes approximately £192.80 towards overhead and profit. Increasing the price by five per cent makes that contribution about £217.80, assuming delivery costs don't change.
That means the business could lose roughly four of its 40 monthly jobs and still produce about the same operating profit as before. Lose five, and the apparent improvement disappears. That isn't a recommendation to lose customers. It's a useful way of thinking: what would need to remain true for this change to make the business better off? The actual answer depends on the different customers, jobs and capacity in your business.
A practical test: Before changing prices across the board, examine a sample of jobs. What was quoted? What did delivery really cost? Which customers value reliability, expertise or convenience? Where is price genuinely the deciding factor? Test your new proposition with a defined group, and measure what happens to win rate, customer experience and profit per job.
The Monergy Flow view
The numbers reveal the opportunity. The business explains it.
Here's where I want you to widen the lens. A weak margin may show up in the accounts, but its cause could be a long way from the spreadsheet. Perhaps someone discounted a job because the customer couldn't see the value. Perhaps the estimate was wrong because the salesperson and delivery team didn't talk. Perhaps people are redoing work because instructions were rushed, or nobody has the confidence to raise an obvious problem.
A business isn't a set of isolated departments. Each part influences what comes next. In The Monergy Flow, purpose gives direction; humans make choices and create experiences; the brand is the meaning others attach to those choices; marketing creates opportunities; experience builds trust; sales turns that trust into commitment; and wealth is the outcome that makes it possible to continue and reinvest.
Purpose
→Humans
→Brand
→Marketing
→Experience
→Sales
→Wealth
The trick is to start with the result you can see and investigate backwards. If pricing is the issue, what makes customers question the price? If costs are high, where does the work become difficult, wasteful or delayed? And if people are making mistakes, what about the way the business is organised makes those mistakes more likely? The first explanation that comes to mind is not always the one supported by evidence.
Don't fix the spreadsheet. Understand what produces the numbers.
That doesn't mean a long, expensive improvement programme. It might mean sitting with the people who do the work, asking better questions, looking at three months of real jobs and testing one change properly. It also means remembering that extracting every last penny from your people isn't efficiency. Exhausted, unsupported staff can cost a business far more in mistakes, lost trust and poor experiences than a sensible investment in them ever would.
Something to try this week
Find £1 of profit before chasing £10 of sales.
You don't need to rebuild your business to begin. Choose ten recent jobs or customer projects and look at what really happened. Not what the quote said would happen, but what actually did. The aim is to find one repeatable way of improving the work, without asking everyone simply to do more of it.
- Find the true contribution. For each job, write down the selling price and the direct costs, including non-billable extras you can identify. Compare profitable and unprofitable work.
- Look for patterns. Which jobs run over? Which customers demand extra visits? Where are you discounting? What gets delayed or done twice?
- Ask the people closest to the work. What gets in their way? What could make delivery easier, faster or better without sacrificing quality?
- Choose one small change. It could be clearer job scopes, better preparation, a different price presentation or fewer unnecessary steps. Decide what you expect to improve.
- Measure the consequence. Check profit per job, customer satisfaction and the experience of the people doing the work. Keep the change if the evidence supports it; adjust it if it doesn't.
There's one more reason to do this. A business that earns more from the work it already performs creates choices. It can build a buffer for quieter months, invest in good people, improve its service or give its owner a little time back. That, to me, is a rather better definition of business success than simply being busy.
Common questions
Questions business owners ask about profit
How can I increase profit without increasing sales?
Start with the profit you make on your existing work. Examine price, direct delivery costs, rework, customer mix and unnecessary overhead. Find one change you can test without reducing the quality of the service or exhausting your people.
Does putting my prices up always increase profit?
No. If you sell the same number of jobs, a higher price usually improves profit, assuming costs are unchanged. But real customers respond to prices. Check how many sales you could lose before the price increase stops being worthwhile, and test whether your offer justifies the price.
What's the difference between gross profit and operating profit?
Gross profit is sales less the direct costs of delivering those sales. Operating profit also allows for ordinary operating overheads. Neither is automatically the cash in your bank, because payments and receipts may happen at different times.
Should I cut costs or focus on growth?
Neither should be automatic. Cutting a cost that protects service, capability or trust can damage profits later. Growth can be excellent when the work is profitable and the business can deliver it properly. Understand the economic and human consequences of each option before deciding.
Your next useful step
Find the gap in your own business.
We've been experimenting with a fictional service business. Yours will have its own customers, costs, people, delays and opportunities. Find the Gap is my free 10-minute Monergy Flow check-up. It helps you start with the result, follow the work backwards and identify the first part of your business worth investigating. You don't need perfect data to begin.
Get the free 10-minute check-up →