If there’s one common mistake I see from small business owners it’s very few keep score daily.  What do I mean by keeping score? You must track of your production costs daily!  The cost of production drives your GROSS MARGIN.  The cost of producing your services (COGS) needs to be compared to the billing for the day.  This allows you to see if the work you bid was aligned with the cost to produce it.  If your budget is set for a 50% gross margin for you services and you come back and your crew produced a 45% margin this needs to be addressed.

For example, if you send a two man crew out to do a full day mulch job at the end of the day you must track the labor, fuel, and mulch that was installed and then compare it to what you are charging the customer.  Below is an example where the work was bid out at $1,520 to the customer.  Our estimated cost was $760.  The bid was $1,520 to produce a gross margin of 50%.  We estimated 16 man hours, $20 in fuel, and $500 in mulch (see spreadsheet below).

Once we completed the job the numbers were compared to the estimate.  In this example the crew took longer than estimated (20 man hours) and installed 17 yards instead of the estimated 16 yards.  This actually dropped our gross margin from 50% to 45.39%.  With this information we can ask why.

• Did the estimator not put enough material and man hours on the job when estimating?
• Did the customer ask the crew to mulch an area that wasn’t in the original bid and we need to bill for this extra work?
• Was access to the property difficult and delayed the crews ability to efficiently get the job done?

The moral of the story is now you have the data to ask the questions and determine what needs to be done to more accurately bid the work next time. 4.61% on a $1,520 is only $70.  However, this adds up quickly for every $100,000 in revenue.  If this business were grossing $500,000 and they were consistently not hitting their gross margin projections this would end up costing  the company $23,050 over the course of the year.

If the company wasn’t tracking their gross profit on a daily basis they would not know this until the end of the year when they look at their PNL (if they only look at the end of the year).  It’s important to analyze the financials monthly.

Keeping score daily allows your business to make necessary changes throughout the year to keep your gross profit on track!

By Corey Sedrel