Know your numbers

Most trade businesses do not have a pricing problem. They have a measurement problem, and the pricing problem is what it looks like from the outside. You cannot set a rate that makes money until you know what an hour of your business actually costs to put on site, and that figure is almost never the one owners carry in their head.

The number underneath all of it is efficiency: billable hours divided by the hours you actually pay for, times one hundred. It matters because your fixed costs do not care how much of the day you billed. They get spread across whatever you captured, so when efficiency falls your real cost per hour climbs sharply, and it climbs silently. A business quoting on a one hundred and twenty five dollar cost of operations while running at sixty per cent efficiency is not making the margin it thinks it is on any job it sends out.

These lessons work through that arithmetic in the order it bites. What the three cost buckets are and why they have to stay separate. The difference between billable hours, hours on site and hours worked, which sound like the same thing and are not. Why going twenty per cent over on labour wipes out a twenty per cent margin completely. What a new hire has to bill to break even, and why that number is lower than it feels. And the two reports, the profit and loss and the balance sheet, that between them answer whether any of it is working.