Brian Kaskavalciyan shows contractors how to reverse-engineer a $1M profit goal. Start with desired profit, then calculate required sales, jobs, and pricing backwards. A $500k income target needs about $3.3M in sales and 860 leads, assuming 15-20% net margins and 51% gross margin.
I'm a big believer in reverse engineering success. When planning, most contractors start— most business owners, I should say, start with revenue numbers. We want to do $7 million this year. We want to do $10 million this year. We want to do $20 million this year. Why? I don't know. It's a good number. We did $5 million last year, so why can't we do $7 million this year? Problem with that is, in most cases, Most business owners are somehow trying to shoehorn in profitability somewhere in there. Profitability is like the 3rd or 4th or 5th thing they talk about, and then they wonder why they aren't getting the results. Because you're focused on the wrong thing. You're thinking about revenue, not about profits. So I say, let's do this instead. Let's begin with the end in mind. What does winning look like? So let's work backwards. So what is your profit target? And then work the numbers backwards to determine what your business needs to to look like in order for you to achieve your desired outcomes for time, for money, for freedom. So let's take our $500,000 income goal and let's break it down. Now look, is what I'm going to show you perfect? No, it's a good roadmap though. So this is a tool that we use with our, with our clients where we put in our profit target and then based on our profit model, and you know, if you've been around me at all, 15-20%. So if you're saying, if we're saying 15%, and you want to make half a million bucks, you need to do $3.3 million in sales. From that job average, so let's say the job average is what, $12,500, we need to install and collect money on 267 jobs. In order to sell that many jobs, we have to issue 860 leads. This business is very formulaic. It's very predictable. Again, is this perfect? No, but it's better than what most people are doing. You have to plan for profitability. There are too many people in business today that do not understand the economics of their business, and they're doing millions of dollars and they don't understand the economics. You got to understand the math, money math. It's one of the most important things for you to understand as an owner, because if you don't understand it, how are you ever going to make money? Profit is not something that can magically be added on at the end. You got to plan for it from from the beginning. And it's a math problem. You only have 100%. You don't have 110 magically, or 120. You have 100. But if you want to net 20%, you got to work to a certain model. If you want to make 15%, you can spend 85%. That's it. So as part of the other tool, we also come up with a profit model and budgets, and we got to work to the budgets. So in this example, our gross margin is 51%. Now our pricing model, okay, so pricing model goes with profit model. That gross margin number is almost entirely driven by your price. And again, it's shocking to me how many people in this industry work on margins under 30%. You can't afford marketing. You can't afford good people on a 30% gross margin. Can't. You got to understand marketing costs. If your marketing costs go up, what do you do? You raise prices. Exactly. Because who pays for that? Customer. Now, look. When it comes to marketing and advertising, you want to be the person that can spend the most. Not the person that could spend the least. Now, when I say spend the most, you got to do it profitably. You got to understand that if my marketing cost is 16%, I better get that number from— or the spread somewhere. And it's generally gonna come from your gross margin. So if your gross margin can't support a 16% marketing cost, and that's what's required in your market, you're in trouble. You're not gonna get the leads that you need. And then if your overhead is out of whack, what's gonna happen? Oh, we're gonna cut back on marketing. Our overhead is still high. And then what happens? You end up making no money. It's a math problem. Overhead and then net. Okay? You got to plan for your profitability. I just threw this together. I thought, okay, if you want to make, let's just say, $1 million a year from your business. $1 million a year. Which business would you rather have? $5 million at a 20% net? $7 million at a 15% net? Or $20 million at a 6% net? I'm going to make $1 million on a quarter of the work. I don't know. That sounds pretty good to me.
