Mike Andes explains why home-services businesses struggle with thin margins and how to fix it. Keep labor costs at 35% of revenue instead of 60-70%, and you can pay crews $50 an hour while staying profitable. Estimate each job's margin upfront by knowing materials and labor hours, then incentivize crews to hit those targets.
What profit margin are you seeing a lot of home services businesses running for like general maintenance, mulch? Unfortunately, mostly like zero. Really? But like the average home service business is still single-digit profit margins. And so you can get above 20%, but the reason it doesn't is because all of a sudden if labor is 60%, 70% of my revenue, I'm not making money. And so that's why if you look at last year and you just take how much you paid in wages, look at your labor revenue, and Figure out, oh, it's like 40%. Okay, that's not so bad. If I gave 35%, I know I'd be better off. And so when a crew member makes $50 an hour, I don't care. Let's go. 'Cause it's still 35%. Yeah, it's locked. And so now when you look at a job, you know the profit margin before you start. 'Cause you know the cost of materials and you know the cost of your labor, assuming they beat budget hours. And that's why you want them to be making more than base pay. You want them hitting budget hours.
