How 5% Discounts and Deductibles Can Destroy Your Roofing Business
Welcome back to another edition of Roofing Insights with Dmitry Lipinskiy!
Today he is going to break down why giving even 5% off a job can RUIN your business.
You don’t want to ruin your business, right? Good! Keep reading to learn more about why discounts DO NOT pay off.
For this exercise we are going to imagine that your standard gross income for one year is about $1 million. That number sounds good on paper, but remember that the $1 million we just mentioned precedes all the overhead and other costs that come with running a business.
Also, your $1 million gross assumes that on average you will do 100 jobs at roughly $10,000 per job throughout the year.
Some of the other factors I just mentioned that have to be included in your algorithms are: cost of goods, gross profit, marketing costs, sales costs, overhead, and net profit.
As Dmitry has discussed in past videos, your net profit should be around 10% of every job. For example, if you do a job for $10,000, after taxes and overhead your net profit should be $1,000. If you do 100 jobs in a year, your net profit will look pretty good.
Remember that many businesses will cut costs in attempt to secure more money for their net profit. DO NOT do this! If you charge your standard rate and run your system smoothly, you will consistently be making money. Also, you need marketing! We can’t say it enough. Shortchanging the marketing budget will only hurt you in the long run. You have to spend money to make money.
Now, how do 5% discounts factor into all this?
Again, it’s no surprise that businesses give discounts to secure more jobs. They also will pay customer’s deductibles, a tactic that is illegal and not financially beneficial.
Let’s run some quick numbers and show how a 5% discount hurts your business.
If you gross $1 million per year, subtracting 5% from that already puts your gross at $950,000. That’s half of your net profit. OUCH!
That means that as a business you will have to take on 82 more jobs in a year just to break even!
And this is where businesses run into trouble, either by cutting costs or cutting corners on jobs. Either choice will have negative ramifications for your business.
For a more detailed breakdown on each part of the 5% curse, watch Dmitry’s video!
In this video, Dmitry breaks down the math behind what 5% discounts and deductibles can do to a roofing business. This video is for both homeowners and roofing business owners. Homeowners, please consider what you’re asking and let me breakdown what it will really cost a company. Make sure to check out Scott Siegal who originally put this into perspective for Dmitry. He has some great advice. Thanks for watching!
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