Not Every Sale Is a Good Sale

Revenue is the number everyone watches. It's the one you tell people when they ask how business is going. But revenue only tells you how much came in. It doesn't tell you what each dollar cost you to earn.

Here's an example. It's a made-up cleaning company with three services.

Move-out cleans bring in the most money. They also make the least. Every $100 of move-out work leaves this owner $8. Every $100 of recurring work leaves $31.

The reasons are all in the work itself. Move-outs are longer jobs. They often need two people. They get booked on short notice, and some need a second visit before the landlord signs off. None of that shows up in sales. All of it shows up in what's left.

What the owner can do about it

Once the owner can see this, there are three choices. Raise the price on move-outs. Change how the work is done so it takes fewer hours. Or take fewer move-outs and fill that time with recurring work.

The first one is worth doing the math on. Move-outs bring in $150,000 and leave $12,000. If the owner raised the price 10 percent and kept the same customers, sales would go up $15,000 and costs wouldn't change. Profit on move-outs would go from $12,000 to $27,000. That's more than double, from one price change.

In real life, some customers would leave over a higher price. But each move-out that's left would make more than twice what it did. The owner could lose more than half of those customers and still make the same $12,000, with far fewer hours worked.

Try It: Profit by Service

1. In QuickBooks, run the Sales by Product/Service Summary report for the last 12 months. It shows how much each service brought in.
2. For each service, estimate what it costs you to deliver. The hours it takes times what you pay per hour is usually most of it. Add supplies and anything else that goes with that kind of job. Rough numbers are fine.
3. Subtract the cost from the sales, then divide by the sales. That's how many cents of each dollar you keep on that service. Rank them, and look hard at the one at the bottom.

If every sale in your QuickBooks is recorded under a single item called Services, fix that first. You can't see which work pays if all of it has the same name.

You might keep your bottom service anyway. Some work brings in customers who buy the profitable work later. Just make that choice knowing the numbers.