Pool contractors, did you know:
If you raise prices 1%, you will increase your net profits 14.5%?
If you increase sales 20%, you will double your net profit?
If you improve your gross profit margins by 5%, you will increase your net profit 71%?
If you raise your prices 10%, you can lose 22% of your sales and earn the same profit as before the increase (all the while working 22% less)?
If you discount prices 20%, you will have to sell and work 133% more (that’s double plus a third more) to make the same, pre-discount profit?
If you increase your gross margins 5% and increase your sales 20%, you will triple your net profit?
These numbers are true for the average pool contractor who currently earns 35% gross profit margins, 7% (of sales) as net profit and keeps overhead the same. Your numbers may be different but probably not by much.
The above examples show the dramatic effects of small changes. Some small changes are surprisingly good — like the positive effect of increasing prices by 1% — and some are shockingly bad — like the negative effect of a 20% discount — but they are very real and they are all achievable, or avoidable. We just need to understand why they work and make changes in the way we think and operate.
Many of us labor under the influence of unexamined assumptions. We assume we must sell twice as much and work twice as hard to double profit. It doesn’t occur to us that we might make more by working less. We assume we have to discount to attract customers, but we don’t ask ourselves how many new customers we would have to attract just to pay for the discount. We assume that we will lose customers and sales if we raise prices. We never stop to consider how many customers we could lose to higher prices without sacrificing a penny of profit.
The antidote to assumptions is information, and in pool contracting and servicing, good books are an important source of that information. Good information not only inspires us to take action but also points to specific small changes we can make to improve. After we have taken action, good books then show us how well our changes are working.
Small changes do not always mean easy changes. After all, even small changes involve change. To be sure, some changes are easy; for example, you can raise prices by 1% this afternoon, and I encourage you to do that. Other changes are possible but more complicated — for example, improving margins by 5% requires time and a deep understanding of your processes and where you are wasting money. Some changes require genuine courage, such as raising prices by 10% or eliminating discounts. Easy or hard, small changes are the key to improvement.
Did you know about the dramatic effects of small changes? Now that you do, what are you going to do about it? Can you raise prices by 1%? Can you sell 20% more? Can you identify waste to improve your gross margins? You already know where you waste money, don’t you? Can you stop discounting? Of course you can, especially if you keep good books and know how to use them to identify opportunities, take specific action and track how well things are working.
The numbers in this article are all based on the concept of breaking even. In future articles, I will show you how to find the above numbers specific to your business, how to calculate and use break-even and how to use your books to pinpoint and track specific actions.
The Oxford Languages Dictionary defines “break-even” as reaching a point in a business venture wherein the profits are equal to the costs.