Profitable-service basics

Profitability starts with actual costs. This lesson applies the same principle to three distinct stages of business.

Why it matters: Illustrative math, not market data: a $150 job needs $35 of supplies, $20 of travel and four hours of labor at $20 per hour. Only $15 remains before other overhead and taxes.

Calculate without guessing: in the $150 example, $35 supplies + $20 travel + $80 labor equals $135. Just $15 remains for overhead, taxes and profit. If allocating another $12 of overhead, only $3 remains before taxes. More sales of poorly priced jobs can increase effort without improving results. Include the owner's labor to avoid hiding unpaid hours.

Second illustrative case: monthly fixed costs are $600 and each service contributes $30 after variable costs. Twenty services would be needed to cover $600, before other considerations. Break-even units = fixed costs ÷ (selling price − variable cost per unit). If contribution is zero or negative, selling more of that service will not cover the fixed costs. Also check capacity, refunds and payment collection.

Practical steps: 1. IDEA: list all costs required to deliver the service once, including preparation and travel. 2. STARTING: compare estimated costs with five real completed jobs before changing prices. 3. ESTABLISHED: audit margins and capacity across service types; examine recurring overhead and scheduling constraints. 4. PRACTICE — Write down job price, materials and transportation, labor hours and overhead. The remainder is not net profit until all applicable costs are counted. 5. REFLECT — What decision would you change today, and what real information do you still need before spending money?

An important note: Official finance guidance: https://www.sba.gov/business-guide/manage-your-business/manage-your-finances . For tax and legal questions, consult qualified professionals.