What if You Landed Your Biggest Job Yet and Still Made a Loss?

Sounds impossible. But it happens more often than you’d think.

Imagine this scenario: a customer secures a six-month project. They quote and estimate a £30,000 gross profit. Everything looks great on the surface. But three months later, the bank balance is running low. By the end of the project, they are loss-making and confused.

What went wrong?

We looked into this for them and found three critical issues:

  1. They calculated markup, not gross margin.
  2. They didn’t factor in monthly overheads—£6,000 per month.
  3. With no other work in the pipeline, the entire “profit” was swallowed by fixed monthly costs.

They were making sales, but not making money.

Understanding the Difference Between Markup and Margin

One of the most common mistakes businesses make is confusing markup with gross margin. Markup is the amount added to the cost price of goods to cover overhead and profit. Gross margin, on the other hand, is the difference between sales and the cost of goods sold, expressed as a percentage of sales.

For example, if you buy a product for £50 and sell it for £100, your markup is £50. However, your gross margin is 50%, not 100%. Understanding this difference is crucial for accurate pricing and profitability.

Factoring in Monthly Overheads

Another critical oversight was not factoring in monthly overheads. In this case, the business had £6,000 per month in fixed costs, which, over six months, amounts to £36,000. If these costs are not accounted for in the project pricing, they can quickly erode any anticipated profit.

The Importance of a Pipeline

Having no other work in the pipeline meant that fixed monthly costs swallowed the entire project’s ” profit.” This highlights the importance of maintaining a steady stream of projects to ensure that overheads are covered and profits are realised.

Preparing for Future Projects

We showed them exactly what went wrong and helped them prepare for future projects by focusing on four key areas:

  1. Understand the difference between markup and margin.
  2. Calculate their actual break-even point.
  3. Align pricing with real overheads, not guesswork.
  4. Build in profit from day one, not just hope for it.

Implementing a Profit Check

Now, every job they quote is run through a profit check. They’ve got financial clarity, control, and confidence. This process involves:

  • Reviewing all costs associated with the project.
  • Ensuring that pricing covers both variable and fixed costs.
  • Building in a profit margin that aligns with business goals.

Financial Clarity and Control

Profit doesn’t happen by accident. It requires careful planning and constant monitoring. By implementing these strategies, the business now clearly understands its financial position at all times. They can make informed decisions and avoid the pitfalls that led to their previous losses.

Conclusion

If you’re not 100% sure your current project covers your business costs, you might already be losing money without knowing it. Please don’t wait until it’s too late. Take control of your finances and ensure every project contributes to your bottom line.

Let’s talk before it becomes a problem. Message us today and let us help you achieve financial clarity and control.

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