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September 29, 2016

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Can One Number Determine My Profit Level?

September 29, 2016

There is one number in the custom integrator/operator's world that can determine profit really fast. We call it Gross Profit Productivity or GPP.


In short, it is all your gross profit dollars (no labor costs and just product and parts cost included) divided by your total payroll dollars. Gross profit is the vehicle to pay for people and expenses in the business. Keeping a 2 to 1 ratio or better almost always means double-digit profitability.

 

A GPP of 2.0 or better means you spend less than half of your earned gross margin on compensation which outside of cost of goods is your largest expense.


Increase margin and reduce compensation will obviously make it better. Fast strategies: include getting parts to 6%-8% of proposals, labor above 30% of the sale and making sure the hours billed create an effective billing rate (total labor billings divided by billable payroll for techs) that is $50 or more per hour.


Do this and you will be a 20% income before you pay yourself business. Join Bi4Ci to learn more about perfecting your performance.

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