First, Happy Memorial Day. In the United States we honor those who have served in the military. Both my husband and my father won a bronze star for bravery. I give thanks to them and everyone else who served to protect our country and our freedom.
Now, onto Profitable Business.
In one of my recent classes, a participant asked me whether it is feasible to increase profits when you can’t raise prices.
His wife is a speech therapist and has a practice which includes 4 other speech therapists who work for her. The charges are fixed by insurance companies and Medicare. She cannot raise prices. They are billing the maximum number of hours without burning out the speech therapists.
I asked him about the building the practice was located in. He described it and said there was room for expansion for at least one more speech therapist.
That was the answer – add a speech therapist.
Why? Because overhead is now spread amongst 6 therapists instead of 5. There are minimal, if any increases in overhead cost when the sixth therapist is hired. Revenues increase and overhead stays the same so net operating profit increases.
In the construction industry, we generate revenue through billable hours. No billable hours, no service revenue, maintenance revenue, or installation revenue. And, each billable field employee has a maximum number of hours that he can bill out – yes, there are more working hours in busier times. But there still is a maximum number of hours before you burn out the field employee and he/she makes mistakes or gets hurt.
So, to increase profits, you need more billable hours – first establish the realistic maximum number of billable hours. When you’ve achieved that or you have about 30 hours of overtime consistently in a week, it’s time to add billable hours, i.e. another field employee.
Will overhead go up? Yes, a little. However, the bottom line will go up more.
How financially fit is your business?
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Books/Audios that could help your business and you.
Casey Brown makes an interesting case for whether you should raise prices and how to raise prices if you decide to do so. She has implemented what she suggests in the book and gives you stories from companies she has helped change their pricing strategy.
Click here to order on Amazon