I think everyone can agree it’s important to check your estimating system often in an economic environment such as this to be sure you’re keeping up with the current costs of materials and equipment, but don’t overlook your overhead expenses. Those are just as important to maintaining profitability.
Here’s a good example:
When gas prices go up $1.00 per gallon at the pump, your Auto & Truck (A/T) expenses, will generally increase by one percent of sales. A healthy metric for A/T expenses is about 4% of sales. A dollar more for gas can send your A/T from 4% to 5%. That’s a 25% increase!
Here’s how it impacts your financials:
At $3,000,000 in sales, assuming 4% A/T, your fleet cost is $120,000 per year. At 5%, A/T jumps to $150,000. This equates to a $30,000 decrease in profit for the year if you haven’t adjusted for it. For a company normally at 8% net profit, this will now be at 7%. That’s a 12.5% decrease in net profit!
Don’t let the less obvious impacts of inflation escape your attention. Review your overhead expenses, especially A/T with the price of fuel right now. Make adjustments as needed. You can even consider adding a fuel surcharge to your service tickets. If you have 5 techs doing 1,000 calls each per year, a $10 surcharge would add $50,000 to the bottom line.
