You may love what you do, but if you’re not making the money you deserve then you could quickly fall out of love with your electrical contracting business. Running an electrical business isn’t just about hard work. It’s about making sure that work truly pays off.
Whether you’re a solo sparkie or managing a team of electrical contractors, achieving higher profit margins is the dream. But that doesn’t have to mean cramming more working hours into your week. The good news is that working smarter often makes a bigger difference to your business than working harder.
Here, I’ll share some proven ways electricians like you can boost your profit margins without burning out.
What are the typical profit margins for electrical contractors?
First things first, let’s look at the electrical contractor profit margins you should be aiming for.
Somewhere between 10 and 20% would be a healthy net profit margin for electrical contractors. Obviously, nearer 20% would be preferable. That said, electrical contracting businesses often operate below 10%. I know some net profit margins as low as 2%.
As for gross profit margins, 65-67% is the average you’d need to achieve that 17-20% net profit margin. For clarity, your gross profit margin reflects the difference between your revenue from electrical services and your direct costs associated with providing those services.
How do your numbers stack up in comparison to the average?
Common mistakes made by electrical business owners
I’ve worked with many electrical business owners, and I understand the challenges you face. I also recognise common mistakes that affect your bottom line. They include:
1. Underestimating the amount of electrical work involved at the start of a project. And, consequently, undervaluing how much a job costs. If you quote for 4 days, but it takes 6 days, then your initial quote won’t reflect the actual electrical work undertaken.
2. When you’re the business owner, you’re not always on site every day. It’s important to make sure that the people working on the job are motivated to work hard. They need to understand the timeline. They have to stick to it, and report back daily so that progress can be monitored.
3. Not planning materials adequately at the start of a job. By guessing the amount and cost of materials required, rather than working it out in detail, you may make a loss on that job. Even seemingly small things (like not billing for extra parts) can add up to big losses over time.
4. Again, a lack of planning can cause you to overspend on materials. If they’re bought in advance, you have time to shop around to source them at the best price. If you buy them at the last minute, you tend to shop somewhere convenient. That convenient, local business may be more expensive. That applies whether you’re buying electrical parts or office supplies.
How can electricians increase their profit margins effectively?
Want to boost your bottom line? Here are a few proven tactics that may work for you.
Know your numbers
This is one of my mantras! I meet too many small business owners who aren’t on top of their numbers. If you’re not sure how much profit you’re making on each job, it’s time for a closer look.
Keep track of your costs (materials, labour, overheads) for each project. The costs of materials and overhead expenses fluctuate all the time. Make sure you know the latest prices. Consider your markup too – is that still the optimum level?
How you price your electrical services directly impacts your business’s cash flow. If your prices are too low, you won’t have enough money to invest back into your business. Review price increases regularly to ensure they reflect your true costs and value.
Streamline your operations
Time is money, especially in the electrical industry. The more efficiently you run your business, the more profit you make. Making sure that your people, workflows and processes work smoothly and effectively can make a significant difference to your business.
Slick project management is an important aspect of your business. Having a good project manager can save you money ultimately.
Software solutions really help you to monitor progress, costs and expenditure in real time. Technology makes it so much easier to track and analyse key metrics that affect your business. The automation of admin tasks, like invoicing and follow-ups, can free up time for other pressing tasks.
Expand your electrical services
Instead of trying to be everything to everyone, you could find your niche. When you understand your target audience (are you talking to local business owners or homeowners for example?), you know their needs and the specific services they’re after. As a specialist, you can charge more because your seen as an expert.
Keep your workforce up-to-date with the latest trends and technologies, such as electrification, green energy, smart home technology, and digital tools.
Perhaps you want to attract new customers with a focus on green energy. By specialising in areas like LED lighting solutions, HVAC and EV charging stations, you’ll appeal to clients who value expertise over discounts.
Review your supply chain
It’s really important to monitor prices and look around for the best deals. Don’t simply stick with what you’ve done before. Do your research and negotiate better contracts and deals with your suppliers. This is all the more important now that we’re experiencing so many shortages and global supply chain issues.
Motivate your team
If you’ve got employees or subcontractors, get them involved in the bigger picture. You need to trust them to work efficiently and effectively, even when you’re not on site. That comes by helping them to buy into business goals.
Explain how profit margins impact job security and bonuses. Encourage them to spot and reduce waste like leftover cable or avoidable returns.
Provide incentives and reward initiative that helps the business grow – such as business referrals and excellent customer satisfaction. Training and development is another good reward for team members. If your team’s accredited with certification in electrical industry standards, it builds trust in your business too.
Build your customer base
It’s more expensive to market to potential customers and convert them to new customers than to gain repeat business from your existing customer base. You could offer maintenance and upgrade services to gain repeat business from current clients, for example. When you understand your customers, you can provide personalised recommendations and advise them on their electrification journey which will secure more business for you.
In addition, you could offer incentives to your customers for word of mouth referrals to potential customers too.
Effective sales and marketing plans can save you wasting money on unsuccessful tactics and campaigns. Do your research, stop and think, and plan your activity.
EMS Electrical: case study
I worked with Vicente to evolve his electrical company and enhance his business skills.
“We were in a bad situation… At that time I was living on my savings and now I’m able to cover my expenses which was goal number one. Next, we’re taking the business to £1 million in three years time or even sooner.” Vicente Romano, MD of EMS Electrical
Watch Vicente’s story of business coaching
Take a look at more success stories
Is it time to review your electrical business strategy?
Now’s the ideal time to grow your electrical business. Why? There’s a UK skills shortage in the electrical industry, high demand for electrical services, and plenty of opportunities. But before you dive into filling up your diary even more, stop to check your numbers.
Having a robust business plan and truly understanding your numbers will set up your business for success. That will help you to make sure your prices, and profit margins, reflect the current market.
You can boost your business’ profitability without working 24/7. I’m here to help you work smarter rather then harder. I’m really experienced in coaching tradespeople, so I get your world and the challenges you face. Let’s chat to see how I can help to boost your business’ profitability and success.
