Pricing Audits: Finding Hidden Profit Leaks
Pricing Audits: Finding Hidden Profit Leaks
Busy and profitable are different things. Plenty of service businesses run flat out and lose money on a third of their jobs without ever knowing which third.
TL;DR Cost twenty recent jobs properly, including drive time, non-billable hours and overhead share. Rank them by margin. The pattern is almost always obvious and almost always surprising.
Run the audit on twenty real jobs
Not averages. Actual jobs, from the last three months, across your normal mix.
For each one, record
| Item | Notes |
|---|---|
| Invoice total | What you charged |
| Labour hours on site | Actual, not estimated |
| Drive time, both ways | Almost always excluded and shouldn’t be |
| Materials at cost | Your cost, including waste |
| Quoting time | Site visit, writing it up |
| Admin time | Scheduling, invoicing, chasing |
| Callbacks | Return visits, warranty work |
| Overhead share | See below |
Then calculate true margin per job and rank them.
Overhead allocation, done simply
You do not need cost accounting. You need a defensible number.
- Total monthly overhead. Insurance, vehicle costs, phone, software, rent, accounting, licences, marketing, admin wages.
- Divide by jobs completed that month.
- That is your per-job overhead share.
Example. $9,000 monthly overhead across 60 jobs equals $150 per job before any labour or materials.
A refinement worth making. If job durations vary widely, allocate by hours rather than by job count. Divide overhead by total billable hours and apply per hour.
Non-billable time is where the money goes
The number that shocks people.
Track a full week honestly. Every hour, categorised.
| Category | Typical share |
|---|---|
| On-site billable work | 45 to 60% |
| Driving | 15 to 25% |
| Quoting and estimating | 5 to 15% |
| Admin, invoicing, chasing | 10 to 15% |
| Ordering and supplier runs | 5 to 10% |
If you bill 25 hours in a 45-hour week, your true cost per billable hour is nearly double your nominal rate. Every price built on the nominal rate is wrong.
The fix is not working more hours. It is pricing correctly, and reducing the non-billable categories that are avoidable.
Material margin, checked properly
- Are you marking up materials at all? Many trades charge cost, which means the ordering, collecting, storing and warranty handling is free.
- Is your markup keeping up with supplier increases? A markup set two years ago on prices that rose 30% is now a smaller real margin.
- Is waste accounted for? Offcuts, spoilage, the extra fitting.
- Are supplier runs costed? An hour driving to collect a $40 part costs more than the part.
A standard markup of 20 to 40% on materials is common in the trades and covers the real costs of handling them. If you are at zero, that is a leak with an easy fix.
Find the loss-making jobs
Rank your twenty by margin, worst first. Then look for the pattern.
Common culprits
- Small jobs. Fixed costs swamp a low invoice.
- Distant jobs. Drive time destroys margin.
- One particular service you consistently underprice.
- One particular customer who generates callbacks and change requests.
- Emergency work priced at standard rates.
- Anything you quoted “to be nice.”
The pattern is usually a category, not bad luck. Once you can name it, you can price it or decline it.
The five questions the audit answers
- Which service line is least profitable? Reprice or stop offering it.
- What is my true break-even per job? This sets your minimum.
- How much time is non-billable? This corrects your hourly assumptions.
- Which customers cost more than they pay? Raise their prices or let them go.
- Where is scope creep concentrated? Fix that quote template.
What to do with the findings
Immediate, this month
- Raise prices on the worst-performing service line.
- Set or raise your minimum job size.
- Add a materials markup if you have none.
- Add exclusions to the quote template where scope creep concentrated.
This quarter
- Reduce drive time by clustering jobs geographically.
- Cut admin time with better tooling.
- Re-quote or exit the customers who consistently lose money.
Ongoing
- Re-run the audit every six months on a fresh twenty jobs.
The benchmark question
Owners always ask what margin is normal. The honest answer is that it varies enormously by trade, region, structure and what you count as overhead, and any single number quoted at you is probably not comparable to your situation.
Use yourself as the benchmark. Run the audit, note the number, improve it, re-run in six months. Your own trend line is more useful than somebody else’s average.
Cost your last five jobs properly this week, including drive time and overhead share. If any of them come out negative, you have found something worth more than a month of new marketing.
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