So What Is A Fair Profit Level For My Business? And ... How Do I Get There?
An electrical/HVAC contractor once commented to me, "I wouldn't even look at a business that couldn't earn at least a 10% net profit," As the owner/president of an AV retailer making 4-6% at the time, I couldn't help but feel I was in the wrong business.
Since then, I've worked with hundreds of companies doing what my company did; only as custom integrators instead of retailers. The profit potential for this business model is outstanding. Yes, many integrators realize the same sub-10% net profit, I got from my retailing company. But the really well-run companies come in much higher, with some achieving greater than 20% new profit, before factoring in owner income.
Our goal at VITAL Management is to help business owners realize a minimum of 10% EBITDA (operating profit) with another 10% going to the owner income, business growth, debt reduction, or retained earnings. We believe this "10+10" model is an achievable gold standard, and have set it as the goal for all members of the VITAL Management Group.
The path to "10+10" includes a strategic model for managing product mix and gross margin, compensation planning that accommodates growth while keeping costs in line with GP, and process effciencies that enable increased productivity from every employee. Very few companies in our space are not capable of getting to this level.