How to Plan for Profit as a Tradie — Not Just Revenue

Revenue Is Vanity — Profit Is the Point

A $1.2 million trades business with $50,000 net profit is in a worse position than a $600,000 business with $120,000 net profit. The bigger business has more staff to manage, more vehicles to maintain, more risk — and the owner takes home less.

Turnover is not a measure of success. Net profit — what's actually left after paying everyone including yourself a proper wage — is the number that matters. The goal of profit planning is to decide what that number should be, then work backwards to make it happen.

Setting a Profit Target First

Most trades businesses plan revenue first ("I want to do $800k this year") and hope profit follows. Flip this around:

1. Decide what you want to net. What do you want left over after paying yourself a commercial wage and covering all business costs? $80k? $120k? $200k? Start there
2. Add your total overhead costs. These are all your fixed business costs: rent or home office allocation, vehicle leasing and running costs, insurance, software, admin wages, marketing, phone — everything except the direct cost of doing jobs
3. That total (target profit + overheads) is your required gross profit. This is the profit left after paying for the direct cost of each job (materials and subcontractors) but before paying any overheads
4. Divide by your gross margin percentage to get required revenue. Your gross margin % is (Revenue − Direct job costs) ÷ Revenue

The Numbers in Practice

Here's a concrete example. A plumber wants $150,000 net profit for themselves. Their business overhead (vehicle, insurance, admin, tools, software) is $200,000 per year. They're paying themselves a $100,000 salary from the business.

• Target net profit after salary: $150,000
• Owner's salary (already included in overheads): $100,000
• Total fixed overhead: $200,000
• Required gross profit: $350,000

At a 40% gross margin (revenue minus materials and subcontractors): $350,000 ÷ 40% = $875,000 required revenue.

At a 35% gross margin: $350,000 ÷ 35% = $1,000,000 required revenue.

A 5-percentage-point drop in gross margin requires $125,000 more revenue to achieve the same profit. This is why small margin changes — from underquoting, discounting, or absorbing material cost increases — compound into a large shortfall.

Knowing Your Break-Even Point

Your break-even is the revenue at which you cover all costs exactly — zero profit, zero loss. It's calculated as:

Break-even revenue = Fixed costs ÷ Gross margin %

Using the same example: $200,000 overhead ÷ 40% gross margin = $500,000 break-even.

Every dollar of revenue above $500,000 contributes to profit at your gross margin rate. At 40% gross margin, each additional $1 of revenue generates $0.40 toward the profit target. This is why the gross margin percentage is the most important single number in a trades business — more important than the revenue figure.

Why Most Tradies Don't Hit Their Profit Target

The reasons are consistent across most trades businesses we work with:

• Underquoting: Not accounting for travel time, preparation time, or materials wastage in job quotes. The job makes margin on paper but not in reality
• Not charging for travel time: A tradie spending 90 minutes per day in transit is absorbing that cost. Either charge for it or reduce your servicing radius
• Not increasing rates annually: Material costs go up every year. Award wages go up every July. If your rates haven't moved in two years, your margin is shrinking by stealth
• Taking low-margin emergency jobs to fill gaps: A $400 job that takes five hours (including travel) at zero margin fills the gap but doesn't build the business
• No visibility of actual margins: Without a monthly P&L, you can't see that your materials costs have crept up 12% while your revenue is only up 5%

The Annual Pricing Review

Every year, before the new financial year starts, run through this review:

1. Material costs: Compare your material spend per dollar of revenue this year vs last year. If the ratio has worsened, your pricing needs to catch up
2. Labour Award rate changes: Fair Work increases minimum rates from 1 July each year. If you have employees, your labour costs go up automatically on that date. Your rates need to reflect this
3. Overhead costs vs last year: Review every overhead line item. Software subscriptions, insurance premiums, vehicle running costs — what has increased? What can be cut?
4. Your own wage: Are you paying yourself a commercial rate for your actual contribution to the business? Undervaluing your own labour is one of the most common forms of hidden profit compression

This review is not optional. It's the difference between a business that improves its margin every year and one that slowly erodes it while the owner works harder for less.

The Quarterly Profit Review Rhythm

Annual planning sets direction. Quarterly reviews keep you on track.

• Month 1 of quarter: Focus on revenue — are you on track to hit the revenue target?
• Month 2: Review margin — is gross margin holding at the planned percentage? If materials costs have spiked or jobs are running over, this is where you see it
• Month 3: Adjust for the next quarter — change pricing, cut an overhead, or shift job mix if the first two months are showing a trend you don't like

A monthly P&L from your bookkeeper is the mechanism for this. Without it, you're making decisions based on bank balance, which is not the same thing.

BAS as a Profit Health Check

Your BAS figures — quarterly GST-exclusive revenue — are a useful trend indicator even before a full P&L is reviewed. A good bookkeeper doesn't just lodge your BAS: they note whether revenue is up or down on the prior quarter, whether the margin looks consistent, and whether there are any anomalies that need investigation.

For a trades business turning over $600k+, your quarterly BAS prep meeting should include at least a brief margin conversation — not just "here's what you owe, here's the lodgement confirmation."