The 3 ratios you need to track to measure the profitability of your moving business

Supermove was recently joined by Tracy Bech from 60 Minute CFO for the second instalment of our Finance 101 for Movers series. 

Tracy is a serial entrepreneur, having started, run, and sold 2 successful businesses. She is passionate about lowering the business failure rate by educating business owners and leaders about best practices and business strategy.

It was a fantastic, in-depth discussion on how to measure profitability by understanding key ratios in your business and properly categorizing direct and indirect expenses. Tracy also got into 5 proven ways to increase profitability and was joined by Foster Kwon from Supermove for a quick overview of how the software can help track margins.

This blog is a super high-level overview of what was covered in the session, but we highly recommend watching the webinar on demand (it’s free!). Tracy provides a lot of information and insight in plain English, as well as tangible, actionable next steps for measuring and increasing profitability.

Why should movers look at ratios, not just revenue?

Tracy starts off by saying that when we look at income statements, there’s a tendency to only look at the numbers. But the problem is that the real story is often hidden, and to find that story, you need to be looking at the relationship between numbers. 

The example she gives is this:

If you look at your net profit and see that it’s $5 million, can you definitively say that that is good or bad by looking at that number in isolation?

Of course, most of us would look at that and think “heck ya!”. But Tracy goes on to point out that if your revenue is $5 billion, all of a sudden that net profit of $5 million isn’t looking so great. 

This is why we need to look at profits (the bottom line) in relation to revenue (the top line).

The 3 essential ratios for measuring the profitability of a moving business

Throughout the session, Tracy references various versions of this graphic, which shows the different aspects of an income statement in relation to one another. This view is an important piece of the puzzle since profit is ultimately a waterfall. By starting at the top (with revenue) and working our way down to net profit, we give ourselves ample opportunity to course correct and find ways to optimize to maintain profitability.

Gross profit margin

According to Tracy, gross profit margin (gross profit ➗ revenue) is often overlooked, but it’s also the most essential margin to track.

Your goal here should be somewhere between 25% and 45%. Tracy points out that tracking your gross profit margin to a tenth of a percent gives you an early indicator of things that could affect the financial health of your business. If you only focus on net profit, you have nowhere to go if things take a downturn– it’s the end of the line, financially speaking. But focusing on gross profit lets you optimize down the line to preserve your net profit. 

Operating profit margin

Your operating profit margin is operating profit ➗ revenue, and you should be aiming for about 8%. 

A lot of things fall into this category since it includes indirect expenses or overhead. Again, Tracy says to track this to a tenth of a percent. And while this might seem small, we’re not joking when we say a lot of things fall into this category– advertising, computers, insurance, legal, office expenses, rent etc. And if you manage to shave a tenth of a percent off a lot of things, that can really add up in its impact on your bottom line.

Net profit margin

Finally, your net profit margin is (you guessed it!) your net profit ➗ revenue.

A lot of companies make the mistake of only tracking this. But if you hit your benchmarks in gross and operating profit margin, net profit becomes much less important. 

Tracy says your goal here should be around 6%. However, according to Tracy, this is highly manipulatable based on your full financial picture. That’s the joy of starting with gross profit margin– you can make small changes to the top line that have an exponential impact on net profit. 

Five tips for achieving good profits

Tracy’s not one to drop a bunch of financial info without some solid tips for implementing it. In the webinar, she outlines 5 actionable tips to increase profits (we highly recommend checking out the full webinar. You can also skip ahead to 42:00 to hear Tracy’s 5 tips). 

#1 Act promptly

Don’t put things off, and don’t fall into the trap of thinking that if you just work harder, things will get better. Taking on more jobs won’t necessarily fix profitability issues, says Tracy. 

“The tendency is to think things are going to get better, we just need to work harder and increase revenue… and what we do is we kick the can down the road and we bleed money for longer than we need to and we don't cut expenses right away so this is your call to action to cut expenses right away when you see you need to do it.”

#2 Ask for help or suggestions

Making cuts to preserve profitability can be difficult, but you don’t need to do it alone. It’s a team effort, so don’t be afraid to bring your leadership team into the conversation. Different perspectives and opinions can really help with creative problem-solving here.

#3 Carefully audit all indirect expenses

This one is relatively self-explanatory. This is where you can carve small savings off a large number of items to ultimately see the benefit to your bottom line. 

#4 Audit all employee positions 

This is a tough one. You’ve worked hard to build your team in an incredibly challenging labor market. However, it’s important to not have any blind spots when it comes to improving profitability. Tracy says that there is a benchmark available here, which is that revenue per admin employee should be between $450-650k/year. So you take your revenue and divide it by the number of employees that are not revenue-producing, and this will give you an idea of whether you’re over or understaffed. 

#5 Think strategically to avoid seasonal losses

The moving industry is notoriously seasonal, but that doesn’t mean you should sit on your laurels during the slower months. There are ways to set up your business and diversify so you’re not run off your feet during busy season, then barely holding on the rest of the year.

Check out how Naglee Moving and Storage uses data + Supermove to maximize capacity and not fall into the trap of seasonality: https://www.supermove.com/blog/how-naglee-moving-storage-uses-data-to-understand-costs-and-maximize-capacity-to-increase-margins

#6 Raise prices 

Again, pretty self-explanatory. Tracy gets into more details on this in the webinar, but raising prices is obviously a quick and easy way to improve profitability.

Tools and resources

To wrap up the session, Tracy dives into some resources that you can access immediately to make calculating, understanding and managing these ratios far more simple.

60 Minute CFO Business Mastery spreadsheet: This free downloadable spreadsheet makes it super simple to understand your cash flow. 

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‍Supermove: Supermove also comes packed with loads of easy-to-use finance tools to help you understand business performance. 

Foster Kwon, Product Manager at Supermove jumped in for a very quick demo of some of the accounting features in Supermove, namely the cost and comp as well as the billing section. 

He goes into how Supermove lets you easily see the top line, total revenue, and total costs per job, drill down into individual cost items, and start to identify what levers you have at your disposal that you can pull to help increase profits. 

Check out Foster’s 5-minute deep dive into cost, comp, and billing 👇

Next steps to start measuring and managing profitability

Tracy wraps up the session 6 next steps that you can start implementing today.

1. Categorize direct and indirect expenses
2. Know your desired gross profit margin
3. Take action on the 5 proven ways to increase profitability
4. Use Business Mastery & Job Costing (from 60 Minute CFO) to do all your calculations
5. Review cost and compensation in Supermove
6. Set aside 60 minutes per month to track this!

She also has an important message for anything who might be feeling a bit overwhelmed when stepping into the world of business finance.

“I want to make sure that everyone knows that this is a journey it's not a destination. No One Ever Knows everything there is to know about business finance you're just somewhere along the journey and it changes, just as the economy changes, your business changes, and your industry changes so just drop anything that you may have already you know a preconceived notion about what this does or does not entail and start today. Today is the perfect day to start tracking your profitability.”

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