Convert everything to percentages first
Dollars tell you the size of the business; percentages tell you the shape of it. Shape is what you manage. Before reading anything, divide every major line by revenue.
Then compare against last year and against the band for your size — not against a national average that mixes a $2M shop with a $40M platform.
1. Gross margin — is the work priced right?
Revenue minus cost of delivery, over revenue. If this is below the band, you have a pricing or a delivery problem, and no amount of overhead cutting will fix it.
The diagnostic sequence: is it low across every division, or one? If one, that division is either mispriced or badly executed. If all, it is systemic — usually pricing that has not moved with material and labor costs, or discounting happening in the field that never reaches your reports.
Key point. Gross margin below band is the most expensive problem on the page, because it scales with every job you sell.
2. Marketing — is it feeding the machine?
Marketing sits between cost of delivery and overhead because it behaves like neither: it is discretionary in the short run and existential in the long run.
Under the band is the dangerous direction, and the danger is delayed — it produces a good current year and a bad following one. Over the band is only a problem if cost per acquired job is rising, which means you are buying revenue rather than earning it.
Never assess marketing spend without cost per lead and cost per booked job beside it. The percentage alone cannot distinguish between efficient growth and expensive stagnation.
3. Overhead — is the structure the right size?
Everything that happens whether or not the phone rings, over revenue. This ratio should fall as you grow — that is the entire economic argument for scale. If it is flat or rising while revenue grows, the structure is growing faster than the business.
The useful cut is overhead per field technician. If that number is climbing, you are adding office ahead of capacity, which is the most common way a growing trades business quietly stops being profitable.
4. Net margin — does the whole thing work?
The residual. Because it is a residual, it is the least useful number for diagnosis and the most useful for judgment: it tells you whether the business works, but never why.
Always read it with your own compensation normalized. A business paying its owner $400k and reporting 4% net is a different proposition from one paying $150k and reporting the same.
The ten-minute routine
Every month, in this order:
- Convert the four lines to percentages of revenue.
- Compare each to the same month last year and to the band for your size.
- For any line more than two points off, split it by division.
- For the worst division, look at job-level margin for the ten largest jobs.
- Write down one action with one owner and one date.
Key point. The analysis is worthless without step five. A monthly review that produces understanding but no assignment is a book club.
Put it to work
Part of Fix My Business and Profit Coaching .