Trace why a full order book produces little profit by reconciling realised prices, direct costs, owner time, overhead and cash collection job by job.
Short answer: Your prices, job mix or delivery time are probably producing too little contribution for the capacity consumed. Reconcile your last 20 completed jobs using the price actually collected, every sale-driven cost and all owner hours, then allocate monthly overhead across no more than 80% of available delivery hours. Stop adding volume if contribution per constrained hour cannot cover that hourly requirement.
A full diary measures demand and activity, not commercial success. It can conceal discounts, unpaid changes, rework and an owner working evenings without recording the cost. More sales then amplify the leak.
There is also a separate cash possibility. The accounts may show profit while customer payments, stock purchases, tax or loan repayments leave the bank empty. Diagnose profit first, then reconcile timing. Do not cut a profitable offer because its invoices are merely late.
Run the Workload-to-Profit Reconciliation
The Workload-to-Profit Reconciliation follows one completed job through five checkpoints. Use actual records from the last 20 jobs, not the amount your price list suggests.
- Realised price: What to calculate: Invoice less discount, refund and unbilled scope; Leak revealed: Revenue given away
- Sale-driven cost: What to calculate: Materials, commission, travel, subcontracting and rework; Leak revealed: Contribution lost in delivery
- Constrained time: What to calculate: All delivery time using the resource that limits sales; Leak revealed: Jobs occupying capacity too cheaply
- Overhead recovery: What to calculate: Monthly fixed cost divided by realistic saleable units; Leak revealed: Structure the work fails to support
- Cash conversion: What to calculate: Date invoiced, due and paid; Leak revealed: Profit trapped outside the bank
Complete them in order. If realised price is wrong, an overhead review will distract you. If job economics are sound but cash conversion is weak, a price increase may not solve the immediate problem.
My position is that a business should deliberately create breathing room before fixing this. A diary booked to 100% leaves no time to measure, quote properly or remove rework. Protect at least 20% of working capacity for selling, administration, improvement and disruption unless actual records justify a different allowance.
Reconcile what customers actually paid
Start with the final invoice and credit notes. Compare the amount collected with the original quote. Record discounts, waived delivery, refunds, free extras and scope you completed but did not charge.
A £1,000 list price with a recurring 10% discount is a £900 realised price. Manage the £900 business. Do not build forecasts around a price customers rarely pay.
Separate deliberate acquisition offers from uncontrolled concessions. A limited first-stage offer may have a commercial reason. Repeatedly reducing price during negotiation without reducing scope simply transfers uncertainty to your margin.
Check payment as well as invoicing. A sale that remains unpaid is not available cash, and an invoice eventually written off needs to be reflected in profit. Record customer, age and promised payment date so one large debtor cannot hide inside total revenue.
Cost rework and invisible delivery
Assign every cost caused by each job. Include replacement materials, extra journeys, platform or card fees, customer-specific subcontracting and disposal. If a cost recurs often, it belongs in the standard price rather than an “unexpected” column forever.
Record rework against the original job, even when the team fixes it in a later week. Otherwise, the original appears profitable and the repair appears as unexplained busyness. Distinguish errors you control from customer changes that should trigger a revised quote.
For services, count meetings, preparation, travel, communication and completion administration. A two-hour appointment can consume four hours of the day. Quoting only the visible two guarantees a misleading hourly return.
Calculate contribution per constrained hour
Contribution is realised price minus sale-driven cost. Divide it by the resource that limits output, usually owner delivery hours, machine hours, treatment slots or installation days.
A project contributing £600 over 30 specialist hours earns £20 per constrained hour. A smaller project contributing £350 over 10 hours earns £35. The larger invoice is not the better use of capacity.
Rank the last 20 jobs by contribution per constrained hour. Look for patterns in scope, customer type, channel and urgency. Do not assume the bottom job should automatically be rejected. It may fill otherwise idle time or lead to valuable repeat work. It does need a reason to remain.
Set the hourly recovery requirement
Add monthly overhead and minimum owner pay not already included in costs. Divide by realistic saleable hours, not total hours at work. If you work 160 hours but sales, administration and normal disruption consume 40, capacity is no more than 120 delivery hours before further buffer.
Suppose fixed cost and owner pay total £6,000 and practical saleable capacity is 120 hours. The average job mix must contribute £50 per saleable hour. Any job below £50 needs an offsetting higher-return job, genuinely idle capacity or a strategic reason with a limit.
Overhead allocation is a management model, not a claim that one extra job causes a share of rent. That distinction matters when deciding whether to accept thin-margin work. For overall viability, however, the job mix must recover the whole structure.
Worked example: Copper Fox Upholstery
Copper Fox restores dining chairs. The owner completes 12 chairs a month at an average realised price of £480 each and feels fully booked.
- Revenue: Calculation: 12 × £480; Amount: £5,760
- Fabric and materials: Calculation: 12 × £120; Amount: £1,440
- Collection and delivery: Calculation: 12 × £35; Amount: £420
- Payment fees: Calculation: 12 × £7; Amount: £84
- Contribution: Calculation: £5,760 minus £1,944; Amount: £3,816
- Fixed overhead: Calculation: Workshop, insurance, utilities and administration; Amount: £1,850
- Cash remaining before owner tax: Calculation: £3,816 minus £1,850; Amount: £1,966
Each chair takes 14 delivery hours, so 12 chairs use 168 hours. Quoting, messages, sourcing and bookkeeping add 36 hours. The owner works 204 hours for £1,966 before personal tax, equal to £9.64 an hour.
If the owner requires £20 an hour for all 204 hours, the monthly requirement is £4,080. Total required revenue at the current workload is direct cost of £1,944 plus overhead of £1,850 plus owner pay of £4,080, which is £7,874. Divided across 12 chairs, the viable average price is £656.17, rounded to at least £657 before allowing profit or tax.
The calculation does not establish that customers will pay £657. It shows that being fully booked at £480 cannot meet the owner’s stated requirement. Copper Fox must test a higher price, reduce hours, change the job mix or redesign collection. Taking a thirteenth chair without creating capacity would deepen overwork rather than repair the model.
Tax and owner-pay treatment vary by legal structure and country. Use the hourly comparison for management, then ask a qualified local accountant how salary, drawings and tax should appear in your records.
Separate overhead trouble from volume trouble
If average contribution per hour exceeds the recovery requirement but total profit is weak, you may not sell enough suitable hours. Check whether demand, scheduling gaps or cancellations leave capacity unused. More of the right work can help.
If available hours are already full and average contribution is below the requirement, added volume cannot fit without overtime, delayed work or a step cost. Fix price, time or mix first.
Review overhead only after this distinction. Cancel costs that do not protect delivery, demand or compliance, but do not remove useful capacity merely because prices are wrong. A workshop may look expensive until you discover it enables the highest-contribution jobs.
Reconcile profit to cash
Start with profit for the period. Add or subtract changes in unpaid invoices, stock, customer deposits, tax balances, equipment purchases and loan principal to explain the bank movement. Every material difference should have a name and date.
Do not spend tax collected on behalf of an authority or customer deposits needed to finish work. Requirements and treatment vary, so confirm them locally. Use a rolling cash-flow forecast to see when a profitable order creates a temporary funding gap.
Related guides
Diagnose and change the next ten jobs
Within 48 hours, reconcile the last 20 completed jobs and rank contribution per constrained hour. By day three, calculate the hourly recovery requirement from fixed cost, owner pay and 80% of realistic capacity.
Choose one cause, not five. Quote a higher price on the next ten suitable enquiries, charge for one recurring scope change, remove one source of rework or decline the lowest-return job type. After those ten decisions, compare total contribution, hours and cash collected with the previous ten. Keep the change that improves viable earnings, even if it reduces headline busyness.
Frequently asked questions
Isn’t any paying work better than an empty diary?
Only when the work leaves positive contribution, uses otherwise idle capacity and does not block a better option. A job that fails to cover materials, travel or directly paid labour makes cash worse. One that covers those costs but not overhead can be rational for a limited quiet period, provided normal prices are protected. Measure the decision against the next best use of the constrained hours. Empty time can also be used to sell, improve delivery or rest. Busyness has no independent financial value.
How should I put a cost on my own time?
Start with the minimum annual income the business must provide, add employer-type costs or benefits you need to fund, then divide by realistic total working hours. Use all hours, including administration and selling, when assessing personal viability. For job decisions, use the scarce delivery hours and ensure their contribution supports the whole requirement. This is a management value, not necessarily an accounting wage. Treatment varies by legal form and country, so ask a qualified local accountant how owner salary or drawings should be recorded.
Should I raise prices or cut costs first?
Change the cause shown by the reconciliation. If realised prices are consistently below the amount required while customers value the work, test a higher quote on the next five to ten enquiries. If material waste, rework or unused subscriptions are the leak, remove those first. Do not cut a cost that protects the outcome merely to preserve an underpriced service. Compare total contribution and capacity after each change. Altering one major variable at a time makes the result easier to interpret.
Why do my accounts show profit when the bank is empty?
The timing of cash differs from the recognition of profit. Revenue may include unpaid invoices, while stock, equipment, loan principal and tax payments can consume cash differently from expenses on the profit statement. Customer deposits may be cash in the bank but still needed for delivery. Reconcile each movement and maintain a dated forecast. If you cannot explain a material difference, ask a qualified accountant. Do not assume the accounts are wrong or that the bank balance is freely spendable until the reconciliation is complete.
Should I stop selling my lowest-margin service?
Not automatically. Calculate contribution per scarce hour, repeat purchase, payment timing and whether it uses capacity that would otherwise be idle. The service may introduce profitable later work or keep a trained employee productive during a quiet period. Give that role a number and a time limit. If it repeatedly displaces higher-contribution work or needs cross-subsidy with no strategic return, reprice, narrow or remove it. Percentage margin alone is insufficient because a lower percentage can still produce more contribution from the same constrained resource.
How many jobs do I need to analyse?
Start with the last 20 completed jobs or the last eight weeks, whichever captures a more representative mix. Use more when one contract dominates, work is seasonal or jobs vary widely. The purpose is not statistical certainty. It is to expose repeated discounts, missing costs and time patterns. Separate unusual projects rather than deleting them silently. Then continue tracking the next ten jobs after a change. A rolling record is more useful than a large one-off review that you never update.
Will hiring someone solve the problem?
Only if the additional capacity produces enough contribution after the employee’s full cost and management time. Hiring into an underpriced, inefficient service can scale the loss. Calculate expected saleable hours, realistic utilisation, pay, employer costs, equipment, training, supervision and the sales needed to recover them. Employment rules and costs vary by country, so use current local figures and qualified payroll or employment advice. First prove that the job mix earns an adequate contribution per hour. Then test whether demand can fill the added capacity.
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