Knowing Your Real Margin
The difference between revenue and profit, in the language of your actual jobs.
Notes from Randall Harper. Thirty years working alongside owner-operators, executives and boards — companies of all types and sizes — across entertainment & media, hospitality, service based business, lifestyle businesses, financial services, retail and not-for-profit, in Australia, Asia, the United Kingdom and the United States. What follows is the thinking I keep returning to.
The most expensive number you do not know
Most owner-operators can tell you what they invoiced last month. Far fewer can tell you, with any confidence, what they actually made on each job after materials, labour, and the slice of overhead that job carried. That gap — between revenue and real margin — is where small businesses quietly bleed. You cannot improve a number you do not look at, and margin is the number most worth looking at.
Start with one job
Do not try to build a perfect costing system. Pick the last job you finished and reconstruct it honestly. Materials, including the bits you wrote off. Hours, including the ones you do not normally count. A fair slice of insurance, vehicle, software, and admin. What is left, divided by what you invoiced, is your real margin on that job. The number is almost always smaller than you assumed. That is the point of the exercise.
Categories worth tracking
- Direct materials — what you bought specifically for the job.
- Direct labour — every hour worked on the job, at the wage you should be paying.
- Variable overheads — fuel, consumables, subcontractors.
- An allocation of fixed overheads — rent, insurance, software, admin time.
- A small allowance for the jobs that go wrong — warranty, rework, write-offs.
What the number changes
Once you know your real margin by job type, you can stop pricing by feel. Some jobs you take because they make money. Some you take because they fill a quiet week. Some you take because they lead to better work. All of those can be valid reasons — but only if you know, honestly, which category each job falls into. Without margin data, every job feels the same. With it, the mix of work you chase quietly changes.
Margin is a habit, not a project
The owners who get this right do not build elaborate systems. They build small ones, and revisit them often. Once a month, take three recent jobs and run the numbers. The pattern that emerges over a year — which work pays, which work distracts, which customers are worth keeping — is the foundation on which every other financial decision sits more securely.
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The contents of this paper are the opinion of Clear Point Advisory only. Readers should rely on their own judgement and obtain professional advice appropriate to their circumstances.