Gross vs. Net Margins for your Junk Removal Business
I recently released a video explaining the difference between gross and net margins in a junk removal business. Many so-called “experts” in the junk removal industry and other service industries like to cite gross margins when talking about their business profits. I don’t support that BS. I only cite net profit because it’s actually what counts.
Gross margins include only the direct expenses that are incurred to complete one job (fuel, employee labor for that job, dump fees). Net profit, on the other hand, is what is left over after EVERY expense your business incurs has been taken out of the income you brought in. Business trips, call center/phone representative pay, bookkeeping costs, advertising costs, management salary, your salary, office supplies, and every other little expense must be taken out before net profit it totaled. Essentially, net profit is what’s left after all is said and done. And while you can pocket this profit as a bonus, it’s in your best interests to reinvest that money in your business instead.
Let’s talk about what expenses make up gross and net expenses as they relate to your junk removal business or franchise.
Gross Expenses you will have on all Junk Removal Jobs:
- Fuel Expense:
- Typically 5-7% of gross income.
- Around 20% of gross junk removal income.
- This percentage is for two crew members on each junk hauling truck. This amount only includes the truck labor costs, not management costs, receptionist salary, etc.
- Includes the drive time, load time, and dump time for the truck crew.
- Disposal Fees:
- Typically 8-11% of gross income.
- Automobile Expense:
- Typically 3% of gross income.
- If trucks are new, the payment will offset repair expenses and vice versa. We’ve found this is a pretty consistent figure regardless of whether you deploy new or used trucks.
- Credit Card Fees:
- Typically 2% of gross income.
- Your individual junk removal credit card transaction rates will be higher. This is generally how the percentage averages out after customers who pay by check and cash have driven it down.
Total Gross Expense Percentage of Income: 41%
Average Job Cost: $350
Average Expense Per Job: $143.50
Average Gross Profit Per Job: $206.50
One Key Expense is Missing: Cost of Customer Acquisition!
This is possibly the most important figure of all. If you don’t have the money to find the customer then none of the other expenses matter anyway! I’ll let you in on a secret. The most important thing we did to get Junk Doctors to a $2 Million a year junk removal company was advertise more than anyone else. We’d spend more than anyone else to get a customer. Why did we do this? We looked at the lifetime value of the customer and NOT just the value of the customer for that one job. We knew that customer was going to use us again, leave a good review online, and tell their friends and family about us. That translates to hundreds, thousands, or even tens of thousands of dollars down the road!
We sacrificed today for a kick ass tomorrow!
And the tomorrow has sure been sweet. Christian and I lived very frugally for the first four years of our operation. After that fourth year of operation, Christian and I bought brand new trucks for ourselves, moved to a new office, bought an airplane for business, and each bought houses – Christian’s on a golf course and mine on an airport. Because of our early investments in Junk Doctors, we now have a war chest (cash and income) large enough to make it almost impossible for someone to dethrone us in our market. Now, Christian manages the junk removal business as my full attention is on Junk Removal Authority. My main priority is helping others achieve the same level of success (or greater!) than we have achieved with Junk Doctors.
We can help you get those jobs!
At the moment, we are working exclusively with locally owned junk removal companies throughout the country with our pay per job program. With this program, you get our proven Ads campaign and multiple full-time SEO experts running Google Ads and Search Engine Optimization on a JRA page in your area. Our junk removal call center books the jobs and they appear on a shared calendar. You do the job and get paid. That customer is then yours for marketing, referrals, and future business.
You are sacrificing today for a kick ass tomorrow!
So what is the typical cost of customer acquisition for an aggressive company that is willing to go about it the JRA way?
- Year 1: 25% of gross income
- Year 2: 20% of gross income
- Year 3: 15% of gross income
The income percentage gets lower as the years go on because your repeat customers begin calling back and bringing that figure down.
So, what does the final Gross Profit Percentage look like?
Gross expense percentage of income before Customer Acquisition: 41%
Cost of Customer Acquisition:
- Year 1: 66% Gross Expense
- Year 2: 61% Gross Expense
- Year 3: 56% Gross Expense
Equals a Gross Profit Percentage of:
- Year 1: 34% Profit
- Year 2: 39% Profit
- Year 3: 44% Profit
With an average job of $350 your average gross profit per job would be:
- Year 1: $119 Profit
- Year 2: $136 Profit
- Year 3: $154 Profit
Remember, this is GROSS profit, not NET.
We will be following this up with a separate post detailing which expenses come out of your gross profit to get you your net profit.
The key to being successful with your junk removal business or any business is to treat it as a business and not as a job. You should be paid a fair salary for the work you do with your business. If there isn’t money left over in your business after paying yourself what you are worth your business is worth NOTHING. That just means you gotta keep working hard and being aggressive on reaching more customers.
Too many people think they are doing better than they really are with their junk removal franchise. Don’t confuse Gross with net. Don’t think you are making more than you really are. Know your numbers! And remember, put off today say you can kick ass tomorrow!
– Lee Godbold
Lee Godbold is the co-founder of Junk Doctors, a $2 Million a year junk removal business in North Carolina, and Junk Removal Authority, the junk removal industry’s premiere provider of information and support.