Someone asked me to help them understand margins for their junk removal business, so I figured I'd go ahead and clarify for everyone. Today I'm breaking down the difference between Gross and Net profit and why it's important to know the difference (it's actually VITAL). https://junkremovalauthority.com/
Hey guys! It’s Lee Godbold here with Junk Removal Authority. Check us out at junkra.com. What I’m going to talk today is about margins. Recently I had somebody pose a question about margins. What are the margins in a junk removal business? One of the things you’ve got to make sure that you specify is if you’re talking about gross margin or net margins.
Gross margins are any expense directly related to the cost of goods sold. In this case, the cost of providing your junk removal service. Net margins are after you pay administrative expenses, set salaries, interest and any other cost that it takes to run the business. Gross margins are directly related. Gross margin in junk removal business would be fuel, wear and tear on the vehicle and labor that it costs you to complete the service. Disposal fees would also be considered gross. Net is going to be every other expense that comes out of your business. So, when I told this gentleman that we shoot for about 15% margins, that 15% margins were 15% net, not gross. That is after we show you what expenses come out of that, that we can actually add back to that. Should we have set our business up a bit differently, which will require me to work a lot more on junk removal than I do now. So, it is 15% net. The gross margins are going to be closer to 40%.
Whenever I talk, I always talk about net. Most people they go with the higher number, I always go with the lower number. If I quote a figure, it’s generally going to be lower than what we actually expect or what we see in reality. I don’t mess with gross because gross doesn’t matter. Well, gross isn’t as important to me as net. Gross does matter because you have to make sure that the service you’re providing is actually profitable. You can base a lot of your pricing off gross, but at the same time pay attention to net because that’s what you actually bring home. So, let’s go through some of these expenses. When I say that we do about 15% and that’s what you should shoot for.
Let’s say we’re doing $2,000,000 a year. In actuality it would be more than that this year, it’s about what we did last year. At 15%, that’s $300,000 net profit. Let’s add some stuff back in here because there’s some stuff that’s taken out of here that doesn’t necessarily have to be. Let’s say that I didn’t have JRA going on. I wasn’t trying to set up Junk Removal Authority. I was willing to work 50 to 80 hours a week on Junk Doctors. How much money could truly be made? A lot of people are including some of the other benefits and expenses that come out of off their business. They may had set it up this way when they’re given margins.
So, for example, Christian and I would make about $200,000. So, our salary would be $200,000. We need to keep in mind that since I started JRA I had worked between 5 to 10 hours a month on Junk Doctors. Not a week but a month on Junk Doctors. This needs to get re-adjusted because technically I’m overpaid for the effort and the work that I’m actually putting towards Junk Doctors. We have an airplane that we use for business. It’s certainly not required but we use it to get to and from different location like our Charlotte location and meetings. I’m going to start to using it more for JRA now that we’re going to start this TV show. That airplane is just sitting there and if we don’t fly a single hour just sitting between insurance, hanger expense, annual cost and their repair bills will cost us about $10,000 a year.
Basically, it doesn’t include fuel or long-term expenses like an engine repair. On vehicle lease payments. Mine and Christian’s vehicle are leased with 100% of all expenses. The payment on mine is about $9,600 and about $3,500 on fuel. That’s costing us about $13,000 a year. That doesn’t include tires or any other repair expense at all in that vehicle. Christian, my business partner, got a brand new F250 Power Stroke Diesel crew cab. It’s a sweet ride. The payment on that is about $1,000 a month plus fuel. So, it’s going to be somewhere around $17,000.
We have a healthcare policy for full time employees but this is just mine, I’m not counting anybody else. It costs about $6,000 a year. That might actually be low, I’d have to double check that. The dispatch, if we wanted to work a lot dispatch is a bit of a luxury. It’s something that you created just to have freedom in the business. Dispatch is going to cost us about $40,000 a year. So, let’s add these all together and the total of all this is $286,000. $286,000 of freedom basically.
When this business was set up, I didn’t want something that I had to be there every single moment. That the business relies on me. I’ll work hard, I love working but I also love playing, going out of town and going on a vacation. I like freedom and to be able to do what I want and do it when I want to do it. That’s the reason this business was set up. Even Christian, my business partner and the manager of Junk Doctors has dispatch. So, it’s not 100% reliant on him. We’ve got some backup options in place, where one person leaving is not going to affect the entire organization.
Then on me working 5 to 10 hours a month, between salary and net profit, making pretty good money. If I wanted to focus full time on Junk Doctors and not do JRA and just work. Potentially this business can make $586,000 a year, just shy of 30% of $2,000,000 a year revenue. What we did is instead of going after this $586,000, I chose freedom and took the opportunity to start Junk Removal Authority where I can provide a lot more impact for more people throughout the country by helping them achieve this number or the Junk Knob’s and Junk Doctors’ number if they want to. We always encourage people to have freedom. You may make a ton of money but that doesn’t make you rich. That might be part of being rich but having freedom in your life and to be able to go out and do what you want to do and do it when you want to do it. That’s truly rich and you’re free at that point. This is very possible in junk removal. I’ve seen it firsthand, it’s extremely possible. Anybody that tells you it is impossible in junk removal if you’re out going after 15% net margins, that’s incorrect you’re thinking small. I’m going to tell everybody, you need to be careful in exposing yourself to small thinkers. If you’re thinking big, you need to cut out the small thinkers. If you’re listening to small thinkers, cut them out. Listen to big thinkers that are telling you this is possible and have done it and you’re going to be much more successful. Give us a call at 919-617-1975. Thanks guys!