What is a Fair Profit?
My views on owning my own business and the profit margins that are acceptable.
What is a fair profit for any business to make? I have been fortunate enough to have been self-employed twice in my working life. The first business I had was called “Hertstech” basically the business was repairing and servicing customers cars. I worked from a van on a totally mobile basis I.e. I would drive to your home or place of work or even outside a pub!
My second venture was called “DLB Autos” virtually the same as “Hertstech” except I was older and it was in a different area. I worked from a fully equipped mobile van again, however this time around I had a garage as well as the mobile van. I often worked with a partner and long time friend on the bigger jobs such as engine replacements or gearbox replacements.
So back to my original question – what is a fair profit? I’ll give a very brief over-view on how I operated and my pricing structure. Having a registered motor-trade business I was able to buy parts for cars at trade costs. Sometimes this was a 25% discount or sometimes 40% discount dependant upon the type of parts.
Now I pitched my business as a personal service to the customer. I wanted a working relationship to flourish. I wanted to be trusted and to have repeat customers.
The customers knew that I didn’t have the huge overheads of the main dealer garages. Therefore the customer expected the costs to them to be less than main agents. With that in mind if I brought a part with a 40% discount, I would split the difference with the customer, I would put a 20% increase on the part I purchased with a 40% discount. In effect giving the customer half my discount. This worked well because if the customer checked up on my pricing (some did) the customer would find they couldn’t buy the part as cheaply as I sold it to them.
I charged labour per job instead of per hour. For example if I quoted you £80.00 labour to change a clutch I would stick to it regardless of broken bolts or any unexpected delays. My labour charges were normally 50% to 30% cheaper than main dealer garages.
Very interesting article – I totally agree that holiday companies rip off the general public! I understand that the weather tends to be hotter during the month of July & August – but this is still not guaranteed, so I think it’s not justified to be able to charge an extra £200-£300 per person during those months…
Good article!
thanks for sharing this interesting post.. keep it up!
- jaysonv
A good article to ponder. Many retailers here in the colonies like to work on 30 percent, partly to overcome shrinkage from shoplifters and employee “grazing.” There once was a midwestern supermarket chain that claimed to work on a two percent margin after considering produce spoilage, etc. I never bought off on that. It was a public offering chain. Stockholders would never sit still for such performance. In Florida, motels must post their highest rate on each room’s inner door. Off peak rates are described as “discounted.”
DH ran our family business with low profit, high turnover. It was 2 pharmacies, when we sold them the big pharmacies fought over them. We had built a great customer base because we were not greedy.
I love that you turned down the guy, it showed him to realise what a good thing was for the future.
One of the things that I like about the health care bill now in the US Congress is that health insurance companies must pay out 85% of of their money for actual health care to their customers and not put the money in their pockets.
Yeah, health insurance companies have had a stranglehold on the health care system in the United States for decades now. They claim their profits are not that good, citing highly questionable data from their own damn lobbying institute. The last thing these birds are interested in is actually providing health care. You can toss oil companies (Exxon Mobil, etc.) into the same mix, whose profits have gone from merely outrageous to obscene.
This is good to know. I wonder how that customer of yours think. He’s so irrational. I like your candor. Nice read.