Over the years, and particularly at the time of this writing (September 2023) coming off of supply chain issues and shortages caused by COVID-19, the topic of electrical business profitability and how to improve profit margins has been a consistent area of interest and concern for our customers and the electrical contractors within our network.
Specifically, electrical contractors and subcontractors often find themselves in the difficult circumstances of:
Getting to the end of the year only to realize they made a fractional 2% or 3% net profit, or worse (and not uncommon) — ending the year at a loss.
Spending the majority of their time relatively blind as to how their gross profit margins are performing and how they’re pacing toward your profit goals.
Wanting to take control of and improve their profit margins, but lacking the right process or tools to do so.
In this post, we provide a clear, three-tiered process for solving these challenges in an electrical business — based on interviews with our electrical industry experts at ServiceTitan. The most successful businesses in the electrical industry are using processes like the one laid out below to navigate these challenging times and maintain healthy, profitable companies.
Before we get into the tiered process, however, let's begin with answering some common questions about electrical profit margins.
Table of Contents
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What Is a Good Net Profit Margin for an Electrical Business?
Electrical contractors deserve and should be shooting for 20% net profit in their business. But anywhere between 10% and 20% would be considered a healthy, reasonable net profit margin.
However, this is by no means the average profit margin. Businesses often operate at under 10%, and in many cases net profit margins are as low as 2% to 3%. This is a vulnerable place to be, considering all of the costs and risks associated with running an electrical company. Not to mention, contractors operating at this level are not being compensated commensurate with their effort and risk.
This is why, from our perspective, electrical contractors should strive to have a 20% profit margin after subtracting their direct costs (labor costs, equipment and materials costs, other job costs) and operating expenses (business insurance, taxes, office supplies, and other overhead expenses) from their revenue.
Whatever your current net profit margin is, the following process to improve your margins will be a crucial step in the right direction.
Note: One exception to the 10% to 20% rule above is for electrical businesses that are in a start-up phase, focused on acquiring new customers. In these cases, they may intentionally choose to invest in marketing and customer acquisition instead of being profitable.
What Gross Profit Margin Should an Electrical Company Target Across Their Services?
According to our industry expert Bill Powers, electrical businesses should be shooting for an average gross profit margin of 65% to 67% across their services. Doing so will generally allow them to hit a desirable 17% to 20% net profit margin.
Importantly, gross profit margins are how businesses should measure performance in each of their different departments (electrical installation, service and repair, maintenance, new construction, etc.), whereas net profit margins are how they should look at performance across their entire business.
A 3-Tiered Process for Improving Electrical Profit Margins
Tier 1: Assessing Your Annual Revenue and Profit Margins and Setting Goals to Improve Them
The most successful electrical contractors that we work with at ServiceTitan — both within our organization as well as the electrical businesses we serve — have a process in place to assess the current state of their operational and financial KPIs, and set goals to improve them.
Typically, this takes the form of annual planning that involves:
Reviewing how their business performed during the year prior.
Setting operational and financial goals for the upcoming year.
Regardless of whether you’re a small business or you’re at the enterprise level — this essential step establishes the foundation for improving your profit margins. You need to know where your numbers are and set some goals for where you want them to go.
Annual planning takes different shapes and forms. However, when it comes to setting financial goals, it often involves:
Looking at high-level KPIs for the previous year, broken out by each department. For example: sales, gross margin, total completed service calls, sales per job, total crews/electrical technicians, total calendar days worked, sales per crew/tech, completed jobs per crew/electrician per day.
Looking at total revenue per month for each department, and setting a percentage increase goal for the upcoming year. This gives you specific revenue and gross profit targets for each department that you can use to see how you’re pacing toward your goals.
Determining lead requirements to hit your revenue and profit goals. This involves reviewing lead KPIs from the previous year (e.g. average ticket amount, number of sales, close rate, etc.), and reverse engineering how many leads you’ll need to hit your goals.
Once you’ve reviewed your numbers, set your revenue and profit goals, and determined the specific targets you need to hit those goals, you simply track your progress for each department to see how you’re performing and pacing toward your sales, gross profit, and net profit goals.
Key Consideration: Where Do You Get This Data?
Doing this sort of detailed annual review requires capturing and recording this data throughout the year. Depending on what tools you use in your business, this can be more or less demanding and time intensive.
If you’re primarily using spreadsheets and/or disparate software solutions for different aspects of your business (e.g. a platform for call booking, a platform for estimating and invoicing, a platform for inventory and accounting, etc.), doing the above type of analysis can be a challenging and difficult process of consolidating data, doing manual data entry, double checking your data inputs, etc.
In contrast, for electrical service businesses using field service software such as our platform, ServiceTitan, this process is significantly more streamlined. For example, in ServiceTitan, if you want to view high-level KPIs such as total revenue or total sales for the past year, you can pull these metrics up by simply adjusting the date range to the previous 365 days on your main dashboard:
This is one of many reasons why leading electrical contractors are adopting electrical software like ServiceTitan, which centralizes all of your operational data into one place and offers robust dashboard and reporting tools to streamline annual reviews and ongoing tracking of KPIs (discussed next).
Tier 2: Ongoing Tracking of KPIs and Pacing Toward Your Profit Targets
When it comes to the ongoing tracking of KPIs and pacing toward revenue goals, it’s useful to have daily as well as monthly routines.
For example, if you’re the business owner, you can benefit from a simple daily report to see how many calls you had for the day, how much revenue came in, and how you’re pacing toward the end of the month. Then, at the end of each month, you should also do a full financial review with your bookkeeper or accountant (and subsequently your leadership team) to get full clarity on how you performed in relation to your goals. This is crucial for making any necessary adjustments throughout the year to hit those year-end goals.
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Meanwhile, if you’re a CSR manager, you should be looking at more detailed daily numbers such as call booking rates, number of outbound calls, number of inbound calls, etc.
Again, the ease of collecting and accessing this data depends on what tools and apps you use. Facilitating the ongoing tracking of KPIs is an area where field service reporting software can be absolutely transformative for electrical businesses.
With ServiceTitan, owners and managers can customize their own dashboards and reports to monitor all of this data in real-time with ease.
For example, Revenue Trends by month or week can be viewed as bar or line graphs. By hovering over a given month or week, users can instantly see year-over-year revenue comparisons.
The Company Metrics portion of the dashboard shows sales, revenue, booking, conversion numbers, and more:
Closed average ticket price
Average revenue per job opportunity
Revenue from counter sales, and membership and progress billing
Revenue from adjustment invoices added to jobs
Metrics on the main dashboard also include call-booking rate and total conversion rate, plus:
Membership opportunities converted
In addition to these high-level KPIs, the ServiceTitan dashboard provides electrical business owners and administrators with valuable insights on employee and operational performance.
For example, the Call Metrics section of the dashboard features a chart, arranged as a function of call date, documenting inbound call booking rates. Below the chart, users will find call lead totals and the jobs booked from those leads.
Information about calls that were abandoned or did not result in a booking is no less valuable. And the Call Metrics section also offers a wealth of intelligence on these calls:
Caller phone number
Employee who took the call
For further information about past calls — whether they resulted in a booking or not — ServiceTitan offers a Call Playback feature. Here, users can listen to recordings of calls.
This functionality is useful for field service technicians who want to verify job details or customer information via the ServiceTitan mobile app, as well as for supervisors, who can use it to confirm that CSRs are providing good customer support and following best practices in interactions with clients.
In contrast to tracking these metrics in spreadsheets and different apps, ServiceTitan makes it simple to access this data, and therefore empowers business owners, managers, and employees to actually use these tools and follow these best practices of ongoing KPI tracking, which can be absolutely invaluable for improving profit margins.
Now, once you have completed tiers 1 and 2 — you’ve reviewed your current performance, set goals, and set forth tracking progress toward your goals — the final tier is to optimize for maximum efficiency and implement best practices throughout the rest of your business.
Tier 3: Optimizing for Efficiency, Implementing Best Practices, and Empowering Your Team to Achieve Maximum Performance
Goal setting and tracking sets the foundation that electrical contracting businesses need to begin improving their profit margins. However, optimizing for efficiency and implementing best practices in your business is how you begin to actually hit and exceed those profit goals.
We’ve written at length about the key actions that electrical businesses can take to improve their operations and their bottom line, and how ServiceTitan can help facilitate efficiency and implement best practices throughout organizations. So, here we’ll share links to some of our top articles that can help you become a more profitable electrical business.
Here are some articles discussing how to become a profitable electrical business:
How to Price Electrical Work for Profit and Growth — Incorrect pricing is probably the biggest reason why electrical businesses often have low profit margins. This guide will help you understand how to price your electrical services for profitability. It discusses how flat-rate pricing improves profitability while actually providing better customer experiences, and key factors that electricians need to consider when calculating their pricing (labor rate and billable hours, overhead costs, etc.).
How to Grow Your Electrical Business: The Ultimate Guide to Operations, Marketing, and More — Electrical business owners looking to grow their business can come across a lot of conflicting advice online. To help electrical business owners find useful strategies to grow their businesses and increase their bottom line, ServiceTitan spoke to a range of highly successful home service industry experts and users of our electrical service management software. From those conversations, we have assembled this collection of strategies and tactics for growing an electrical business, whether you're a startup or an established small business.
Revisit Your Electrical Contracting Business Plan Every Year to Fuel New Growth — This post provides an in-depth walk-through of how to create an electrical business plan section by section.
Top Electrician Marketing Tips: The Ultimate Guide to Electrical Advertising — The ability to generate new customers through marketing is a key skill for electrical companies that want to grow their business. This post shares best-practice marketing strategies to reach more potential customers, from homeowners to local businesses to larger commercial accounts. It covers a diverse set of channels from SEO, to direct mail marketing, to Google Local Services Ads, and more.
Get a ServiceTitan Demo to See How We Can Help You Optimize and Grow Your Electrical Business
Using a best-in-class electrical software like ServiceTitan gives contractors the tools they need to maintain full visibility into their business, leverage automation, and empower their teams with the tools they need to grow.
In addition to the dashboard and reporting features discussed above, our software offers tools to facilitate the entire electrical business workflow, including:
Want to see how ServiceTitan’s electrical software can give you the tools you need to streamline operations and grow your business? Schedule a call for a free product tour.
ServiceTitan Electrical Software
ServiceTitan is a comprehensive electrical business software solution built specifically to help service companies streamline their operations, boost revenue, and achieve growth. Our award-winning, cloud-based platform is trusted by more than 100,000+ contractors across the country.