Owning an electrical contracting business can be a lucrative endeavor with a high earning potential. However, many electrical contractors find themselves scratching their heads at the end of the year when looking at their net profit. Even though qualified electricians and reliable electrical work are in high demand by homeowners and commercial property owners, it’s not uncommon for them to take a loss at the end of a tough year.
Several factors contribute to an electrical contracting business owner's annual income, including licensing and certifications, years of experience, scope of electrical services, and market conditions. Healthy profit margins are key indicators that help businesses understand their profitability and remain resilient during difficult times. Discover more about electrical profit margins and what your business owners can do to earn higher salaries.
Annual Income Data
The average salary for electrical contracting business owners ranges between $60,000 to $150,000 annually, based on several reports. These same reports show some owners fall within an even higher pay range, depending on their level of expertise and business success. Earnings are influenced by the types of projects, such as residential or commercial electrical installations and repairs.
Cost of living also factors into average annual salaries for electrical business owners. Typically, those operating in California and New York take home more money to account for the higher cost of living.
The amount an electrician makes depends on their hourly rates. According to Indeed, the average hourly pay for an electrician is $29.15 in the United States, depending on job title and skill level. That comes out to be $64,391 per year.
What Is Profit Margin?
Profit margin is a measure of a company’s earnings. It refers to the money left over after expenses are deducted. Expressed as a percentage, profit margin represents how profitable your company’s pricing strategy is, how well you manage your costs, and how efficiently you use raw materials and labor to offer your electrical services to your customer base.
The main factors that can impact a company’s profit margin include:
- Revenue and sales
- Cost of goods sold
- Operating expenses (business insurance, taxes, office supplies, and other overhead costs)
- Pricing strategy
- Operational efficiency and productivity
- Available cash flow
What Profit Margin Should You Aim For?
To remain in a healthy financial state, electrical companies should aim for 20% net profit in their business plan. In terms of profit margin, a good rule of thumb is that 5% is a low margin, 10% is a healthy margin, and 20% is a high margin. However, profit margins aren’t a one-size-fits-all approach. Every business should examine its business model to learn the profit margin range in which it should be operating.
While 20% is a good benchmark, it’s not the national average profit margin for electrician businesses. In many cases, electricians make 2% to 3% profit margins. This is an incredibly risky place to be, considering the costs and risks linked to owning an electrical company. Furthermore, when operating at this profit margin level, master electricians, journeyman electricians, and contractors are rarely compensated fairly for their quality work. Therefore, 20% is a good profit margin for electrical companies to strive toward.
Tips for Improving Your Profit Margins
Whether you own a small business or a large enterprise, the goal should be to maximize profits to sustain growth. Electrical contracting business owners can achieve this by increasing profit margins with the following strategies:
Adjust Pricing Strategy
The most obvious way to increase profits is to increase the prices of your services. Many business owners are reluctant to take this approach due to fear of the backlash it will cause with current customers. However, even a small increase can make a huge difference.
Rather than abruptly raising your prices without any warning, which can impact customer loyalty, experiment with different product pricing methods. See which pricing strategies work best for your business model and inform your clientele of the reason behind the change. They will be much more willing to accept the price changes this way.
Get Lean
Business owners not sold on the idea of raising prices can achieve the same results by streamlining business operations and cutting costs. Business owners should focus on areas of waste and areas that can be improved to reduce costs and increase profits.
Automating mundane tasks using field service management software helps electrical businesses save time and money. This software solution also aims to enhance customer experience, along with employee experience.
Invest in Marketing
Investing in marketing efforts helps to increase brand awareness and attract more clients, which contributes to higher profit margins. Utilizing digital marketing strategies, such as social media advertising, search engine optimization, and email marketing enables business owners to reach a wider audience and generate more leads. With the correct strategy, these leads can quickly turn into new business.
Focus on Service Contracts
It can be challenging for electrical companies to continuously acquire new business. While marketing strategies and referral programs are excellent for generating leads, this approach can be difficult to sustain.
Service contracts, also known as service agreements, are legally binding agreements between two parties that outline terms and conditions for routine services. It offers providers a steady stream of income, even during slow periods.
Form Strategic Partnerships
Forming professional relationships with other businesses in related industries can help you grow your electrical business and increase profit margins. By collaborating with providers in the construction industry, real estate developers, and architects, your company can access unique project opportunities and acquire new business.
Increase Profit Margins with Sera
Enjoy more productivity and higher profits with software solutions from Sera. Our technology is designed for small-to-medium-sized residential electrical contractors. With innovative automation features, it can assist with streamlining processes, reducing time-consuming tasks, and delivering better customer service. Electrical business owners interested in boosting efficiency and adding more dollars to the bottom line can Contact Us today to schedule a demo.
