One Of The Biggest Secrets In Carpet Cleaning Understanding How Costs Actually Disappear, The More Jobs You Run     In our experience since becoming a national company, we have been exposed to many beliefs and "theories " of how profits are actually calculated in the carpet cleaning industry. In our process of selecting partners, we have conducted dozens of interviews with owners who sought to join are organization. In the conducting of these interviews, there have been many times where we have been riddled by the mindsets and beliefs that some candidates had about how profits are actually generated.  And there have been many times where it became very obvious that their beliefs about how profits are generated, were actually one of the primary reasons they were struggling in their business .  They simply did not have a  firm grip on how  the "math" of success truly works in this industry. So these theories and maybe more accurately "beliefs", were actually keeping them from growing and developing.  In this article we would like to pass on some solid wisdom that may radically change your views on how the game actually works..... Lets start with a very simple understanding.... There are only 2 types of costs that you actually have in your business they are called :     Fixed Costs               And Variable Costs.       Fixed Costs These are costs that never change regardless of how much business you do.   Whether you have 1 job this month or 20 jobs, these bills are going to be there at the end of the month.  This would typically include:    Your van payment       Your cell phone bill       Your vehicle and liability insurance       Any payments  for equipment loans you have       All personal bills               Calculating your fixed costs are simple By The Job Add the monthly total up and divide by how many jobs you expect to run for the month. This tells you how much your fixed costs are on each job you run. By The Day Add the monthly total up and divide by how many days you expect to operate for the month. This tells you what your fixed costs total is for each day you operate.                                       And Then You Have...                                                Variable Costs These are costs that do change based on how much work you do.  This would typically include :   Your fuel costs       Your chemical costs       Your supplies costs (spray bottles,tabs ect...)       Your repair costs       Your Maintenance Costs             Calculating your variable costs Variable costs do not tend to fluctuate much in our industry from month to month. If you determine what each percentage is for each variable cost for one month . You will find it will stay very close for future months.  So the key is to identify the percentage for one month to use as a template. Variable costs are always a set "percentage " of the overall invoice job total. You want to be able to say "My fuel cost is ___% of my invoices as an ongoing average"....So remember variable expenses are always figured by percentages.   (Fixed costs are a set "dollar amount" per job or per day. Use one full month to determine your variable cost percentages. So for example: For your fuel percentage ...take the total fuel cost for the month divided by the total of all of your boss jobs that ran. (With ihs) *Use the total of the invoice , not just your 40%. This keeps the math simple for you. Example- ($600 Fuel cost )   divided by   ($5000 overall invoice job revenue)=  12% So now going forward ,you can trust that your fuel will be very close to12% of whatever the grand total of the invoices are for each day, as an ongoing average. Now simply determine the percentage for each variable cost the same way. (using an entire month as a template) So you could say an actual profit calculator would look something like this.... My fixed cost for each job I run is $_____(In dollars) And my variable costs added together is _____%(in percentage) of each job I run.  And by subtracting these 2 totals from each job, you have true profit calculation. Now here is the first big secret... (And there are 2 parts to it) Part One- Fixed costs have an expiration date. They actually "disappear" after so many jobs are run. You can add your fixed costs up and using an easy formula actually determine on what job for the month or even "day of the month" your fixed costs were "covered' and therefore "disappeared" for the rest of the month. we call this the "Hot Zone".  The hot zone is where you are operating only with variable costs and profits are maxed out.         Part Two- The highest profits for the month are generated, based on how many days do you operate "without fixed costs" in the Hot zone. I always chuckle at the guy who boasts:  "I only do about 9 jobs a week but their all priced really well and I make 100% on the job" Why is this misguided? Because all of his jobs for the month probably included variable costs and fixed costs. So his actual profits were greatly minimized by his lack of volume. He never got into the "Hot zone" Remember true actual profit is after all of your bills are paid (even personal)....what is left after that is true actual  "get ahead in life" profit.         The Key is not to think so much in terms of "profit per job" but..... "Get ahead in life profit" Getting past the ....." all my expenses for the month are covered"..And this is what's left over, profit. Someone once said...You can't take a vacation with the profit from one job if your mortgage cant be paid at the end of the month. Pure profit is after all bills are paid ..This is the profit that creates wealth..   Now what you must understand about this type of pure profit is that the "hot zone" is very key... And the Hot zone can actually be entered on a daily basis and on a monthly basis........Here is a great example of the "hot zone" In Action on a "daily basis".... .   Ask yourself which partner you would rather be: In this hypothetical situation both partners are on job "8" for the month and have a fixed cost of $41 for job 8.       Partner 1 Has only one job scheduled  that is priced very well at $320  should take him 3 hrs... He is very happy because the job is only 4 rooms and in his mind "priced very well" and "worth his time"   His 40 % take is:    $128           Minus his day fixed costs of $41 Now he has $87   Minus his variable costs of 14% of overall job total which is $44 Now he has $43 of "Pure profit" for that 1 job. And technically for that "day" of work                       .   Remember...."Pure Profit" is after all bills are paid...Even personal bills because they are in the "fixed costs"  Now lets take a look at partner 2............ Let's call this the Hot zone with worse case scenario...   Partner 2 Has 3 jobs that are all "underbid' one for $189 and one for $229 and one for $139....All are very underbid and combined should take him 9 hrs. he is very unhappy because they are far away and underbid.   His 40 % take is: $222           Minus his day fixed cost of $41   Now he has $181   Minus his variable costs of 14% of the overall job total which is $77   Now he has $104 of "Pure profit" for the day. And technically for that "day' of work.                         Now let's take a little bit of a closer look...... at partner number two's day.........And see how the Hot zone was entered on this day....   On his 1st job   Which was priced at $189.     His 40% take was $75 ....... You could say that on this very first job he completely covered his $39   "Fixed cost"  for the whole day .... and he covered $36 of the $77 variable cost for the whole day................. In other words no profit yet!!!  he is still $41 in the hole for his costs for the whole day.           On his 2nd job   Which was priced at $229 and very "underbid"  ....his 40% take was- $88       But now, he only has $37 of variable cost left (for the whole day) ......... so his net profit is $51...............Not bad for an "underbid job"           On His 3rd Job   Which was a measly $139 and again "underbid".....his 40% take was $55   But ......he is completely in the hot zone....  all of his cost for the day are covered............What does this mean?..............it means the $139 job had the most pure profit of the day!!!!!...........In fact the whole job was profit!!....he was in the  Hot zone!   Now Remember : Partner number two's entire net profit for the day was  $106....    The 3rd job....the smallest job .....and also  "underbid" ....... represented  51% of his profit for the day!!!  That is the power of the "Hot zone" . Job 2 was somewhat in the hot zone and job 3 was entirely in the "Hot zone'.  As you can see,   profits are magnified when you enter this state of "disappearing costs"....."The hot zone" And again this was "worst case scenario" imagine if the 3 jobs were priced well, and what if we factored in a little IHS....Imagine that Hot zone.             Volume is the single biggest factor that determines your financial well being in this industry.