Your profit and loss statement answers one question: did the business make money this month? It can’t answer the one you actually think about in the truck, or the chair, or the car on the way home: which of the things we sell is making the money, and which one is quietly eating it?
A landscaper with maintenance, installs, and snow. A dental practice with hygiene, restorative, and cosmetic. An agency with retainers, projects, and hosting. A contractor with service calls and new construction. Every one of them has a service the owner is sure is the profitable one. We run an accounting firm, and about half the time, when we build the report, they’re wrong.
It’s called contribution margin by service line, and it’s simpler than it sounds. For each thing you sell, take its revenue and subtract only the costs that exist because you sell it: the labor that did the work, the materials, the subcontractors, the software only that service uses. What’s left is what that service contributes toward your rent, your admin staff, and your profit.
Rent and overhead are not divided up between services. Every formula for doing that produces an argument instead of a decision. The decisions are all in the contribution line.
Three things, set up once, and then it comes out of your monthly books automatically:
Once that’s in place, the report runs off the closed month. No spreadsheet, no annual project.
The report is a chart. The value is the conversation. A fractional CFO walks in and says: this line runs at 9% contribution, the other two at 35% and 41%, and here are your three choices. Raise the price on the low line enough to bring it to 25%. Change who does that work. Or keep it as a loss leader on purpose, with the cost written down, because it feeds the other two.
Then the math, in dollars. If the low-margin line is 30% of your revenue, a 12% price increase on it, after the customers you’d expect to lose, is a specific number added to annual profit. Owners don’t act on percentages. They act on “this is worth $48,000 a year and it takes one email to your customers.” That one meeting usually pays for the year of advisory.
Price changes take effect at renewal or at the new year. A report built in October gives you November to decide and December to communicate. Built in February, you’ve already locked in another year of the wrong price.
We set up the three pieces once, run the report as part of your monthly close, and sit down with you each quarter to turn it into a decision. It’s an add-on to bookkeeping, not a separate project, and the first quarterly meeting is usually the one where a price finally changes. If you’ve never seen your margin by service, reach out or read more about our advisory work. We’ll tell you which service is paying for the others.
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