You’ve been in business as an electrical contractor for several years now, but you’re just not turning the profits that you thought you would. 

You have the skills, the drive, and the knowledge to run your electrical business, but you’re starting to question if starting your business was worth your time and your money. When will you start to see a profit? 

Creating a profitable electrical company is no easy task. You’ve probably heard it hundreds of times: You have to spend money to make money. But making a profit is far from impossible if you have the right tools in your toolbelt. ‍

Continue reading to learn how to build, maintain, and increase profitability for your electrical business.

Electrician Business Profitability: An Outlook on the Industry

The demand for electricians has almost always, and will continue, to rise. As of 2022, a shortage of electricians made the industry even more profitable. Some reports even show that this shortage is giving electricians the potential to make six figures. 

The Bureau of Labor Statistics (BLS) predicts that the electrical industry will grow by 9% from 2020 to 2030. 

Has COVID-19 Affected the Demand for Electrical Services?

Electricians are essential to the economy — so much so that it was deemed an “essential industry” during the COVID-19 pandemic.

However, the pandemic has hurt electricians, especially those who regularly work on construction projects.

The Profitability of Your Electrical Business Is Influenced By Cash Flow

Cash flow is one of the biggest issues that electrical businesses face. 

Invoices for large jobs can take weeks – sometimes longer – to be paid. And when there isn’t money in the bank, your electrical business’ profitability is greatly influenced. 

For example:

Your electricians recently started on a project that would bring in $15,000 worth of work in a week. 50% of that ($7,500) is paid upfront – but the remaining $7,500 could take up to 45 days to receive. 

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While you’re waiting on final payments to come through, your operational costs don’t stop. You still have equipment to pay for, employee checks to distribute, and more day-to-day expenses that come with running a business.

Gaps in payments can cause cash flow issues. The Flexbase Card offers a solution.

Made with construction companies and tradespeople in mind, the Flexbase Card offers 10x the credit limit traditional cards offer so you have access to capital that actually measures up to the costs of running an electrical business.

The Flexbase card offers perks like:

• 0% interest rate for 60 days*
• 0 Annual fees
• Receipt tracking
• Cash rewards
• And more

Click the link above to get pre-approved today.

What Is the Average Salary for Electricians?

The national average salary for electricians is $63,310, according to the BLS, but the average electrician’s salary can vary greatly depending on the state the electrician business is located in. 

Average Salary for an Electrical Business By State

The average salary for an electrician varies by state:

Is Owning an Electrical Business Profitable?

Yes! But profits won’t come by without effort, it’s up to you as the business owner to navigate and understand your spending and revenue to start to become a profitable business. 

It isn’t easy and it certainly isn’t for the weak. To be a profitable electrical business, you must make more than you are spending.

Here are a few tips electrical businesses can use to bring in more jobs and increase profits:

1. Create accurate cost estimates on the job by using a commercial electrical estimate software.
2. Ramp up your online presence so customers who need an electrician can find your business easily. This may involve getting an understanding of how search engines work and implementing SEO strategies to increase your digital presence, leads, and phone calls.
3. Take advantage of the remodeling boom happening and specifically target homeowners making upgrades to their homes. 
4. Invest in the necessary technology and training for smart electrical fixtures to meet consumer demand.

4 Steps to Creating a Profitable Electrician Business

A profitable electrical business can’t be built overnight – it takes a lot of work and a lot of heart. Read on to learn four steps you can take to increase the profitability of your electrical business.

Step 1: Create a Business Plan and Stick to It

As with most adventures in the entrepreneurial world, to be successful, there should always be a plan.

Your business plan might include things like:

• An executive summary that explains what the business is, who owns the business, who manages it, and who the primary customers are
• The services your electrical business will provide – are you going to provide commercial services? Consumer only? 
• A marketing analysis
• Your business strategy
• A plan for hiring; and
• A financial plan

Step 2: Determine Your Profit Margin and Overhead

Electrician profit margins and overhead costs are the next things you’ll need to consider. 

Things that are included in your overhead generally include: 

• Advertising
• Maintaining equipment
• Rent and utilities
• Insurance
• Accounting and legal expenses
• Necessary fees and licenses
• Property taxes
• And more

Start by adding up these expenses. Then take your total and subtract it from your revenue. Now, divide that number by your revenue and multiply by 100. The formula looks like this:  

GPM (Gross Profit Margin) = (revenue - expenses)/revenue x 100 

Let’s say that your revenue for three hours of work is $400 and the costs associated with those services were $125. Making your gross profit $375. 

When you put these figures in a formula, you’ll find that for every dollar of services, you’re making $.68 cents or a 68% GPM

Step 3: Develop a Pricing Formula

One of the biggest steps you’ll need to take in determining your electrical business’ profitability is your pricing.  You should determine how and what you need to charge to turn a profit. 

Will you be charging hourly? Will certain services be a flat rate? Will you charge more for after-hour calls?? A solid pricing formula will help your business determine what you can price your services at while still remaining competitive in the electrical industry. 

We’ve listed several different pricing factors to consider below.

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Base Hourly Rate

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Your base hourly rate is the standard hourly wage your employees will be paid. To determine this, divide the dollar amount you want to earn each week by the billable hours you plan to work.

A good rule of thumb is to put 40-80% of your business revenue towards employee compensation.

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Billable Hourly Rate

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Your billable hours are the amount of time spent working on a project that can be charged to the client. 

First, calculate your profit margin and overhead expenses. Take this number and add it to your base hourly rate to determine your billable hourly rate.

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Bidding

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Bidding is used by big companies (electrical, plumbing, construction, government agencies) to win a project. Bidding prices can be determined by gathering all the pricing info for: 

• The project’s materials
• Necessary permits
• Taxes
• Labor; and
• Any additional expenses related to the project

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Total Quote

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Final quotes can be determined by your bidding total and labor hours. Add these two numbers together and you’ll have your total quote.

Step 4: Take the Current Market Into Account

And finally, you’ll want to consider the current market as well as your competition. 

What do your competitors in the area charge for the same services? How high of a demand is there for electrical services where you are located? 

If your services are in high demand, are you charging enough for those services? Or are you in an area where there are tons of competitors – if so, are you gaining enough traction to make a profit? 

The answers can help you determine your pricing and play a large role in your electrical business profit. 

But business owners be aware: beating out the competition doesn’t mean lowering your prices. Remember, “cheap” rarely translates into “quality” in the eyes of your potential customers. 

Instead, think of ways you can improve your services to help your potential clients see the benefits of choosing your business over your competitors. 

10 Tips for Increasing Your Electrical Business’s Profitability

You’ve done the math, you’ve put in all the work to get up and running, and now you’re ready to really ramp up your business – and your profitability. Where do you go from here? Consider these ten tips.

#1: Increase Your Cash Flow

A rapid decline in your cash flow or a generally poor cash flow can negatively affect your electrical business in more ways than one. 

Increasing your cash flow, on the other hand, can help build your business's profitability. 

Sourcing funding for this cash flow from loans can get costly too. The bank fees add up quickly, and interest accumulates rapidly after you fall outside of any of your bank's credit terms. 

But this can all be easily avoided! 

How? With Flexbase. 

Instead of wasting time compiling paperwork, dealing with high-interest rates, and playing the waiting game with your bank – apply for a credit card that is built for the trades. 

Flexbase helps electrical business owners focus on building their profitability, instead of focusing on how to solve cash flow problems. 

#2: Analyze Your Business

Analyzing your business is a vital tool for increasing profitability by: 

• Improving future performance
• Driving your growth strategy; and
• Improving decision-making

Some questions to ask yourself to help increase profitability might include: 

• Which jobs are the most/least profitable?
• How much money and time are we spending on transportation and supplies? 
• Are we spending unnecessarily?
• Can any resources be realigned or reallocated? 

Some of these questions may have answers you aren’t thrilled with, but that’s okay. Acknowledging problems before they become larger issues gives you the upper hand in making adjustments and increasing your business’ profitability. 

#3: Step Up Your Marketing Game

Marketing is intimidating to many business owners – and oftentimes when they hear the word “marketing” they instantly see dollar signs. With good reason. 

Marketing is an upfront investment, but it’s an investment that will increase your profitability in the end. 

How can you effectively market your electrical business?

• Creating a good website
• Utilizing local SEO strategies
• Investing in paid advertising
• Utilizing email marketing campaigns
• Marketing via physical mail
• Collaborating with other businesses – plumbers, construction companies, etc. 

But how does marketing that costs money end up making you money and increasing your profitability? By: 

• Generating interest in your business
• Attracting new customers
• Building longer relationships with customers
• Increasing customer lifetime value 

Marketing your business doesn’t increase your profitability overnight – good things come to those who wait – and generally, businesses start to see ROI on marketing costs within six to twelve months. 

#4: Focus on Clearing Up Any Outstanding Debt

Interest payments on debt can quickly turn into something that eats away at your business profits. 

Try to focus on paying any outstanding debts as soon as you can so you can allocate any money you were spending on interest payments to other aspects of your business. 

#5: Create a Budget and Stick to It

Creating a budget and getting a clear picture of what you’re spending can make all the difference in increasing your electrical business’s profit. 

If you’re just starting out, the first thing you’ll want to do is check out the industry standards. Do some legwork – chat with local business owners, visit the Internal Revenue Service website – and prepare yourself with an idea of what percentage of revenue should be allocated towards different costs. 

From there, create a budget (even a simple spreadsheet) where you can estimate what dollar amounts and percentage of revenue will need to be allocated toward business costs.

When you’re creating your budget, factor in any times where money might be tight. Are there places you might be overspending? Where can you cut costs? Which expenses can you do without? Should you be allocating funds elsewhere?

For example: Is your current advertising strategy essential? Or could you be marketing elsewhere at a lower cost? 

Knowing the answers to these questions can help you create a manageable budget for your business. 

As your business continues to grow, come back to your budget (at least yearly) to determine how things are going, whether cash is leaking anywhere, and if you need to make any budget adjustments. 

#6: Consider Offering a Referral Program

Genuine referrals can go a long way in the electrical business. Current clients are some of your biggest assets for reaching potential long-term clients. Referrals can go a long way in making your electrical business a profitable one. 

Referrals don’t always mean exchanging a discount for a referral, they might also involve: 

• Word of mouth for an excellent job
• Donating to a charity for every new referral within a specific amount of time 
• Creating a “friends-focused” image or “community-centered” image for consistently helping community members with their electrical needs 
• Offer free surprise gifts for new customers
• Run client contests

It may seem like you’re losing money initially, but you’ll make up for it with the incoming work with new clients paying in full. 

#7: Team Up With Local Businesses

More customers = greater income = higher profitability

Your clients aren’t the only way you can bring in new customers. Teaming up with local businesses that have similar clients can increase your customer base – and your profitability. 

Consider teaming up with local businesses like:

• Plumbers
• Construction companies; or
• Appliance shops 

If they’re working on a home and the client also needs an electrician, they’ll send customers your way. 

But how can you team up with these local businesses? How do you know which business owners want to collaborate? There are several options! 

1. Consider joining a Business Network International (BNI) group. BNI is an organization that focuses on helping businesses gain referrals through networking. This is a great way for electrical business owners to meet with other businesses that may want a potential partnership. 
2. Find and connect with the Homeowners Associations in your area. HOA residents generally have built a community with homeowners and renters in their neighborhoods. When community and board members hear of a reputable, hometown electrical business, they’re bound to refer and welcome you to the neighborhood. 

#8: Consider Expanding Your Services Offered

As an electrical business, what services can you offer to your clients that can turn a profit? 

Although it may only take minutes to replace a breaker, are you making enough of a profit to cover the expenses to get the job done? Think in terms of gas to get to the job site (and back), supplies, and even the hourly rate to pay your employee to get to and from the job site. 

What services could you offer that would benefit your business (and your customers)? Are you taking advantage of providing commercial and residential services? Could you offer your clients electrical upgrades? Dealing with electrical system leaks? 

Adjusting things within your business and taking a hard look at where you can make impactful changes, can lead you to new opportunities to grow, expand, and increase your profitability as an electrical business. 

 #9: Expand Your Service Area

Is there an unmet demand for electricians outside of your service area? Look into the competition for rural areas and cities within close proximity to your current service area.

#10: Focus on Retaining High-Performing Employees

One of the most cost-effective things you can do for your electrical business is to retain your (hard-working) current contractors. 

Each time you have to hire a new electrician for your business, you’re losing out on money. How?

According to data from the Work Institute’s 2017 Retention Report, if an employee leaves, it can cost a business 33% of that employee’s annual salary to replace them. 

So, hypothetically speaking, if you recently lost a contractor making $70,000 a year because you couldn’t be flexible with his hours, you can expect to spend $23,100 trying to replace them. 

If your business is seeing high turnover rates, it’s going to start impacting company culture, employee engagement, productivity, and yes, your overhead. 

So, how can you increase employee retention? Here are just a few examples that encourage employees to stay:

• Improve your company culture – as a business owner, one of the biggest things you can do for your business (and your employees) is to be a team player. When your contractors know that you’re on their team, they’re less likely to look elsewhere. 
• Consider employee life away from work – every employee goes home to their life away from work – somewhere life is more stressful, some homes where life is calm and relaxing after a hard day. Get to know your employees’ situations. Stay compassionate. One bad day for an employee likely won’t mean a bad year. 
• Always put safety first – whether from physical “danger” or feeling uneasy at work – mental and physical – safety should always be at the forefront of your mind. Never sacrifice safety for productivity. 
• Consider offering performance incentives – promotion from within. By promoting current employees, you’re creating an atmosphere where employees feel noticed, and they’ll begin paying attention to the opportunities available to them as they excel. 

All of these things can be done to help keep your team feeling motivated and encouraged to do their best in the field.