The $2 rule check
Gross profit for every $1 of wages, against the $2 benchmark. Three numbers from your profit and loss. Free, no sign-up.
Example Change any number and press Work it out.
Tight: the second dollar doesn’t quite stretch to cover everything.
| Gross profit (revenue less materials) | $420,000 |
| Field wages | $230,000 |
| Gross profit per $1 of wages | $1.83 |
To reach $2.00 with the same wages you'd need $40,000 more gross profit a year, or wages of no more than $210,000 for the work you did.
Every extra 20c per $1 of wages is worth $46,000 a year in gross profit.
What the $2 rule means
Take your gross profit (revenue less materials and subcontractors) and divide it by the wages of the people on the tools. That's your labour efficiency ratio: how many dollars of gross profit each dollar of wages brings back.
At $2.00 the first dollar pays the wage and the second covers everything else: vehicles, insurance, admin, tax, and you. Below about $1.80 the second dollar doesn't stretch, and the gap is usually made up by the owner working for nothing. It catches pricing and productivity in one number, and it drops when you hire ahead of the work.
Questions
Which wages go in?
Only people on the tools, including their super. Leave out office staff, and leave out your own drawings unless you pay yourself a wage for field work.
Is $2 right for every trade?
It's a rule of thumb, not a law. Material-heavy trades can run a little lower, and labour-only services should aim higher. Watch your own trend.
How do I lift it?
Price for the real cost of an hour, cut unbilled time, and don't add staff until the work is booked. The employee cost calculator shows what an hour really costs.
Every job, worked out for you
Tradies Sidekick reads your Xero and ServiceM8 and works this out every night from your own numbers: for every customer, every member of the team, and the business as a whole.
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