Understanding Costs: A Key to Making Your Plumbing Business Lean and Profitable

Running a successful plumbing and heating business isn’t just about hard work—it’s about working smart. If you've got your finger on the pulse, you’ll know your business inside out. The goal? To be lean—cutting out the fat, meaning no inefficiencies, no waste, and no leakages. A lean business is a profitable business, and having control over your costs is at the heart of achieving that.

Today, we’re diving into understanding the different types of costs within your business. If you grasp these concepts, you’ll be in a better position to maximise profits and ensure every penny is spent wisely. Let’s explore how to get your business running leaner.

The Three Types of Costs Every Business Owner Should Know

In the world of plumbing and heating, costs fall into three main categories:

• Variable Costs
• Fixed Costs
• Step Costs

Each of these costs plays a unique role in how your business operates and grows. Let’s break them down and explore how each can impact your operations.

1. Variable Costs

Variable costs change based on your workload. The more jobs you do, the more you spend on these costs. Think of them as directly tied to your output—if you install more boilers, your costs for purchasing boilers will naturally rise. In a plumbing and heating business, key variable costs include:

• Materials and Supplies: Pipes, fittings, boilers—these costs rise as your job numbers increase.
• Labour: Engineers’ wages are considered variable because the more work they do, the higher your labour expenses will be. This includes wages, salaries, and employer National Insurance contributions for all those hands-on jobs like replacing cylinders or fitting kitchen taps.
• Subcontractor Fees: Specialist subcontractors may be called in for specific tasks, and their fees fluctuate based on the job's complexity or volume.
• Equipment Rental: Hiring specialised tools for specific jobs also counts as a variable cost.
• Waste Disposal: Removing waste after a job, like old pipes, varies depending on the amount and type of job.
• Fuel and Transportation: The more jobs your engineers do and the further they travel, the higher the fuel costs and vehicle maintenance will be.

Managing these costs effectively is important. It helps you decide where to allocate resources, how to price your services, and how to stay competitive in the market. Keeping these costs in check means keeping your profit margins healthy.

2. Fixed Costs

Fixed costs, unlike variable costs, are those that stay the same regardless of how much work you’re doing. Whether you’re installing five boilers or fifty, these costs remain constant. Examples of fixed costs for your business might be:

• Rent or Mortgage Payments: The cost of your premises, whether owned or rented.
• Insurance Premiums: Protecting your assets, vehicles, and liability.
• Utilities: Electricity, gas, water—necessary to keep your business running smoothly.
• Administrative Costs: Salaries for admin staff, bookkeeping fees, or recruitment costs.
• Vehicle Leases and Office Use: Expenses related to leasing company vans and using part of your home as an office.

It’s worth noting that while these costs are "fixed" in the short term, they can still change over time. For instance, rent might increase if you need a larger space. Therefore, keeping an eye on these fixed costs helps anticipate and adapt to business changes.

3. Stepped Costs

Stepped costs are a little different. These costs stay fixed but only up to a point—then they "step up" to a new level. Let’s take a practical example:

Imagine you have five technicians who can manage 50 jobs per month. If your workload exceeds that, you’ll need to hire another technician, causing an increase in your labour costs. This type of cost is what we call a "stepped cost"—it remains steady until you reach a certain level of activity, at which point it jumps up.

Another example might involve buying supplies in bulk. If you use a particular fitting in large volumes, you might be able to get it at a discounted bulk rate. However, once you exceed a certain usage threshold, the cost may increase if you can no longer buy in bulk.

Understanding stepped costs is particularly important when planning for growth. If you know when these costs might rise, you can better plan for expansion, avoid sudden financial strain, and ensure growth is sustainable.

Making Cost Management Work for You

Understanding the different types of costs in your business isn’t just an accounting exercise. It’s the key to making smarter decisions, maintaining financial control, and ultimately driving profitability. Monitoring and managing these costs helps you remain competitive, keeps your operations lean, and allows you to pivot as needed.

Remember, in the plumbing and heating world, running lean isn’t just about cutting costs—it’s about strategically managing them to maximise your output, keep your team busy all year round, and grow profitably.

Feeling overwhelmed by keeping track of all these different costs? Let us help you streamline your operations and gain financial clarity. Contact us at info@togetherwecount.co.uk, and let’s work together to get your business running leaner and stronger.