Years ago I was the CFO of a company that marketed on behalf of medical labs. The pitch was simple: get physician groups to send their routine tests to one of our labs, and to make it painless, we'd put a phlebotomist right in their office, free of charge — for us normal people, that's the person who takes your blood.
It worked. We had phlebotomists in offices all over town, and every one of them was salaried — a paycheck due on the 1st and the 15th, and a family counting on it, whether they drew forty tubes that week or four.
Our revenue didn't behave like our payroll. It rose and fell with how many tests got run — busy in flu season, quiet all summer — but the paychecks never got that memo. Then an insurer decided to stop paying one of the labs (they're allowed to do that), and the revenue didn't dip, it stopped. Payroll kept right on coming. We bled cash until there was none left, and the company closed. In a blood business, even the ending was on the nose.
I've never forgotten it, because the lesson is the same whether you've got fifty phlebotomists or two trucks: some of your costs keep coming whether you work or not — and treating them like all your other costs is how good operators get blindsided.
Two kinds of costs.
Some only happen when you do a job — the copper, the fittings, the water heater, the gas to drive out there. No job, no cost. They rise and fall with the work, and the pros call them "variable."
The rest land no matter what. The truck payment is due on the 1st whether you ran it 2,000 miles or parked it in the yard all month. Insurance, the lot, the phone, the bookkeeper, a salaried helper — all of it shows up even if you take the month off. The pros say "fixed costs." For us normal people, they're the bills that come whether you work or not.
And here's the part that took a company down: a fixed cost is a bet wagering that next month's work shows up like this one's. When it does, they're just bills. When it doesn't, they're what's standing on your chest.
What it looks like in your shop.
Your two-truck month, in two buckets:
Moves with the work (variable) | Comes anyway (fixed) |
|---|---|
Materials — $14,000 | Two truck payments — $2,200 |
Fuel — $1,200 | Insurance — $1,800 |
Dump & disposal — $800 | Yard rent — $1,100 |
Phone & software — $400 | |
Bookkeeper — $600 | |
≈ $16,000 | ≈ $6,100 |
Every dollar that comes in covers the variable cost of that job first. Only what's left walks toward the fixed pile — and you don't keep a dime of profit until those leftovers have climbed the whole $6,100 wall, every month, before anything is yours. That wall doesn't shrink in a slow season, and the truck costs you exactly the same sitting in the yard as it does out earning. Full height, twelve times a year.
What to do Monday.
Pull last month's costs — the bank statement's plenty, no software required. Go down the list and ask one question about each line: if I'd done zero jobs last month, would this still have hit my account? "Yes" is fixed. "No" is variable.
And notice how simple that was. No calculus, no software — just ten minutes, a bank statement, and your sound judgment. That's the whole point: the math was never the hard part. The hard part — the valuable part — is what you do with what you see: which bets are worth making, which fixed costs are buying you a future and which are just weight. The arithmetic is grunt work. Deciding is the job only you can do. And you just did, in one read, the thing that sinks companies with a CFO on the payroll. You're more ready for this than you think.
— MJ
Next time: what a job actually leaves behind after it pays for itself — and why "we did $40K this month" tells you almost nothing.