Realistic Revenue/Profit Goals

[Covenant MFG]

I couldn't find much of a thread that covers this already, but I'm curious what some of y'all's takes are for revenue goals, hoping mostly for general discussion/philosophizing than a specific answer to a specific problem.
For context- I'm 24, I have a small mill-only shop with a YCM NXV 560 and an old Haas TM-1 that's really just acting as a bridgeport at this point. So... pretty small. Just me and my wife helping out. Renting a space, pretty low overhead, no debt. General job shop, I've got a decent mix of aerospace support (test fixturing mostly), dirtbike parts, machinery parts, agriculture, etc. All mill stuff and I sub out welding and turning occasionally.
I want to stay in this for the long haul cause it's fun and productive, if my future kids are interested would love to be able to pass down an inter-generational successful company.

• What's realistic for a one-man shop in terms of revenue?
• Profit?
• Do you have a way of coming up with revenue goals? "As much as possible" never seems to help much haha.
• For the guys who have "big" shops, did you do that on purpose as a goal ahead of time or just keep doing stuff that kept working?
• Has anyone kept intentionally small?

Part of this is trying to figure out if I want to keep us a small shop with maybe one or two employees, or since we've got time and energy to shoot for the moon in terms of making stuff.

So far if I keep the sales stream steady, I can handle producing about 4k/week in revenue, 3k seems average over time if we have a few really slow weeks, 5k right now if I really really hit the sales hard and dial my numbers to win quotes. My overhead is pretty low- just rent and the variable costs really, so the profit margin on that seems ok. As of several months ago it became our full-time income, so we're not piling up the savings per se for new machines. I'm also committed to not financing anything until I've got a little more experience under my belt- we're young and I'd rather wait a few more years to the journey than pile the risk and stress of payments.

Thoughts?

 

[Marvel]

What's realistic for a one-man shop in terms of revenue?

It's going to vary greatly depending on the one man, capabilities, customers, etc. My my biggest year as a one man shop I hit $600k.

I don't "need" my business to show a massive profit, I show a profit, but I am content with breaking even and reinvesting that into my company.

I don't necessarily break a lot of numbers down. I pay myself more than I ever made as an employee, I went in to business on my own with the thought that even if I made the same amount as I made as an employee but gained freedom to make sure I wasn't racing around to make it to my kids stuff and could control my schedule more I was happy. It's worked out so far I have been able to pay myself significantly more.

Early on, I made sure to do everything I could to keep my business as debt free as possible, and stick a decent amount in savings, I'm not saying I don't utilize debt, loans, etc. but when I do, I make sure I have the funds available to pay for whatever I am "borrowing" for and allow the equipment to pay itself off within 12 months and at any given point if I saw a decrease in work flow, I could make it quite some time with no work with no worries.

I am currently 37 years old with a 15 and 10 year old and I am intentionally staying small, and my current goal is to continue staying small until my youngest is around 16-18 years old where he is able to drive himself to school, practice, whatever it may be and at that time I may consider growing.

Comfortability, financial freedom and good balance of work and family was and has always been my goal, its never been to to get rich and make a fortune.

 

[ducesrwld]

sounds like you are in a good spot now to really fine tune your shop and business model i wouldn't concentrate too much on revenue and focus more on profit margins. if your margins are good growth down the road is a lot easier its just scaling your recipe. there are plenty of shops out there that do millions of dollars in revenue and struggle to break even at the end of the year. get a good diversity of customers some production work that just keeps chugging on some machines and find those good paying prototype/short run stuff. create a totem pole of your customer list and start looking to replace the low guys with better customers. do a lot of small things and growth will come easier down the road should you decide to proceed.

 

[RC Mech]

This is a question I’ve been hyperaware of lately. If you can’t make $20k in revenue a month it’s not worth it IMO. Threads on here from about a decade ago mentioned $500/day revenue. That’s no longer realistic. We rent a small space for over $2100/month. $250/month in electricity, $75/month minimum for gas whether we use it or the meter is turned off (Enbridge gas is a legal cartel). We’re currently on track to move locations and pay less for more space.

As above I would pay particular attention to profit margins and don’t be afraid to put a price on a job that makes you good money. After many years of learning the intricacies of this business I am happy to say I’ve reached the point where I absolutely couldn’t give less of a shit whether I get a job or not- I am not losing money for a “customer”.

Look at your real numbers. Your wife’s time is not free, nor yours. What would it cost to sub out book keeping? For my own curiosity, what side of the business do you see yourself focussing on as you grow?

 

[standardparts]

You only have so many years to create wealth so when you reach the normal retirement age where you draw social security an receive Medicare you have some number that you need to add in order to maintain a lifestyle you and your family will find comfortable.

Each day/month/year that passes represents value, and you only get one shot and you would be surprised how fast time starts passing when you get a bit too old to start over again.
One man shops abound but details are often unspoken. The person who is happy to do a 40 only accepting the work he finds interesting and scoffs at anyone working 50 hours a week may forget to mention a spouse/significant other is knocking down six figures or more with gold plated benefits/pension and stock options and is really supporting the household lifestyle.
So often time it's a apples to oranges comparison.

Best add up what you have coming in and what kind of set aside your doing for not only future retirement but also a set aside when/if a critical piece of equipment takes a crap. A reserve for worst case scenario.

 

[Orange Vise]

Your revenue goals should be sufficient to do three things:

1. Cover your personal expenses, same as if you were employed, without a significant lifestyle change
2. Build the business gradually by reinvesting in tools and equipment
3. Invest in real assets, like your building, your house, and investment property.

If you can't hit your goals, you might be money ahead getting a job and moonlighting with a shop. A lot of folks do this now and are nailing all three goals. It's a really a dream scenario that wasn't possible 15-20 years ago and still isn't possible in most countries around the world. These folks get the best of both worlds - the steady income of a job, and all the benefits of business like extra income and tax writeoffs, without the financial pressure.

As for passing your business down to the next generation, it works for some people but fails for most. The best thing to hand to your children is real estate. It's an appreciating asset that's untaxable.

One last thing to consider is that since you're quite young, keep it in the back of your mind that you'll want to pay into social security at some point, or you won't have that safety net when you retire.

 

[Donkey Hotey]

Some of the things that get overlooked when you're small and really flying under the radar of all the controlling entities:

• Business insurance for the things you make. Are you making parts that get used on farm equipment, cars, aircraft or nuclear power? Every one of those tiers involves a different level of liability and your policy will specifically say what you can and can't work on. Some can make parts that support aircraft but, nothing that goes in the air. Some forbid aerospace altogether. You make something that goes on a car, they go out and break your part and kill someone. Who's responsible? You need to know.
• Local business taxes. Your city or county is going to want their piece of whatever you're producing. They may want to come in every year or two and do an inventory of your machinery, tooling, benches, chairs, phones, whatever. Why? They're going to send you a tax bill on them.
• Collecting sales tax, and paying an accountant to keep your books straight and pay the quarterly filings. Once you're past a few side jobs, this is going to become a part of your daily life.
• Power in some areas is billed differently based on whether you're a business or residence. Businesses in Los Angeles County pay rates based on what they could consume, not just what you actually consumed. Example: a friend bought a waterjet. 50 HP pump. Now the power people want to be paid based on their formula of everything he has, including that pump. Got that extra welder in the corner that you might fire up three times a year? You're going to pay for it in power bills. The logic is: the power company has to size their generation capability to maintain all the busineses out there using their equipment during the main part of the day, at whatever duty cycle they expect. I see their point but, it doesn't seem fair.
• Property taxes. This was a real eye opener. I was casually looking at a business property in Colorado. The annual property taxes were nearly 10% of the assessed value. Thinking it had to be in some special district, I looked up some other random businesses. I looked at a literal general store in a tiny town. Nope, same: 10%. Translation: that little store was worth $500K and the annual property taxes were $50K. I have no idea how businesses do it. Pointing out the obvious: "I won't buy, I'll rent." Yeah, but, your landlord has to pay that tax and it gets passed right through to the tenants. California does it in a more complicated fashion than a flat rate but, it works out to be similar.

Add up all that stuff and it becomes apparent that it's nearly impossible to start a business with a brick & mortar address without 3-5 people producing value for the business, every single day. I specifically spell out the "producing value" part because someone answering phones doesn't count. It has to be people producing something that will earn money for the bottom line.

It really isn't possible to start a small business without spending some period of time running it dirty and hoping it doesn't crush you before you get to where you can afford all of the above.

 

[bosmos_j]

One last thing to consider is that since you're quite young, keep it in the back of your mind that you'll want to pay into social security at some point, or you won't have that safety net when you retire.

How is that optional? SE tax is required for over 400/yr in income. I can see missing it with a side thing, but if you're full time, you should be paying it.

 

[standardparts]

Insurance...someone mentioned insurance.
Might want to consider, depending on the product you produce, there may come a time that the product you produce becomes very expensive to insure, or even uninsurable by insurance companies.
So...it's possible, unlikely I know, but possible that after years of investing in production due to circumstances beyond your control lack of insurance has to ability to derail your business.

 

[Garwood]

I started in business same time as you. By about 35 I had a good handle on my products, my markets, what I am good and not good at and what I aim to accomplish in my life.

I'm about 5 years into a 10 year plan restructuring my business for the long game.

I searched pretty hard and found an intelligent, supportive, amazing wife that makes decent money with great family benefits. I could not support the lifestyle we live on my income alone while re-investing in the business. My goals would be different if I did not have her.

My plan is based around taking only what we need out of the business and reinvesting the rest. I currently only take about $2500/mo out of the business.

I started with building my own shop. I scavenged and built a pretty nice 8K sq ft building recycling a lot of used and surplus building materials. I was also lucky building when I did. Things were much cheaper in the 2016-2018 range when I did most of my construction.

Then I bought the machines I needed with redundancy and minimal employees in mind. I make products and one of the big lessons I have learned is I cannot machine parts 4 weeks out of the month. I have to pack, ship, support customers, develop and refine products, maintain the websites, etc. So with that in mind my goal is to have enough of the right machines, fixtures and automation for just me to run a months worth of parts in one week out of the month.

Then I looked at all my products- I make a lot of different stuff, mostly automotive, but a very wide range. While I was building my shop and adding machines I went through all my products and I focused on just the least burdensome to make, sell and support. I had to get the machines and building right otherwise nothing else would work. That takes some consideration when bootstrapping from nothing and unwilling to take on any debt. So during that period I made a lot of the simplest shit I make and made it very well.

Next I started looking at my big profit center products. Most of these products are really complex. Lots of parts, castings, electronics, sensors, seals, bearings, heat treating, gears, grinding, etc. I made high density fixtures and refined programs for all the small piddly bullshit stuff that goes into a big product- Good welding fixtures, 4th axis and HMC fixtures, design parts to barfeed on live tool lathe, good setup notes, refined programs, etc. I also put a lot of time into rehashing a few products to significantly lower the cost to build and in a few situations find alternative components with better availability and lower cost. During the pandemic I was hamstrung by bullshit supply chain problems for some gears and also some sensors I used. I found well supported, lower cost alternatives, but it took some serious time to get sorted.

Now I'm at the point where I have most small products doing well and a ton of the piddly little shit fully sorted for various big products. I'm starting to invest in the bigger ticket components of my bigger products like runs of mandrel bent stainless tube assemblies, hard stamping press tools, components that require larger chunks of material and expensive outside sourced bits. I'm making it, putting it on the shelf boxed and ready to ship. The end of this year I will have around $500k in inventory on the shelves for several big ticket products and I will restart selling them.

All the products I'm currently focused on are very niche stuff. A lot of the stuff is 50-250 pcs/year, but it's profitable.

In a couple more years I should have all the niche type stuff large and small on the shelves and be adding help in the shop. At that time I'm going to start working on several more mainstream products that I could not ramp up to support at this time.

In another 5 years I'd like to have a couple mil of inventory on the shelves, a couple good fulltime employees and have the option to take a healthy wage if I no longer need to grow the business.

 

[cnctoolcat]

It's going to vary greatly depending on the one man, capabilities, customers, etc. My my biggest year as a one man shop I hit $600k.

This is solid.

If you're a one man shop, and you can gross $500k+ per year, I don't see any need in wanting to grow...profit-wise!

With low overhead, a one-man shop should gross-profit 50% of sales, or so. That's $250k gross per annum the business can provide you, the owner.

As a one man shop, like I say, that's solid...

ToolCat

 

[Freedommachine]

These folks get the best of both worlds - the steady income of a job, and all the benefits of business like extra income and tax writeoffs, without the financial pressure.

This is the position I am currently in and I feel truly blessed to have been given the opportunity.

I recently started on a weekend shift where I work 12 on Sat & Sun split between 1st and 2nd shift and then 8 on Mon - that's it for the week. Work 32 hours, get paid for 40 and still be covered with full benefits.

When I'm not there, I'm in my shop 12-16 hours a day; which lately, feels a lot like chaotically chasing my own tail. I'm coming to the point where I need to either get my entire life organized in an efficient and productive manner, or quit and accept my fate as a time clock punching drone. Ugh, it's been one of those weeks.

Anyway, this is an excellent thread. I'm looking forward to following where it leads.

@Covenant MFG congratulations on your success thus far.

 

[EmGo]

To be honest ? The only "rule" about this is, there is no rule

I know seven or eight mom-and-pop or just pop (don't know any just-moms but maybe dalmatiangirl is ?) shops and every one is different. The only thing the same about all of them is, run it the way that makes you happy and you'll be happy. That's what counts

(I'm on the "avoid debt at all costs" side of the fence tho - from being on the other side and suffering the consequences)

 

[LOTT]

"Revenue is vanity, Profit is sanity"

@Garwood do you have any concerns on excess inventory, things that won't sell/don't sell as well as expected?

 

[Garwood]

"Revenue is vanity, Profit is sanity"

@Garwood do you have any concerns on excess inventory, things that won't sell/don't sell as well as expected?

Of coarse! I have to toss things now and then. Most of the time it's from a revision that makes the parts useless.

It's usually the little things like brackets, spacers dowel pins and odd size fasteners that get made or bought in quantity and are then tossed out after a revision, but sometimes a product is a flop too. I have not overestimated demand bad enough that it hurt me. I've had things I made a few of not sell or moreso made things that just required way too much handholding tech support to be worthwhile (I don't make Jeep parts for instance).

My revisions are usually to simplify a product. Make it from less pieces with more complicated 4 axis setups.

I try to design things around existing hardware I already use in other things. Sometimes that means adding 5mm to a part so I can use the same bolt as something else. I stopped using socket heads and went to JIS flange head bolts for most things because I can't use socket heads for everything, but I can use flange head JIS hardware for almost everything.

An extreme example is I use a ton of spirolox retaining rings for one product. I buy them in a big logs from Smalley or whoever it is now. I had a situation where I needed to machine a hose barb on a different product and the bead for the hose barb would have required an upsize in material and extra machinework that greatly increased the scope of the job. I realized one size of spirolox ring I already used would stretch over that size material so instead of upsizing the material 1/4" to the next larger size I kept it same, zipped around the hose barb with a slitting saw and I pop on an 83 cent spirolox ring that's close enough to the right size to work perfect as a bead on a hose barb.

In my time in business I have had the opposite problem far more often where demand exceeds my ability to produce the parts. That's what I worry more about.

 

[Freedommachine]

In my time in business I have had the opposite problem far more often where demand exceeds my ability to produce the parts. That's what I worry more about.

I have done that multiple times now, I absolutely agree. I would rather over produce by $25 -$30k than to spend weeks, or months trying like mad to catch back up before customers find something else to spend that money on.

 

[Garwood]

I have done that multiple times now, I absolutely agree. I would rather over produce by $25 -$30k than to spend weeks, or months trying like mad to catch back up before customers find something else to spend that money on.

I've had a few things where they took a lot of work get established in their markets. These have all been things that were new ideas, nothing like it so convincing people they had a problem that needing solved was more work. Inventing a better mousetrap is sometimes easier because the mousetrap market is already there.

But most products don't go that way. By the time it gets to market I've got a strategy for marketing and I'm not bad at selling my stuff. It's always easier to have the second batch of a new product go off the rails than I think. Any kind of specialized vendor supplied hardware is a failure point for a product. I really try to avoid that stuff. I'll just make it myself if it's not well supported rather than place an order for parts I was just told are in stock only to be told a week later parts will be produced 9 months from now.

 

[F35Machinist]

For a one man shop in California, my approximate profit numbers are: 100k for a slow year, 200k average year, 400-500k for a lucky year. Almost no slow years, mostly average years, and some lucky years.

1 million/year or more is possible with a one man shop if you have a custom or semi-custom product that you sell.

24 is too young to go out on your own in this industry. There is too much that you just aren't exposed to at that point. My biggest advantage over other shops is my prior work experiences and connections from those experiences.

 

[Garwood]

24 is too young to go out on your own in this industry.

There's a lot of different ways to make a living in "this industry ".

I can't fathom starting a job shop in my early 20's, but products and certain repair/rebuild work can be done fine.

I made products work without knowing a whole lot at that age. Sure I messed up sometimes and most of my early stuff was a bit crude, but I sold it, it worked and customers were happy.

 

[F35Machinist]

There's a lot of different ways to make a living in "this industry ".

I can't fathom starting a job shop in my early 20's, but products and certain repair/rebuild work can be done fine.

I made products work without knowing a whole lot at that age. Sure I messed up sometimes and most of my early stuff was a bit crude, but I sold it, it worked and customers were happy.

Sure, but it sounds like the OP is starting a job shop. Life is a lot easier when you're being fed gravy work from former colleagues than trying to win low bid jobs from new customers.