Profit First for Contractors: How It Works in a Trade Business

Last updated November 11, 2026

Does Profit First work for contractors?

Yes. The method is the same, and one number changes: a contractor sets the percentages on Real Revenue, not on total sales.

On this page, a contractor means a trade business that buys materials for its jobs and often pays subcontractors, such as an HVAC or plumbing company. In a business like that, part of many invoices is the cost of materials or of a subcontractor.

Profit First is the cash management system created by Mike Michalowicz. It changes the formula from Sales minus Expenses equals Profit to Sales minus Profit equals Expenses. The Profit First implementation page sets out the five steps for any small business. This page covers what is different in the trades.

What is Real Revenue for a contractor?

Real Revenue is your income after you subtract the cost of materials and subcontractors.

The definition comes from Mike Michalowicz's own Instant Assessment form: "Real Revenue is the income generated by your company after subtracting the cost of materials and subcontractors." He adds that it is similar to gross profit but does not include your employee labor. So the wages of your own crew are not subtracted. Only materials and subcontractors are.

His form says the total income of a service business is typically its Real Revenue. It names retailers, manufacturers and agencies with many subcontractors as businesses that need to adjust total income to reach it. A trade business with material costs and subcontractors has the same subtraction to do. The more it spends on them, the further its Real Revenue sits below its sales.

How do the percentages work on a contractor's numbers?

Work out Real Revenue for the last 12 months, find its row in Mike Michalowicz's table of target percentages, and multiply Real Revenue by each percentage. The full table is linked at the end of this section.

Here is the arithmetic with round numbers. It is an illustration, not a client's books. A plumbing company collected $1,500,000 over the last 12 months and spent $600,000 of it on materials and subcontractors. Its Real Revenue is $900,000.

In Mike Michalowicz's Instant Assessment form, Real Revenue of $500,000 to $1 million has targets of 15% Profit, 20% Owner's Pay, 15% Tax and 50% Operating Expenses.

Read by its top line, the same company would land in the $1 million to $5 million row. That row's targets (10% Profit, 10% Owner's Pay, 15% Tax and 65% Operating Expenses) would then be applied to $1,500,000, a figure that includes the $600,000 spent on materials and subcontractors. The Tax figure is a target for the account. It does not tell you what you will owe.

The full table of targets is in our guide to Profit First bank accounts and allocation percentages.

Should a contractor start at the target percentages?

No. Start with percentages the business can sustain today and move toward the targets.

Mike Michalowicz says owners think they must hit the book's targets straight away, and his answer is to start small: "Even 1% is enough to begin changing behavior." The simple starting split he gives as an example is 1% to Profit, 10% to Owner's Compensation, 5% to Tax and the remaining balance to Operating Expenses. Owner's Compensation is the account his Instant Assessment form calls Owner's Pay. In his words, "habits first, optimization later."

Where do contractors get stuck with Profit First?

There are six places to watch. Each one is below, with what to do about it.

What does a plumbing company owner say about Profit First?

Emily Simpson, COO of Pine N' Dandy Plumbing, talks about it in a video testimonial for Right Way Profits. The testimonial form she used offered a discount for taking part.

She says she and her husband own a residential service plumbing company and used to run it from one bank account. In her words: "As the money came in we paid our bills and then if there was money left we paid ourselves."

After meeting with Debbie, she says, the company set up different accounts for payroll, profit and taxes: "Every week we are allocating our money to the correct account." She also says they now pay for supplies at the time of service, where there used to be a supply bill at the end of the month.

These are her words about her own company, not a promise of the same result. The full three-minute video is on the client testimonials page.

Is Profit First right for my trade business?

It fits an owner who makes sales and still cannot see profit in the bank.

It fits if

• The business makes sales, and profit rarely reaches the bank
• Your own pay depends on what is left after the bills
• Tax bills catch you off guard
• Your books are current, so you can work out Real Revenue

It is not the first step if

• Your books are behind. Start with bookkeeping
• A tax return is all you need filed. That is a job for your accountant

How does Profit First coaching start at Right Way Profits?

With a 45-minute discovery call by web conference.

1. Book a call. It covers where you are and where you want to go.
2. Set up your accounts and percentages. You open the new bank accounts. The allocation percentages are set up with you, to fit your real numbers.
3. Allocate and take profit. You allocate on schedule, and every quarter you take a profit distribution, separate from your regular owner's pay.

Want to learn the system yourself first? The Profit Revolution is the firm's Profit First course.

Who is behind Profit First coaching at Right Way Profits?

Debbie DeKnight, who leads Right Way Profits. She has more than 30 years in accounting and is a Master Certified Profit First Professional.

Mike Michalowicz, the author of Profit First, recommends Debbie and her team in a short video on the Profit First page. The firm works with founder-led service and trade businesses.