The second-city maths: does another Alberta market pay?

The formula

Here's the sum we use, in plain terms:

Margin after travel = (job value × gross margin) − travel cost − marketing cost per job

Where:

• Job value is the average invoice for that type of job.
• Gross margin is what's left after materials and direct labour on site, as a percentage.
• Travel cost is the extra time on the road, for everyone in the truck, at your loaded hourly cost, plus fuel and vehicle wear.
• Marketing cost per job is your monthly marketing spend in that city divided by the jobs it booked.

Run the same calculation for your home market, then compare. The comparison matters more than the absolute number.

Getting your inputs right

Most owners know their job values. Fewer know their loaded crew cost or their marketing cost per job, and those are the two that decide the answer.

Loaded crew cost

Add up a worker's wage, payroll costs, a share of vehicle costs and a share of overheads, then divide by the hours they're paid. A figure in the range of $55 to $85 per person-hour is common for illustration, but use your own; it varies widely.

Travel time

Measure it, don't guess. Pull a month of job records and note the real time from leaving the last job to arriving at the next. In an Alberta winter, add a margin for road conditions, because trips that take an hour in July can take longer in January.

Marketing cost per job

This needs tracking by city. Without separate numbers for each market, you're dividing the whole budget by all the jobs, which hides the difference you're trying to find.

Worked example 1: a metro service call to a satellite city

A Calgary plumbing company considers advertising service calls in Airdrie.

• Average service call: $520, gross margin 50%, so $260
• Extra travel: 50 minutes return for one technician at $70 per hour, plus $15 in vehicle costs, so about $73
• Marketing cost per job in Airdrie during a trial: $90

Margin after travel: $260 − $73 − $90 = $97

At home, the same job has about 15 minutes of travel ($18 plus $5) and marketing cost of $110, giving $260 − $23 − $110 = $127.

Airdrie leaves about three-quarters of the home margin. That's workable, especially if Airdrie jobs can be grouped on the same day to cut travel per job. The decision here is probably go, with routing discipline.

Worked example 2: a regional firm reaching into a metro

A Red Deer electrical contractor considers advertising panel upgrades in the Edmonton region.

• Average panel upgrade: $3,200, gross margin 35%, so $1,120
• Extra travel: three hours return for a two-person crew at $75 per person-hour, plus $60 in vehicle costs, so $510
• Marketing cost per job, given higher competition: $280

Margin after travel: $1,120 − $510 − $280 = $330

At home in Red Deer, the same job might leave $1,120 − $60 − $150 = $910.

The metro job leaves just over a third of the home margin. The firm should probably not advertise routine panel work in Edmonton. It might advertise only larger commercial jobs there, and set up a referral relationship with an Edmonton electrician for the small calls that arrive anyway.

Worked example 3: a long-distance high-value project

An Edmonton roofing company gets steady calls from a northern city about full re-roofs.

• Average re-roof: $16,000, gross margin 30%, so $4,800
• Travel and accommodation for a four-person crew over a multi-day job: $2,400
• Marketing cost per job: $400

Margin after travel: $4,800 − $2,400 − $400 = $2,000

At home, a similar job might leave $4,800 − $300 − $350 = $4,150.

The northern job leaves under half the home margin. It might still be worth taking in a slow month to keep crews busy, but it's probably not worth advertising for, and small repair calls from the same city should be referred to a local firm.

What the examples teach

Three patterns repeat across Alberta markets:

1. Close satellite cities usually work for most job types, if you group jobs by day.
2. Long trips only work for big jobs. The bigger the travel cost, the bigger the job has to be.
3. Marketing cost rises in the metros. If your new market is Calgary or Edmonton, expect to pay more per booked job, and check the maths before assuming the bigger city means more profit.

Turning the maths into decisions

Once you have margin after travel for each market and job type, three decisions follow.

• Which jobs to advertise where. Advertise everything at home; advertise only the job types that pass the sum in outlying cities. Our city-by-city ads service applies this.
• Which calls to refer. Anything that fails the sum is a candidate for a written referral to a firm in that city.
• Whether to put a crew there. If a city passes the sum for many job types and the volume is steady, a local crew or base may be worth costing. That's what second-city expansion planning works through.

Setting a stop rule

Before you spend money in a new market, write down the conditions under which you'll stop. A good rule names a measure, a threshold and a time limit. For example: "If, after 90 days, margin after travel in [City] is below 60% of our home market's, we stop advertising there and refer routine calls instead."

The rule protects you from two expensive habits: giving up after a slow first month, and carrying on for a year because you've already committed. Review it with your numbers at the end of the trial, and decide.

A checklist before you start

• Average job value and gross margin for each job type
• Loaded crew cost per person-hour
• Measured travel time to the new city, with a winter allowance
• A tracking number and job tag for the new market
• A trial budget and a 90-day stop rule, written down
• A plan for who answers calls from the new city
• A referral option for the calls that won't pass the sum

The figures in this guide are illustrative, not industry averages. Replace them with your own. For regional context, see the areas page; for help with the numbers, contact us. We're a marketing and consulting service, not a contractor.