Will a New Service Add Profit or Just More Work?

This worksheet is for an owner adding an adjacent service to an existing business. It tests the first month's economics; it does not prove market demand. Bring your proposed scope, direct cost estimates, available hours and realistic orders or enquiries.

Define a service you can cost

Specify what the customer receives, how many delivery hours are required and what is outside scope. Separate spare capacity from hours already needed by customers. If the new work displaces existing work, use the contribution lost on a consistent cost basis, rather than subtracting the old invoice's full value.

Relevant-cost analysis focuses on changes caused by the decision. Past research spending remains part of the historical business result, but it is not paid again if the new service starts. Future launch spending still belongs in the comparison.

Compare three first-month cases

The fictional service sells for $300, costs $100 in variable delivery inputs and needs two hours. Existing fixed staff costs are unchanged and excluded from both the new and displaced contribution figures. Twenty spare hours are available; additional hours displace existing work contributing $60 per hour. A new launch and setup payment costs $600.

Assumptions: Fictional Australian-dollar management example. Revenue and costs exclude any recoverable GST; non-recoverable tax is included in costs. No GST entitlement or income-tax deduction is assumed for your business. Contribution is before unallocated overhead and income tax.

Measure	Low	Base	High
Services sold	8	15	25
Revenue	$2,400	$4,500	$7,500
Variable delivery costs	$800	$1,500	$2,500
Hours needed	16	30	50
Hours displacing existing work	0	10	30
Contribution displaced	$0	$600	$1,800
New setup payment	$600	$600	$600
Incremental result after setup	$1,000	$1,800	$2,600

Original ASBG worked example. All businesses, amounts and scenarios are fictional. The table contains the same figures as the visual.

The base case is $4,500 − $1,500 − $600 displaced contribution − $600 setup = $1,800. This is the incremental result before unchanged overhead and tax, not the whole business's monthly profit.

Removing the one-off $600 gives a base ongoing contribution improvement of $2,400 only if demand, costs and available capacity stay the same. Do not turn a one-month trial into a recurring forecast without checking those assumptions.

Stress-test slower delivery

If each base-case service takes three hours, 15 services need 45 hours. That displaces 25 hours × $60 = $1,500 of existing contribution. The first-month result falls to $900. If delivery also needs extra paid labour or materials, deduct those as well; the calculation above changes time only.

Use contribution per bottleneck hour if the constrained resource is a specialist or machine. Don't count the same payroll saving twice: fixed staff retained in both options need a consistent treatment across both contribution calculations.

Set the trial rules before launch

Record actual orders, net fees, delivery hours including rework, direct costs, displaced work and complaints or quality issues. Choose the review date and minimum contribution target before the trial starts. For example, an owner could require at least $1,500 after setup with agreed quality checks; that is a chosen hurdle, not an industry benchmark.

At review, compare the actual result with both the two-hour plan and the slower case. Amend scope or delivery before adding more customers. The job-profitability review helps trace where actual work departed from the quote.

Where to get help

Ask your accountant to check the incremental cost basis and any capacity or setup assumptions. Use the pricing and profit guide and the extra-opening-hours worksheet for related trial decisions.