What if hitting a 20% net operating profit wasn’t just a dream, but a formula? Spoiler: It is. And it’s simpler than you think.

At VITAL, we’ve boiled profitability down to this: Top Line GM% – COMP% – MOC% = NOP%

For a healthy Net Operating Profit (NOP), you need to aim for the classic 65-35-10 model:

• Top Line GM (Gross Margin): 65% or higher
• COMP (Compensation): 35% or less
• MOC (Major Operating Costs/Overhead): 10% or less

These are all percentages of revenue, i.e. for every $1000 of revenue you collect, you should keep $650 in Gross Margin, spend no more than $350 paying your team, and less than $100 in overhead or Major Operating Costs.

How to Get There:

• Dial in your GM%: At VITAL we simplify the view of Gross Margin by eliminating all the noise. Top Line Gross Margin is Revenue minus cost of equipment and materials only, and does not include compensation, insurance, or other “variable” costs that function more like fixed overhead. A strong gross margin begins with the proposal, and gaining clarity helps put proposal standards in place without getting into the financial weeds with your team.  It also allows accurate benchmarking without all the noise. Focus on pricing strategies that push your Top Line gross margin to 65% or higher. Bundling high margin equipment, healthy labor dollars, and enough materials to create predictable margins.

• Control costs: Keep compensation at 35% or less and major operating costs at 10% or less. Periodic reviews of expenses can uncover areas to cut waste without sacrificing quality. A high compensation number is hard to address and often means you are overstaffed for the amount of revenue the company is doing. Either too many bodies or not enough efficiency/output, or both.

• Know your numbers: Schedule monthly financial reviews with your team to measure progress and identify bottlenecks.

Balancing the 65-35-10 equation isn’t just about hitting a magic number—it’s about creating a system where every dollar works harder. Get this right, and your business runs like a well-oiled machine.

Profitability doesn’t have to be elusive. With the right formula and small, consistent tweaks, you can build a business that’s not just sustainable—but thriving.