by: Spiderwoman
Part of a new series of blog posts from the Super Heroes on the LMN Support Team.
The busy season is upon us and you’re ready for it. You have created your budget and you have fine-tuned your estimating by using LMN. Now, you have to smooth out your on-the-job issues to ensure your Sales goals are being met (and preferably surpassed!).
Use your budget as a reference point throughout your year and keep on top of problems that surface. There are 2 areas that are almost guaranteed to come up as jobsite problems, and they will get in the way of you meeting your sales goals if they aren’t dealt with quickly.
- Time Over-runs
- Defective work
Both of these common hiccups will cost you time, and we all know that time = $.
If one of your crews work 150 days per year, with a 10% profit, they have 15 days to accomplish their profit goal. Falling behind by one day means that they lose one productive day and are left with only 14 days to achieve the same profit. Not only do you lose time, you also increase material, labor and equipment costs which decreases your profit even further.
One day may not seem like much on a single job, but when you look at the big picture, the repercussions from falling behind can be largely detrimental.
Your People ARE Your Profit
Plan your labor for profit by choosing and training employees with a focus on ‘big picture’ efficiency. You can assume that each day, an hour (at least) will be spent on “Windshield Time” – that is prepping for the day and driving – both unbillable and unproductive tasks unless you’re building those costs into your estimates. If this time gets extended for any reason, it can have quite an effect on your profit.
Check out the table below for a visual of how your crews’ windshield time affects your profitability:
Having your crew work 10 hours instead of 8 increases your yearly revenue by $50,000 PER CREW, and the added labor costs are only $18,000. As a bonus, your overhead costs are not increased by having your crews work an extra 2 hours per day, which means you don’t have to charge your customers any more than you already do.
In order to keep your prices competitive, you have to keep your windshield time at a minimum and increase your productive hours without increasing your costs.
You also need to estimate accurately which will optimize your opportunities for jobs with higher profit margins. Know your equipment, labor and material costs and use that data to identify jobs that are most likely to make you money.
One job could be estimated two very different ways. For example, you could estimate for Crew A (one Labourer and one truck) to do a patio in 10 days, or you could estimate for Crew B (3 labourers and 2 trucks) to do it in 3 days. Even though your initial costs are higher for the additional labourers and trucks on Crew B, the profit will be greater since you are taking far less time to complete the work.
A competent crew who is mindful of efficiency and reducing wasted hours, plus accurate estimating is the formula for profitability.
So, how do you link this back to your budget?
Think ratios. Your focus should be on raising your profit ratio, since of course, this determines how much money you make. To achieve greater profitability, you must lower your other ratios to industry norms at the very least. These are the ratios that your budget will provide you with, and that you should ensure are within industry standards:
- Field Labor to Sales Ratio
- Equipment to Sales Ratio
- Materials to Sales Ratio
- Subcontracting to Sales Ratio
- Overhead to Sales Ratio
For LMN Members these ratios are automatically calculated in your budget, and can be analyzed in the “Analysis” tab. Also, check out this Company Ratio Analysis Calculator for a quick overview of other useful ratios with explanations of how they affect your business.
