In my last smartPRENEUR Blog, I spoke to the low contribution to profit of trade labor in construction.
Additional Billable Time
Now let’s take another tack. Let’s look at what happens if opportunity can be found to add additional billable time. If we find 5%, a mere 1.25 minutes per hour, it equates to 42 additional billed hours per year! This is close to $4k per trade at a retail of $90/hr. This goes directly to the bottom line. There is good reason to look inward to work hard at finding additional efficiencies.
Maximize Billable Time
What can you do differently to maximize billable time? Keep in mind, of course, that labor is one of the most difficult areas to optimize and one of the areas that consumers typically undervalue. Yet while labor is your largest single investment it also represents a strong opportunity to differentiate your firm and to really own the customer.
Obviously tracking actual time billed to clients, especially changes, is critical. Systems are important to this end. Excel spreadsheets are not the best solution. Using software to track labor is far superior. When a client is presented with well documented invoices that clearly show work completed, time taken, as well as those areas that were not invoiced for reasons clearly noted, their confidence and appreciation for your professionalism and value is reinforced. This says a lot about your firm.
Given the opportunity, putting employees on a profit-sharing program that invests them in tracking better, creates a win/win. Keep in mind the additional revenue for billed hours goes directly to your bottom line; this is billed revenue that would have otherwise been unrealized. Putting employees on a profit-sharing program directly engages them in the solution and makes good sense.
Also important is tracking time not billed. Where is that time going?
Consider: warranty, travel time, job site inefficiencies.
These might include:
- Sending trades to sites prematurely
- Sending them with incorrect materials
- Faulty product
- Sending the wrong trades
- Assuming knowledge rather than clarifying
- Poorly tracked deficiencies therefore creating repeat visits or warranty work.
Time lost because communications are not clear can be massive. Unless this is tracked and attention is put squarely on improving information capture as well as insights into areas of inefficiencies, there is little likelihood that effective change will be realized.
Additionally, there may be good justification for changing how you support the techs, is there adequate staff support, perhaps line management is needed, or a tweak in the process flow that helps players identify and address hidden opportunities.
Given the complexities in delivering successful integrated system solutions, in part or whole, you may have a strong case for increasing your selling price. Let’s assume you can sell at higher than MSRP and that you can capture margin on labor as you do on product. At a 30 pt margin, given a $35/hr cost, the retail would be $120/hr, if you expect a 40pt margin, it would be $140/hr. Simple arithmetic, perhaps not so simple to sell.
Your business, the market and your ability to sell your value, may make this a viable opportunity, if not in whole, in part. Either way, gaining more insights into labor utilization, where the time goes, what is and isn’t controllable, will help identify opportunities for improvement to your bottom line.