The Importance of Numbers
Years ago, when I was running my CE (Custom Electronics) business, I had a meeting with a builder in my community. We started to talk about the importance of numbers in our respective firms. The builder was a leader in his Industry having operated successful and meaningful construction businesses. We discussed my somewhat clumsy and crude business software, which was progressively built on an Access Platform, from 1994 until I sold years later. It grew with my business as I learned or had the need to learn more and was fed by the desire for business improvement.
The builder lit up; he had done the same thing. For each of us, after finding a staff member who had a knack for database structures, our respective journeys began. We had both learned what worked, understood the importance of metrics and translated this into healthier operations, improving both growth and profits.
Monitor Your Metrics
Many firms make excuses for not monitoring their metrics. They are too busy; they simply don’t have time and, to them, the software available seems complicated or lacking. Even firms that look incredibly successful from the outside, may not know their numbers and may not be aware of the missed opportunities that insights into the numbers can expose.
Opportunity in the Cracks
This builder was religious about tracking his operations. He understood there was ‘opportunity in the cracks’, and he worked diligently to expose them. He paid attention from the first handshake, through the final sign-off, well into a long-term engagement which included referrals and ongoing service. By monitoring his metrics, he was in a much better position to discuss disconnects with his clients. He also had a lot of detail to support his invoices and assure his customers.
If you are one of the firms that believes you are doing well, and do not need to track metrics, you may want to consider this: According to a US study, on average, only 42% of construction labor hours are billed. This averages out to 25 minutes per hour over the year. Admittedly this is an average over many sampled firms and trades, and it is from an older report. As well, as I understand, earlier samples done in the Custom Electronics (CE) industry, on average, have been lower than the construction figures. For now, these figures are useful to demonstrate.
Let’s Break it Down
If we look at the anatomy of an hour and dissect the hour, based on Construction Industry averages, we have:
25 minutes Billed: 42%
18 minutes Non billable, ie Vacation/Training/Meetings: 30%
17 minutes Opportunity 28%
Lets look at how this impacts the bottom line: Paying a tradesman $30/hr and adding benefits estimated at 15%, it costs approx. $34.50 per hour, $70k per year. If the average billed per hour is only 25 minutes (830 hours per year) at a retail of 90/hr, our revenue is $75k (90* 830). We only turn $5k profit over that year per employee.
These are very likely not your metrics.
- Tracking hours
- Knowing where time is going
- Ensuring that the work done is billed and within ‘reasonable’ tolerance of the client’s expectations is important.