In today’s environment, testing positive doesn’t sound like a good thing. But, is your business positively capable of weathering the storm?
In the CI world, the secret to business performance and even more so in this time of uncertainty, is labor productivity. Often defined as the number of billed hours versus the hours you pay your billable people.
In fact, there are some very operative elements of true productivity and thus profitability. Here is a quick review:
- You simply have to bid enough hours. Never running over your estimate is job one. Keys here are understanding where each project sits and doing a postmortem on every project aimed at improving the next time. Best companies achieve 35 percent plus labor mix.
- Your billing rate must be four to five times your wage cost. Even if you bill every hour; bad markup will hamper true performance.
- You need to bill 40 hours for 40 hours paid. Ok, you start in the hole with PTO and training, company meetings, etc. But, billing eight for eight worked is a must. So, eliminate unbilled drive time or time in the office not on the job and stop using your techs as a free delivery service.
- Getting more work done per hour is important, your techs need to hone and improve their skills to make this happen on a predictable basis. Not all techs are created equally. Demand effective craftsmanship from your techs.
- Eliminate wasted time and do-overs because of manufacturer bad quality. Install products that work and avoid being a testbed for new products.
- Incentivize your techs to produce exceptional results. $7,500 of gross labor margin per tech each month is an achievable goal. Some of you might even be able to reach $9,000 a tech a month. It would be fair to let techs participate in the success dollars above $6,000.
Because your billable employee team needs to be very lean in these times, totally matched to the revenue possible, you must become extraordinarily good at managing this aspect of the business.
Rise to the occasion. Get to 35 percent labor revenue mix, drive to 65 percent labor margin and for every $1M in total revenue; you will have two to three billable FTE’s generating over $6,500 of gross profit/month on their time-based work.
This positively is the best thing you can do to keep the business productive in these tougher times. Focus on testing positive on labor management.
Meanwhile stay healthy and remain VITAL.