Much of your business's success in CI is determined on how you manage your labor costs and productivity. Daily gross profit dollars are realized thru the efforts of the technical staff - designing, testing, installing, programming, servicing. The better you can manage these activities, the more gross profit you’ll be able to generate each week and month.
Fundamentally, there are 3 components to improving labor productivity: SKILLS, LOGISTICS, and ALLOCATIONS.
SKILLS is a training issue. This has been the subject of recent Coffees. You need to invest in the development and growth of your technical staff. Continuous improvement of methods and sharing of knowledge and technique among all your techs is critical.
LOGISTICS speaks to the daily process for getting the right products/parts/people to the right place at the right time. Staging, purchasing, expediting, emergency parts delivery, preparatory checklists, scheduling, contingency routines and more, all factor into improving daily execution.
ALLOCATIONS means pricing the project with enough labor hours, to begin with. But beyond pricing in enough hours to complete the job, it is key to maintain timely job reporting for tracking hours used vs. allocated hours, and managing to a scheduled completion. Charging for travel time and other project-related time also makes a big difference on productivity measures.
There are key measures you can use to monitor and improve labor productivity. They start with setting up accounts for tracking labor revenues and wages, separately from other revenues & wages. (The VITAL Chart of Accounts is highly recommended for this – and it’s free here.)
We track four basic metrics: LRPT, UTILIZATION, MARGIN, & MIX.
LRPT = Labor Revenue Per Tech. Measured monthly, this usually indicates right off if your install operation is working effectively. Averaging labor billings of less than $8333/month per tech ($100,000/year) is a red flag – not that a company can’t do OK at a lower LRPT, but it can do so much better if it can raise its LRPT. $10,000/month is a realistic goal and the threshold for what we see as optimum monthly output.
UTILIZATION is the ratio of hours billed vs the total wages paid to billable techs and subcontractors. Described as a %, it tells you how much time is going to productive activity. Items like unbilled travel time, not-on-site hours, and over-run hours greatly affect this metric. Vacation, paid days off, training, trade shows, etc. reduce the possible hours that can be billed. Coming in under the estimate on fixed price projects always helps this measurement. On a 40-hour work week, 24 billed hours (60%) is a good goal.
LABOR MARGIN & MIX. We’ve found that excellent labor productivity typically results in a 60% or greater margin on Labor – meaning that, out of every labor dollar you are paid by customers, 40 cents is paid in tech/subcontractor wages and the other 60 cents is available for other costs.
Also telling is the MIX of Labor. In CI, 25% to 40% of the project dollars should come from Labor. The size of the project and the type of equipment being sold has an effect on this, but in aggregate it’s good to check every project for having a +/- 30% MIX to keep allocations in line. Doing a post-mortem on each project can be valuable to keeping your quotes profitable.
Our dashboard system (Bi4Ci), displays key ytd and monthly values using color-coded ranges of performance: BLUE = Very Good, GREEN = Good, YELLOW = OK, RED = Not OK. Most of the phone-sized panels also feature trend graphs displaying current and previous 5 months values. Some, like the LABOR panel shown below, also feature a gauge that shows where the current month falls relative to the optimum range.
The three panels shown here provide a host of productivity measures in an at-a-glance view:
LABOR REVENUES: current month, 6-month trend, ytd average, LRPT for the current month
UTILIZATION: YTD value (Green indicates Good), 6-month trend, ytd average hours/tech/week, and current month utilization (the gauge shows Blue for Very Good)
LABOR: YTD margin (Green indicates Good), 6-month trend, and current month Mix (at the low end of the optimum range)
The Bi4Ci system will bring you some 40 key performance metrics from the proven VITAL system. It provides the fastest, most comprehensive management feedback ever offered our industry. We’ll be rolling it out at the upcoming ProSource summit in Orlando. If you’re there, come see us on the floor.
Bottom line for optimizing labor productivity: work hard on skills, logistics and allocations. Measure continuously; take actions and become the best you can be.
We’d be proud to help you.
Paul & Steve