Like most things technical we tend to overcomplicate the conversation. 200+ newsletters, almost 200 Coffees, and some 300+ CI dealers later, we’ve distilled CI business performance to 3 fundamentals you need to continuously monitor and manage. Here they are:
Compensation & Productivity
Like we said, fundamentals. But most companies fall short of optimized performance in more than one these areas. And the solutions they concoct for themselves are sometimes frightfully complicated. So, let’s focus on some easy-to-grasp solutions…
A. Gross Margin is the most important number for your company to manage. While it can suffer from selling goods at low margins, the bigger culprit we see is companies under-charging for parts and labor. Simple fundamental: price-check every proposal for proper allocations. In most CI’s, that means labor should be about 30% of the project total, and parts 7-10%. Maintain these levels project-to-project and both top line revenue and margins will increase.
B. Compensation Direct labor costs present a significant productivity challenge. Think of it this way, you pay for your techs every payroll cycle, so the variable is how much billable work do they help you capture during that time? Billing at least half of their payroll time beats the average. Getting the per-tech average to 25+ billed hours/week (that’s 1300 hours per tech per year) lets you realize monthly tech productivity of $10K or more. That’s really good.
C. Cash Most CI companies tie their payment schedule to something they don’t control. The weather, the builder, the client; all have more influence on the timely completion than the CI. Try this: schedule payments to fixed dates agreed upon before the project starts. Have those dates on a calendar such as Outlook. Use auto-reminders to help your admin people bill like clockwork. This resolves the not-uncommon problems of forgetting to request payments, as well as progress delays outside of your control. Less confusion and time lost in collections will result. Also, use front-end loaded terms: we recommend 50/45/5. When that last payment is more than 5%, it could well represent more than your profit on the job.
Measure & Manage
Do you regularly monitor your GM, equipment margins, labor & parts mix, tech productivity, and collection cycle? Our new Bi4Ci dashboard service automatically extracts these and other key metrics directly from your QuickBooks file, and puts them on a cloud server you can access from any device at any time.
Of course, then you’ve got to manage those metrics. Next Wednesday at 11a CDT, we’ll show you how to maximize the #1 fundamental, Gross Margin, using measures directly from the dashboards. See home page to register.
Stay Vital My Friends,
Paul & Steve