Does Your Billing Practices Matter?
In today’s issue…
* Choose a method that considers more than on site time * 495 words, total reading time about 3 1/2 minutes
We all know that the labor revenue component is a big piece of a CI companies remaining profitable. In fact, most great companies see 30% to over 40% of their revenue come from labor.
So naturally billing the work has to be important?
We find companies varying a lot on how they bill their clients (whether its internally or requesting payment from them). For this purpose we are talking internal billing/recognizing the revenue.
Some attach labor to the equipment and bill when shipped.
Some keep track of time on site and bill the project accordingly.
Others view the tech’s entire daily time allotment billable and work from exceptions like PTO, company meetings and non-assigned time.
So doesn't all three wash out when the project is over? Some would say true.
Particularly if service and warranties hours are billed separately from project hours.
But take note of the differences in the three approaches listed.
#1 Tends to bill for hours before they are spent. When hours are used up and the job is still going, there could be big overhead bookings (no revenue to cover).
#2 Has the shortcoming of missing: travel time, staging time, planning time, even off site time spent on programming, rack build and other activities. And should cover more sins of poor bidding.
#3 This one tries to capture all costs spent and billed in the same time period for the project. And only unproductive time not project related is exempted. In this practice fewer payroll hours get attributed to overhead.
So does it matter?
We think it matters, if you are trying to gauge your bidding accuracy of projects and if you are trying to determine the productivity of your people.
At the end of each project, you will have expended more hours or less in each case. Big un-recognized or un-realized costs will make your revenue reporting lumpier, and less predictable. Assuming the bid was the same in all three scenarios: #1 burns billing hours faster, #2 burns them the slowest and #3 burns them more commensurate with the hours paid.
If you use method #3 you will continuously have a better picture of your progress on the project.
Oh, the next big question is: when do you post costs to the project?
Some do so every couple of days, others weekly and some monthly or worse. The more frequent you post to projects the better you can foresee problems and have time to manage to positive outcomes.
So, the final take-away is critical: knowing what you spent performing a job versus what you bid or charged in the bid. And, feeding this information back into the bidding process is critical to sustaining profit.
With 176 hours a month payable to most techs each month; it is possible for the number of billing hours per tech to be fair better than most companies experience. We continued to be surprised when companies show $4500 to $7500 per tech averages, when best companies perform well above $11,000 in revenue per tech month.
Keeping equipment shipments and labor usage aligned goes a long way to better bidding and better productivity.