In this issue…
What is good about the CI business there are many opportunities to improve the bottom line. What is bad about it there are too many things that vie for your attention.
Here are our Top Ten Levers for Better Performance:
#10 OVERHEAD Major non payroll operating expenses is the least impact areas of our ten. Few companies, we have reviewed, suffer from too much overhead (rent, marketing costs, vehicle costs, etc.) Look elsewhere for bigger opportunities.
#9 HEADCOUNT Not that this is not a problem for many CI companies; it is, but it is also the hardest emotionally to deal with. If you do the other 8 levers first, you can avoid taking radical headcount action. On another point, we would say there are always one or two under-performers who should be trimmed from the organization perpetually.
#8 SALES COMP Sales compensation needs to be under 8% of Revenue. But effective sales compensation is the important thing. Does you plan make your salespeople reach to sell more or just to settle? Best practice: an OK base with commissions paid on cash received; best to have progressive commission rate as thresholds are achieved: $1M, $2M, $3M. etc.
# 7 SALES WRITTEN Keeping a constant eye and pressure on sales written will assure that you have less slowdowns in Revenue in the future. Keep the foot on the accelerator at all times. The biggest threat to the business is a sales slowdown. Track sales written monthly by sales rep. and have targets and goals for each.
#6 PROJECT OVER-RUNS You must keep records on all projects over $10K and know how they end up performing. Use this information to tighten up your bid process. Some projects can be characterized and known on the front end. Do not trust your estimating tool without verifying every instance of estimating.
#5 BILL PRACTICES The biggest leaks in utilization of your tech people is bad billing policies and practices. You pay your people 8 hours a day, make sure you bill for at least that much. Do not give drive time, project planning, staging, and other related office time away. This is discounting your true billing rate.
#4 BILL RATE You must mark-up your raw wage rate by 4 to 5 times to be profitable. High wage areas usually mean clients expect to pay more too. Slicing and dicing your labor rate into pre-wire, rough, trim, finish, etc. just makes it more difficult to forecast (estimate) and verify your real rate. Know your mix of each of these if you are adamant about charging 4 or 5 different rates.
#3 BILL HOURS Achieving acceptable labor margins of 55% to 60%+ only comes when your bill rate, your hours estimated and the productivity of your workers combined to produce a great outcome. Find ways to add more hours to your estimates.
#2 SALES MIX This can be thought of as what your sell. Make a conscious effort to sell more profitable products and categories. It is also the mix of Labor in your jobs. 30% is the bottom of what is acceptable for Labor Mix. If you have projects that fall under this benchmark % then they need to be at a higher margin for Labor; meaning bill for more hours than you typically spend.
#1 PART CHARGES The silent killer for many companies is not charging enough for those parts that are consumable and typically not line itemed: low dollar unit price, bought in bulk, always needed, but hard to count. To cover the revenue and cost of these items a line item such as miscellaneous parts should be used. Many companies have this at 1% or 2%; the true level should be 6% to 8% and parts can be expensed as bought. You margin on these parts should be more than 60%.
If you are not realizing 20% to 28% net profit levels; look to these ten levers to help you get closer to being a top operator.