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What Is The Most Important Metric?

August 25, 2020

 

We have often said, “The gross profit of products, goes out on the backs of your installers.”

 

Given that, wouldn’t it be useful to measure how much GP is being delivered by each tech?

 

We have reviewed over 20 dozen companies for labor productivity. A key productivity indicator is labor revenue per tech per month. The data is persuasive that if techs can produce $10,000 or more of labor billings each month, the company is exceptionally productive labor-wise.

 

But perhaps more telling is how much gross profit your techs carry for each hour that you pay them. For in reality, once your suppliers are paid, it’s gross profit that pays the rest of the bills.

 

Excellent GM per tech hour is $100 or more. Very few companies achieve this level. In fact, most companies are below $80 an hour. And service-based companies – those that provide primarily labor services with little or no materials add-on –struggle to make even $50 per tech hour when charging $100/hour or less.

 

There is a strong argument for selling expensive equipment with low hours of installation. A $200k two channel system with 40% margins yields $80k in margin dollars just from the equipment. If a two-man crew spent two days installing (32 hours) the contribution would be $2500 per hour not counting any additional gross margin from labor.

 

So why do GM dollars per tech evaporate so fast? Simple – most tech staffs are not even close to being 100% productive. The majority are not even 50% productive, meaning more than half of their tech payroll hours don’t get billed to clients.

 

We cannot overstate the importance of maximizing GM per tech hour. Here is our simple prescription for hitting a high note…

▪ Make sure your hourly bill rate is at least 4X your average hourly tech wage

▪ Bill 24 hours (or more) per tech per week. This will help you achieve a 60% or better margin on labor (and will likely require that you bill for drive time/delivery)

▪ Sell higher-priced gear, higher-margin gear. TV’s with soundbars won’t cut it.

 

The production side of the Ci business is the most critical component of profitability. It is also the more difficult to manage and produce results.

 

We hope you will strive to get to the honor roll status in producing high gross margins with technical staff.

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