Getting more work billed than it takes to complete is always a good goal.
Labor Margin in the Ci business is taxing to think about. There are so many variables, right? Billing rate, wage cost, hours bid, tech productivity, product reliability, billing policies, downtime, even the very products we choose to sell and install.
How much is what we bid versus how we perform the work? Sales and operations sometimes debate this question. We believe it is more clear than unclear.
For instance, how much labor do you attach to the equipment sold? The norm for the best companies is way north of 50 cents of labor on every equipment dollar. The argument is always as products get pricier or if they inherently require less labor (two-channel audio for instance) then this paradigm breaks down. Of course, mix of products sold do affect these outcomes. However, over the vast majority of projects, the 50-cent rule holds up.
Here is the other side of the equation. Labor margins need to be above 50%. On that two-channel sale referenced, they can be much more. Example being, two guys for a day when the job takes hours. Sustaining labor margins of 50% or higher distinguishes the best performers in our business.
So, the first concern is bidding (pricing) and the second is on the install side (execution). Both need to be in place to get a proper margin from labor.
If you aspire to be as profitable as you can be, you will need to manage both the attachment of labor (on the proposal) and effectiveness of the completion of work. One cannot succeed without the other.
Here is a link to a 21-minute webinar we’ve recorded called The Labor Margin Issue. You might find it helpful…