Articles tagged with: overhead
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As many of you know, Bio-Clean® is one of the best add-on sales products available to service plumbing contractors. This environmentally friendly biological drain cleaner, which comes in powdered form, is a trade exclusive sold directly to plumbing contractors. This little gem is key to upping your average ticket and showing your clients that you do more than just install and repair.
But, how do you get your service techs to sell it?
I don’t know if one of my students made a New Year’s resolution or not but the proof of what he’s accomplished since 2007 is apparent in the profit and loss statements shown on the attached excel sheet. It compares the last five years from a former student. Here’s what he wrote me:
I conducted a seminar before my largest crowd ever at the International Liquid Waste Haulers convention. More than 800 people attended. As always, when I asked for a show of hands asking how many people knew what it costs them to do business per productive hour or per gallon of waste hauled, almost nobody raised their hands.
It’s an all too sad and all too familiar story. As a result, their industry, like ours, sells its services short. Many of their members charge between $60-75 to dispose of 1,000 gallons of yuck. In most cases they need to charge three to four times more to earn a decent living for their families and be able to operate in a professional manner. Instead, just like our industry, they slave away for 70-80 hours a week trying to make ends meet.
Last eBuzz, I pointed out some problems with the format of an actual profit-loss statement from a Midwestern service contractor. You may wish to re-read “Numbers Tell a Story” article to refresh your memory. This edition I’m going to take it a step further by reconstructing the format and plugging in some new numbers that make more sense. The line items highlighted in bold face on the chart are the ones we concern ourselves with.
First, look what I have done with the revenue side. The numbers are higher because I factored in modest 9.62% increase in selling prices for this firm. This was an arbitrary percentage that I came up with to achieve a reduction in direct cost of sales from 44.5%, which was too high, in my opinion, to a more reasonable 37%. I believe that this firm could raise its selling prices and revenues by much more than 9.62%. However, for the purpose of this article, I wish to make the point that even a modest increase in price can reap great benefits.
If you were driving 80 miles an hour, in the dark, with your lights off, heading towards a cliff, would you like someone to yell, “STOP?”
Do you produce financial reports – the balance sheet and income statement – every week? Do you analyze sales, costs, cash flow, and debt every week? If not, you may be heading for the cliff.
STOP. And find out. This is the year. This is the day. From here on out…you are going to KNOW.
In most accounting systems, there is a job cost accounting module. Job costing helps you match the “Big Rocks” of Labor and Materials to a specific Sale.
You can use purchase orders to help you put the information in the right account. Don’t overdo the purchase order systems. If you use your accounting system to generate the PO, then you must reconcile each PO once the packing slip shows up with the order. Why not use a manual system – a simple paper and pencil form that lists the Material requested. This makes reconciliation a lot easier. A manual system can work great to help you accomplish the main objectives of using purchase orders:
1. Completely turn off lights and equipment when leaving at night. Many computers and other electronics are not truly off, but in a standby mode that continues to leak power or vampire energy.
2. If possible, install skylights to take advantage of daylight and reduce lighting needs.
3. Install switch plate occupancy sensors.
4. If electricity is deregulated in your market, check to see if you could get a better rate from a different provider or could renegotiate your rates.
5. Tune-up your building’s heating and air conditioning system. You really can cut utility expense when your HVAC system is well maintained.
My hero Oprah was on the Dave Letterman show not long go. Touted as “The Super Bowl of Love”, it was Oprah’s first appearance on the show since May of 1986. Dave claims that his people had been contacting Oprah’s people every week for every one of those sixteen years.
“No, no, no, no, no”, they said.
Finally, Oprah said, “Yes,” and made her way to the Ed Sullivan Theater. I imagine that Oprah – smart chick that she is – took into account the opportunity to promote the opening night of her Broadway production of the musical “The Color Purple.” Oprah arrived and Dave conducted a thoughtful and interesting interview.
This will be the last article in this series. Here I will respond to some common questions and criticisms that arise about flat rates from contractors around the country.
Isn’t flat rate pricing merely a sneaky way to raise prices?
I’ll begin my explanation by repeating a key statement from last month’s article.
It is critical for a contractor to perform detailed numbers crunching before going to a flat rate system. Otherwise you may well set your flat rates below your true cost of doing business.
This numbers crunching ought to take place whether you are a flat rate or T&M contractor. It’s just that by implementing a new pricing system, you are forced to do what you should have been doing all along.
Since the idea of the flat rate system came about, hundreds of my colleagues around the country have adopted flat rate pricing mechanisms, many of them inspired to do so after attending my “Business of Contracting” seminars. This is a meaningful step toward professionalism in our industry, but only a small step considering that there are tens of thousands of residential PHC service firms doing business across the land.
The time is right for a thorough review of the subject. This first article will explain why I believe flat rate pricing is the way to go. The second article next issue will report on some personal experiences with flat rates. Part 3, to run in September, will answer some common questions and clear up misconceptions about flat rate pricing.