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The phone is ringing off the hook and keeping up with the demand is a struggle. Because of the increased business, most contractors consider this the best time of year. They hope to make up for the lost revenue from the previous slow months. They also hope to build a reserve to help carry them through the rest of the year. Unfortunately, many companies’ profits don’t keep pace with the increased work. Some find their profits actually drop during this time of year. Lower profits may not seem to make sense but the reason is simple — your material and labor costs go up faster than your revenue. There is good news; with a little planning and out-of-the-box thinking, you can keep your costs in line with your revenue and see your profits climb.
So you negotiated special pricing with your suppliers and you think your material costs are under control, right? Wrong. When things are really busy, you can’t always buy from the supplier whom you negotiated such a great price. Technicians are more likely to run out of truck stock and will go to whoever has the part available, not who can get them the best price. Suppliers are also busy and if the material is going out the door faster than they can get it in, the material you need will be back ordered. Since you can’t shutdown until material comes in, your only option is to buy it from the supplier that has it, at the price they ask.
Inventory management can be a challenge, but knowing what you normally use year after year can go a long way in controlling material costs. Look at previous years’ purchases to see how much you typically use and how often it is back ordered. Armed with this information, you can determine how much of a given item you should have on hand when it’s busy. Looking at prior year usage, you can determine if it makes sense to use multiple suppliers on the items that are commonly back ordered. Keeping your technicians well stocked will keep your material costs in control.
It doesn’t matter if you pay your technicians hourly, performance pay, or straight commission. If they work more than 40 hours in a pay period you are required to pay them 50 percent more for each additional hour worked. While many companies charge overtime rates for after-hours calls, most of the calls come in during normal hours and are charged the same rate whether the technician is past the 40-hour mark or not. As a result, you can actually make less money by running more calls. To help you understand how this can happen let’s assume your technician is paid $20 per hour and under normal conditions averages five calls per day with a 20 percent cost of labor and 10 percent profit.
Based on Figure 1 (above), running just two additional calls a day, profit drops by 30 percent and you have fewer dollars in the end. This doesn’t account for the fact that as technicians get busier their dollars per call tend to drop because they rush to get through the call making the loss even greater.
Managing Your Labor Costs
Accept the fact that you will have overtime when it’s busy, but that doesn’t mean you can’t control the amount of overtime. Obviously, hiring more people would lower your cost but finding qualified people in normal times is a challenge and virtually impossible this time of year. Whatever you do, don’t lower your standards and hire the first person who can fog a mirror and hope they work out — it rarely does. However, if you are willing to think outside the box, there are things that will help you control labor cost and protect your profits:
• Learn when to stop taking calls: This is a tough one, but technicians can only run so many calls in a day. Decide at what point you start scheduling calls for future days and stick with it no matter what. Yes, there is a risk that some customers might call other companies, but it is better than working harder and making less money.
• Create a priority schedule: Since you are limiting the number of calls you are scheduling, you need to decide which calls to schedule first. When setting up a priority list consider who are you obligated to take care of and who will generate the greatest profit. A good example of this is presented in Figure 2 (above). Higher priority calls should be given the most immediate time slots and lower priority calls should be scheduled for following days. You will need to decide if and when it makes sense to bump a scheduled customer for a higher-priority customer.
• Run a split schedule: Part of the problem is that customers can’t always stay home to meet a technician. Many customers will try to schedule a call as late in the day as possible, loading up the afternoon schedule, forcing technicians to work later and later. Splitting your technicians into two shifts will help prevent this problem, and control your overtime. Run one shift from 8 a.m. to roughly 5 p.m. and the second shift from noon to 9 p.m. This allows you to cover the entire day without getting into overtime and you can rotate the shifts to make it more palatable for your technicians. The split shift allows you to schedule customers later in the day so technicians are less likely to be wasting time waiting on customers to get home. It also makes it easier for dispatchers to send technicians home after a full day when they have other technicians still working to handle the incoming calls.
Some say, “It’s easy to make money when it’s busy,” but it’s easy to lose money too. Putting some of these procedures to work in your business will help you keep your profits where they should be. Because, it’s a lot more fun being busy and making money than it is just being busy.
Publication date: 8/19/2013