Labor costs are one of the highest costs for your P&L. Therefore, labor sales should be one of your highest profit centers, right? Well, it should be, but many times it is not. Let’s look at some strategies to get this profit center performing to its potential.
When you think of labor costs, what comes to the minds of many business owners is your installers. And it’s true they are a labor cost, but so are your project managers, warehouse managers, delivery people, office administrators, etc. Do you consider their costs in your proposed solutions?
Let’s look at the sales process, direct labor, administration, and service.
1. The Sales Process
Start tracking time at the beginning of the sales cycle. This may begin with a phone call, an online video meeting, or a personal visit. During this time of qualification, it is important to keep track of how long individual segments of your business process take.
Once you’ve qualified the lead and established the lead has graduated from a suspect to a prospect, it’s time to create a proposal to help you represent your solution for their needs. Keeping track of the time it takes to create and present the proposal will help you understand your sales costs.
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2. Direct Labor
If your labor estimate is broken out by phase, understanding the time applied to a work order can give you a percentage of the budget consumed for each phase.
This allows you to compare the percentage of the budget consumed at any time in the project and the percentage of completion achieved. This number is crucial to calculating your earned income, which can be a percentage of deposits and progress payments received.
By applying time to work orders, office, travel, or other time spent, everyone can see the percentage of time used for revenue-generating activities compared to unapplied time, and this can be an incentive to find ways for the team to work together to optimize labor use.
A percentage of an employee’s time is spent ordering products, receiving products, scheduling work, and billing.
With time tracking, the administrator can allocate the time he spends to provide these functions. Understanding how much time is spent on these different tasks on projects can provide better insight into the hidden costs incurred in a project. These costs should be taken into account when developing your labor cost per hour.
Many integrators offer their customers a “warranty” period. During this time, the integrator may be asked to go onsite to address changes or issues that may arise.
Tracking this time provides objective information that can be used to account for the costs that make up your installation fee schedule. If you require the customer to purchase a service contract or maintenance contract, this phase of a project will not be necessary to be included in your labor costs, as it should be in the cost of the service.
Applying time to projects from all parts of your business process, including sales, engineering, installation, purchasing, delivery, and programmers, you will have a much better understanding of your payroll expense versus revenue generation.
With this knowledge, you can then make an informed decision on the labor costs for your business.