When you are too worried about the number of bids you receive and what you win, and you do not stop to think what the total cost is that goes into the labor, more than likely, you are spending more than you need to. Most of the time, the job that becomes the most profitable is the larger one. However, there are always smaller maintenance work that can end up being just as or even more profitable. Of course, you may end up spending a longer time checking over your bookkeeping, but you can save time by using programs that track job costs, accounting issues, payroll, revenue, hourly rates and even your accounts receivable. This makes the process of job costing much easier and with less aggravation. The knowledge you will learn will help in making your business much easier to manage, as well as help increase profits.
Bidding and winning on a job that involves higher labor may generate a larger income, but answer some questions before deciding that smaller and simpler maintenance jobs aren’t as profitable as the bigger ones. You may find that they are well worth taking.
1.How many workers are employed in my company, and how many hours every week are they working?
2.What is the total amount of weeks every year that are actually spent working? (Remember to keep in mind that not all workers work during a fire or flood.)
3.How is the business doing in profits, and what are my goals for future profits?
As an example: If you have 10 laborers who are working 40 hours a week each, making $12.00 an hour, your total output in payroll will come to $4,800.00. This doesn’t include any added health benefits that you pay out, or any extras, like paid lunch. If your workers work 28 weeks from each year, this adds up to a yearly payroll of $182,400. Think about it in these terms, if you have not already.
If a job that you take will be paying just $600,000, you’ll end up spending about 1/3 of your potential profit on payroll alone. When the end of the year rolls around, after you have tallied all of the costs, you may see that the job could have been accomplished using only seven guys, meaning an extra $54,720 could have been deposited into your bank account. Hindsight is always 20/20, but finding this out at the end of the job can really be irritating. On larger jobs such as these, it is very possible to spend more than you need on materials because you have miscalculated your costs and needs because of the enormity of the job. For this reason, considering taking smaller maintenance work is a good idea. That way, if you overpay, it will probably be towards labor instead of the materials.
When you accept maintenance jobs, you will usually be able to predict the need for materials and the cost of labor. For example, a pool cleaning job performed the month before will basically cost the same this month, so you will know just the right amount of equipment that one guy will need for the job. By carefully tracking the man-to-hour rate for every smaller job, maintenance jobs can actually turn into a profitable experience.
Carefully working out this type of rate will be beneficial to your companies profit margin. When you have this information figured out before you bid, you will be able to bid with better accuracy. Keep in mind that this rate doesn’t actually tell you the jobs that will make money. Instead, it is a simple tool that will help you guide your bidding so that you bid with better accuracy, as well as help you prevent waste in both labor and materials.
This easy formula can be applied to help get you started: Calculate the amount of man to hours to date, divided by the Gross Revenue the job has brought in to date. This will show you what the actual man to hour rate for each job amounts to. When you know this, it lets you see the areas in which that job is more profitable. And example is this: If one employees puts in six hours of landscaping time, and you calculate the man to hour rate at $24.40, while another employee takes three hours to plant and his man to hour rate comes in at $23.30, you will be able to see the difference. While employee number two is a bit less expensive than the first, he is taking less time to work. Therefore, scheduling two different jobs planting rather than one job landscaping may be more profitable for your company.
Remember that the note of “to date” is also a factor in this equation. To keep your job costs efficient, you have to work at it on a continual basis. While it may seem time-consuming, it is important to stay afloat of just how many materials you need and the labor you will require to do the job. Look at it this way- when you make dinner and end up with a large amount of leftovers, is it practical to make a huge dinner again the next night? Of course not, that is just a a waste of good food. Not planning carefully can ruin any event, as well as your business, so take the time and energy your company deserves to make sure this doesn’t happen.
To sum it up, take all of the guessing out of your bidding. While many big jobs will of course make a large profit for your company, small maintenance jobs will be able to give fast and easy cash. It is your job to figure out each job cost each time. This way, you will not order too many materials or allot too much labor time, or vice versa. When you do a good job with smaller maintenance projects, you have the chance of building up a repeat customer base, especially when word of mouth gets around that you have a great company and hard working employees. In many cases, you can expect a higher profit margin, because you will be able to predict with more accuracy the labor and materials that you need to set aside for the property and the job. Remember, hindsight doesn’t need to be 2/20, foresight can be just as good. Bigger projects does not always mean better.