Herman Blog

Do You Know the Cost of Your Own Labor?

Written 2016-05-05 by Chris Bianchet
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At the end of every project, integrators tend to do a rundown on their project costs. They factor in their installation labor, engineering, programming and then they apply that against their costs to come up with a profitability on the project. If they charged more than they spent, they take a little sigh of relief, because as we know, estimating labor can be a bit of a gamble.                 

Now, we know this isn’t optimal. We would all prefer to increase predictability and make labor a much more profitable part of our business. However, if it was easy, then we all would have done it long ago. The challenge is that labor estimation isn’t easy. No matter how prepared we are for a project, there are always surprises. With technology now changing at breakneck speed and training opportunities limited with our high labor realization goals, it seems like the world is working against us. Perhaps true in some ways, but I would be the first to say that part of the onus for better labor performance falls on us as integrators to better understand the economics of AV integration. 

While my role today may be to strategically supplement labor forces for integrators, anyone that knows me, knows that I have spent many nights breaking down project P&L, trying to figure out how to squeeze a few extra cents out of every dollar. Now that I have also seen integration through the lens of integrators around the country, I’ve been able to even further refine the mission to improve labor profitability and it comes down to a few things that every integrator can start doing today to ensure better bottom line performance.

  1. Fully acknowledge labor cost: Labor cost isn’t only the costs associated with the installers, engineers and the programmers. From the cost of gas in the van to renting lifts to processing purchase orders, every single cost needs to be understood and allocated into a job. When margins are tight, knowing your exact project costs can be the difference between a good estimate and one that doesn’t produce enough profit (or any profit).
  2. Know your precious resources, charge accordingly: Not all resources are created equal. If you have only 1 programmer or 1 engineer, you need to think about how you charge for them. Yes, there are going market rates, but sometimes you have to make sure that a premium is put on the people who are the only ones that can get a project done. This can be managed with the right outsourcing strategy and the right estimating, but it is easy to get caught with your pants down when you have one programmer committed to 3 jobs at the same time.
  3. Maintain minimum profit margins: Installation profits should at minimum be 40%. To properly account for this you need to make sure that all of your resources allocated to a project are correct. For instance, lead installers likely drive a higher rate, however, if you have to send two to the same project, then make sure you are bidding based on that and not based upon a lead and a general installer.
  4. Don’t Forget Project Management: This one can help you right away, most IT companies have substantial project management costs associated with every project. I have noticed many integrators charge nothing or little for project management when it may be one of the most important parts to successful project completion. Project management needs to be properly allocated for in your project estimates.

 

Bottom line, do you know your labor costs? Not part of them, not just the obvious ones, but all of the things that make up your projects? If you don’t have a full handle on what it costs you to do a project, how in the world can you charge the right amount?

Over the years, people have often suggested charging more to play it safe. While in theory that sounds like a good idea, the real answer is to charge the right amount based on providing value to the customer in exchange for your unique capabilities in return. This starts by understanding your costs, knowing your most precious resources and your value proposition, AND continuously staying on top of the best practices for delivering projects on time, on budget so the client is happy and your business is profitable.

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