Integrators often ask NSCA how they can increase profits without adding dollars to the top line. We frequently hear this question: “Our sales are growing but our profits are not. Now what?” This problem is nothing new; we’ve been sharing insights and resources for many years to help integrators improve in this area. Sometimes in business – and in life – you need to keep it simple and get back to basics.
Setting Billing Rates
Profitability often comes down to billing rates. What should the billing rate be for your area? Although we can’t give you a specific number, we can help you determine appropriate billing rates based on industry benchmarks and metrics.
Here are a few questions to think about when setting your billing rate:
- What is the utilization rate of your techs/installers?
- What is the utilization rate of your project managers?
- What is your multiplier factor of labor?
- What is your gross profit on each project?
- What is your current burden rate?
Answering these questions is important in determining whether a project provides a positive bottom-line contribution. When I have this billing conversation with a member and ask them that list of questions above, I like to provide responses to give them an idea of where to start. For example:
- What is the utilization rate of your techs/installers? 85%
- What is the utilization rate of your project managers? 75%
- What is your multiplier factor of labor? 5
- What is your gross profit on each project? 35%
- What is your current burden rate? 30%-33%
NSCA offers free in-house resources and benchmarks like the Financial Analysis of the Industry and Labor Installation Standard to help you make more informed, data-driven business decisions about billing rates. We also offer additional business resources through long-time partners, such as Solutions360, Navigate Management Consulting, Enterprise Performance Consulting, and D-Tools. These partners can further ensure that your projects are on track.
A quick and easy way to see how a specific project is contributing to your company’s bottom line is to use NSCA’s free Project Contribution Simulator Tool. Built by Solutions360, it demonstrates how properly burdening labor, spearheading eroding margins, and understanding your true costs of doing business impact your bottom line (operating income).
Starting Out Right
Remember: Everything starts with a solid foundation – including your projects. When handoff from sales to operations goes smoothly, you’re already set up for victory.
Successful projects start with robust needs assessment practices and comprehensive scopes of work. Agreement between your organization and the client on the contents of these documents is critically important prior to the work beginning. Otherwise, change management is difficult to manage and track – and the likely result is an unhappy client who may or may not receive the solution they hoped for (and a support department that may not know what was ultimately delivered).
Making the Most of Your Manpower
Getting back to basics can also help you maximize manpower and do things right the first time.
These nine steps from Enterprise Performance Consulting, an NSCA Member Advisory Councilmember, will guarantee successful project delivery:
- Complete project installation documentation so that almost any electrician could install it
- Get approval of your installation drawings from the customer prior to any field work beginning
- Conduct a formal kickoff meeting with all project stakeholders
- Provide the project installation team with 75% of budgeted hours (keep 25% for yourself as a buffer)
- Prepare an overall manpower schedule (including subcontractors) for the next three months
- Contact your customer two days before the start of site work and go over your site readiness checklist
- Document and communicate any site delays by other trades on a daily basis
- Get partial approval/acceptance of your work
- Get a certificate of completion, including start-of-warranty notice on all projects
To help you complete this list, you may also want to consult NSCA’s Essentials Online Library. Another free tool for NSCA members, it’s full of more than 650 documents, templates, and worksheets – including things like kickoff-meeting agendas, system and site checklists, and project closeout forms.
Getting Back to Basics
These ideas and tips may seem elementary, but sometimes the simple act of getting back to basics is the best way to ensure a smooth, profitable project. When each project starts off right, you’ll have a much easier time ensuring success – and you’ll be able to reference benchmarks and metrics along the way.
If you’re looking for more resources to help you better understand how to implement new processes, improve project profitability, and increase your bottom line, send me a note at email@example.com. I’ll be happy to help! –Mike Abernathy, NSCA Director of Business Resources