When the operating account is low, cash flow is tight, and profits are barely in the black, I know what you do. Every business has owner does it at the end of a rough month or quarter. You run an income statement report, and go line by line, expanding each account to see further detail of where your cash went looking for places to save money.
Your eyes are usually drawn to a few places. The places where you constantly ‘believe’ that there’s an opportunity for savings. The phone bill. After all it does seem like everyone pays less for phone service than you. Maybe you can get a lower cost provider? The gas card bill. Maybe Jimmy leaves his truck running all day long? Office Supplies. Maybe Shirley in the office is ordering too much ink and Coffee? All of these items might add up to a whopping 5% of revenue.
Lets assume I wanted to lower some of these costs. Someone on Contractor Talk once suggested I switch VOIP phone service and save $100 per month. That is I save $100 per month, AFTER I (or another principal) spends hours learning the system inside and out, then training a few dozen employees on it, then getting them set up, and finally troubleshooting their issues after launch. It’s not even worth the switching cost. And what if they raise their prices in year. Now we’re back to square one.
Regarding consumable items like office supplies or gas card usage, a quick check here and there to make sure you aren’t being robbed is good, but disciplining Jimmy for letting his truck idle, probably isn’t worth your breathe.
The one thing these little expenses all have in common; they have very little to do with your ability to operate efficiently.
You’re a business owner. It’s better to shift your mind into growth mode. The really savings won’t come from pinching pennies or service providers. It will come from you being strategic.
For me, there are three areas where I see businesses wasting money: labor, marketing, and materials.
Here’s how you can save yourself some money in each of those areas.
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Labor
One wasted day of labor costs you direct salary, plus workers compensation plus payroll taxes. In most operations that is going to total up to, $300 – $600, per employee, per day. Now think about opportunity costs – the amount of revenue they could complete that day. There’s even more waste, assuming your sales pipeline in full.
Your time as the owner is even more expensive. If you’ve spent anytime running a home service you know how quick those hours add up. Consider these:
A plumber who forgets one little drain fitting, now needs to run 45 mins out of their way to get to the supply house, 20 minutes for the vendor to ‘find it’ and then return. What the text book won’t account for is that lost momentum in completing the job – the time it takes to get settled and rolling again on the install.
A roofer that can’t get access to the gated community, and has to screw around with his phone for 45 minutes trying to make contact with the home owner to get gate access. These little inefficiencies are costly and quickly add up to more then.
So, it’s important to save yourself some money where you can.
Here are a few tips:
- Make Sure Employee’s Leave With Everything They Need. Sending employee’s out to a job site without all the materials or the right tools is costly. Get a plan in place to make sure it doesn’t happen (aka a materials and supplies checklist).
- Call The Day Before To Make Sure You’re Expected. Scheduling delays because you couldn’t access the gate, or the homeowner wasn’t home suck. Don’t let that be you.
- Focus on Retention: Training employees is costly. You lose the productivity of the worker who left, have to pay to train the new employee, and will have a period where that new employee is trying to fill their knowledge gap. So, focus on providing employees with a competitive compensation package, invest in training and education, provide opportunities for advancement, and recognize employees for a job well done.
- Cross-Train When You Can: Specialty employees can be expensive. Although they’re necessary sometimes, there are plenty of situations where you can just train one employee to do multiple jobs.
- Stay Up to Date on Technology: There’s so much software out there that can save you money (or even replace employees). For example, route optimization software can cut out a lot of the time that employees waste while out in the work van.
These simple changes can go a long way in saving you money on labor.
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Marketing
Without marketing, it’s difficult to get business. With inefficient marketing, it’s difficult to stay in business.
I see home service companies out there who are wasting a ton of money every single day on their marketing campaigns. Too many of these companies think that just spending money on marketing is enough to get them in business. However, it goes much further than that.Here are a few tips to save money on your marketing campaigns to get a better ROI:
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Track Everything:
Those businesses who are basically throwing away their marketing dollars often aren’t tracking their different campaigns. With all of the software available today, there are no excuses to not be making use of all the data available to you. You can track phone calls to keywords and specific ad campaigns, and you can target your Facebook ads to specific niches. Once you’re tracking everything, you can cut out what’s inefficient and sale up what is.
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You’ll quickly notice the traditional old school advertising methods such as Yellow Pages and community mailers are highly ineffective and expensive.
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Content Marketing:
Start now. It takes time and persistence. Most people will fail with those 2 things, but if you keep at it, you’ll establish yourself as the resource and your content will become an asset that reaps huge returns.
With technology today, there’s no excuse not to know where every last marketing dollar is going and the ROI that it’s returning.
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Materials
In the home service industry, materials matter.
While the average person might not think too much about the materials used in their projects, the materials that we choose in the home service industry can make or break our company. However, that doesn’t mean that materials should be breaking your budget.
Here are a few ways to save money on materials:- Monitor Waste: When you go to purchase materials, it may be difficult to get the exact amount that you need. This often leads to excess material or scrap. While it may not seem significant on just one project, that scrap that you throw away on a regular basis adds up over time.
- Negotiate: To really increase your profits, you need to be negotiating the best price on all of the materials that you buy. Too many people get caught up in loyalty and purchase their materials from the same vendor every time. However, you can’t be shy if you want a good price. Shop around to a couple of different vendors to see who will give you the best deal. Every purchase order I do is shopped 3 different vendors.
The amount of money that you’re overpaying may come as a surprise once you actually sit down and crunch the numbers.
Stay On Top of Everything
Many business owners get caught up in a lot of different things throughout the day and forget about analyzing these costs. They get into routine and continue that routine every day.
If you want to figure out some ways to reduce your costs and increase your profits, you need to be monitoring these costs consistently. The results won’t come as directly as chopping some little costs out of the income statement, but with a couple tweaks you’ll save far more, and that’s worth your time!
Let me know