https://youtu.be/ED_XDdbTYJk
N THIS VIDEO, COREY PHILIP SHARES:
- How nitpicking expenses to boost the bottom line can be futile and
- Why you should look into labor efficiency instead
FULL TRANSCRIPTION:
Run you labor efficiently and you will find profit.
This came up earlier today when I was talking to another service business owner.
We were talking about just how much labor costs and how it drives the costs behind your business, and the profitability that comes with it.
Most contractors don’t realize the impact that labor, inefficient labor, in particular, has on the bottom line.
So, tell me if this sounds familiar.
You know, I know a lot of contractors do it, service business owners, business owners, in general, do this.
I’m 110% guilty of doing this myself.
I’ve done it before but you have a bad a month, a bad quarter and your money is tight.
Cash flow is tight.
You’re looking to save some money so what do you do?
You go print out the income statement.
You open up Quickbooks, run the report for profit and loss.
Print out that income statement and then, you start going line item by line item.
You’re going right through it looking for ways that you can just save some money like boof just save some money.
Everyone always goes down to the costs like office supplies, paper for the printer, coffee for in the morning, toilet paper —
“Why are we using so much toilet paper?”
“Maybe we can save some money on the phone bill.”
Or “how much are we paying for internet?”
“Maybe we can call up the internet company and get them to reduce our bill if we threaten to quit.”
That’s what people do.
Contractors do.
When they’re, you know, in a pinch, and they want to save some money when they feel like they’re not making enough money.
But the truth is is that it’s a horrible, horrible, horrible way to go about doing business and looking for places to save money.
You’re just not going to get a very good return there.
Think about it alright, in the grand scheme of things.
If you were about to knock your phone bill down you know I don’t know you guys, so you got several phones.
You knock it down 100 bucks a month.
Well, yes, that does add 1200 a year but even once you consider that, you know, if you are at a point where you are getting $100 discount on your phone bill, you’ve probably got several phones, so if you’re at that point that $1200 a year is largely immaterial.
So, in these cases, where can you go to find extra profit?
Where do you go to boost profit?
It’s not in, you know, cutting the phone bill, cutting utilities bill or skimping out coffee on the coffeemaker.
If you really want to find the profit you got to go back to labor and look to make labor run efficiently.
Think about it.
The biggest cost on your income statement is probably labor.
If not, it’s a very close material or a very close second to materials.
If you’ve got that labor running inefficiently, you’re going to lose:
- A) The direct cost of labor but
- B) the opportunity cost.
So, let’s say your guys leave in the morning.
They take the truck and they don’t have the right materials to finish the job.
They drive out to the job site.
They start working on it.
Now, they find out, “Oh, we don’t have everything we need.”
So, what happens in that case?
Either A) You’re going to pay somebody to drive it out and out there.
Maybe send out one of your office staff that tends to happen in larger companies.
In smaller operations, it’s stop, figure out what to do and figure out where to go and get it.
You know, whether that’s a supply house, Home Depot, Lowe’s, or back to the office.
The guys on the job site have to kind of clean up the job site a little bit.
They can’t totally leave it unattended because if the customer sees that and they’re going to be like, “Whoa! Your guys left and they left my job site a mess.”
You don’t want to do that stuff.
So, you got to kind of clean it up, condense your job site.
Get in the truck.
Your guys who are getting paid have to drive to wherever they’re going, through traffic, and then pick it up at a shop or wherever.
Buy it, then come back.
That sounds like “Oh that’s just a quick thirty minutes”.
But let me tell you.
If you’ve had employees out there driving around in your vehicles, nothing, nothing is ever a quick thirty minutes.
All right.
It’s going to take them thirty minutes to turn the ignition.
When employees are doing something that is not part of their system or is not part the regular process they get slowed down.
When they’re not working on something that has a measurable goal, they get slowed down.
So, your project, completing the project is a measurable goal.
When they’re fixed on that and working smoothly, that’s fine.
But you start distracting and sent them to pick up the materials which they know that you’re not really measuring how long it’s taking them to get the materials because that’s just a headache that just came up in the middle of your busy day.
They’re just going to drag it on out.
They’re there for a few hours.
They leave to go get materials.
It takes about 30 minutes to an hour to drive somewhere.
Thirty minutes to pick it up.
Another 30 minutes to an hour to drive back.
We’ll say, it will take some 2 hours.
But your guys are not cheap.
I know with labor payroll workers comp, we’re generally budgeting about $300-$350 per day per person.
So, now you’ve got a fraction of their day spent doing this activity all because they didn’t leave in the morning with the right materials.
So, think about that.
That can add up to a couple of hundred bucks.
Now, look at the opportunity cost. All right.
You know how it is when your guys are out there on a job site.
When they leave and you disrupt the flow of their working pattern and they lose their momentum.
Momentum — very powerful —
When they lose the momentum on the job site, they’re not getting $h*t done for the rest of the day.
So, they get out there 8:00.
They realize at 9:00 they need something extra and they get back around, say around 11:00 but then they’re going to stop and take lunch before they get back.
So, it’s going to be 12 by the time they get back to the job site.
And at that point, the day is kind of short.
They’re not going to meet completion goals.
Psychologically, they’re not going to be in the right mindset to get things done.
So, you’re at a day where you could have completed $2,000 worth of revenue but instead you just lost money by having your guys, you know, go d*ck off and drive around in a truck somewhere to pick up some materials.
So, in just in that one day of inefficient labor, you lost more money, or you could’ve made more money than if you had just saved money on your phone bill.
Does that make sense?
You certainly know what I am talking about.
Labor is such a huge cost that one little hiccup in labor is going to far outweigh any little thing that you could save on income statement or any line item you can buy.
So, when it comes to service business, it’s all about labor and keeping it running efficiently.
If you really want to make more money and you really want to save your costs, look to labor.
But don’t be like what 99% of other service businesses are doing.
Don’t do what you’ve done in the past which is just print out that income statement and look for a place to save money because I’m going to tell you, you’re not going to find the savings you’re looking for there.
You’re not going to find life-changing, business-altering savings on that income statement.
If you really want to save money you have to think about the big picture and think about how you can use your labor efficiently.
It’s all about the efficient use of the labor which is your largest cost in your service business.
Now, on that note I’ve got a blog post out there titled “Boosting Profits: Here’s Where You Can Really Save Some Money”.
There’s a couple other ways that I suggest where you can get more efficient and save money besides nitpicking the income statement.
So, it’s worth heading over to the blog.
I’ll put this in the link below.
You can read it.
Check through all that.
So, next time you’re in a pinch, next time you’re in a bad month or a bad quarter, forget about printing the income statement.
Look at what you can do as a manager to run your labor more efficient.