Taking Care of Business
Oct 12, 2012 3:53 PM
As a small business owner, managing an infinite to-do list isn’t something new. You are a chameleon of change and “going with the flow.” You make juggling different job functions on any given day look easy. You check emails on your lunch break and at stoplights (we won’t tell). You are a master at multitasking and making sure everything on the schedule is updated and running smoothly.
But let’s face it; even the best multitasking-rock star-business owner can use a little help when it comes to the business side of running well a business. CEDIA’s Business Toolkit webinar series has been developed in partnership with The Shiner Group. This series tackels the big business issues the last Wednesday of every month at 12:00 pm. Eastern. Each webinar is moderated by The Shiner Group’s Leslie Shiner and is archived and available to members at any time. Check out some of the past few webinars you may have missed, you can access them with your CEDIA member ID at www.cedia.net/elearning.
Pricing Time and Materials
In a tough economy with price-sensitive, risk-averse consumers, T&M contracts can be a tough sell, and many ESCs are relying on fixed-price contracts to get the job. But when done right, T&M contracts carry less risk for the seller than fixed-price contracts – especially when working in existing homes, where you’re more likely to run into unexpected challenges. And considering that 73% of ESCs’ residential revenue now comes from work in existing homes*, the ability to offer T&M contracts is as important as it has ever been.
Yet despite all this, it is still possible for ESCs to lose money on poorly structured T&M contracts. If, out of enthusiasm to get the job, you’re setting your labor rates too low to cover your overhead, you’ll never see the benefit of offering the T&M contract.
*Source: CEDIA Size and Scope of the Residential Electronic Systems Market in the US 2012©
Tracking True Profitability
Electronic systems integrators must understand and measure the true hourly costs of sending a technician out into the field in order to properly price services and, in turn, provide accurate estimates.
When determining what it costs you to send a technician out into the field, are you considering:
· The cost of providing benefits?
· Vacation and holiday time off?
· Projected annual overtime hours?
If your calculations don’t account for these variables, among others, you could be underestimating what it costs your company to provide labor. Learn how to create a system to track fully burdened labor and make sure that billing rates are high enough to cover all the costs associated with field labor.
Mark Up Versus Margin
If you are using the words “markup” and “margin” interchangeably, you may be surprised to learn they’re not as synonymous as you think.
And it’s more than just semantics: Using the margin on past jobs to calculate markup for future jobs could lead to underpriced estimates.
For estimating purposes, it’s essential to know your gross profit, gross margin, and markup. You have two options for determining sales price for estimates: either add the markup or divide by the margin.
In order to price your jobs profitably, you must understand the difference between markup and margin. For some integrators, the confusion occurs because you use markup numbers to produce your estimates, but your financial statements produce margin numbers. To generate a profit, you have to price your jobs to include all costs, plus cover overhead.
These webinars are a great way to pulse check your business practices to make sure your company is staying in the black. CEDIA offers a variety of training online. Visit www.cedia.net/elearning to learn more.