Deep Dive: Knowing Your Numbers Webinar
Hi everyone, I want to thank you for tuning into another one of our webinars hosted by Wyatt Knight. We’ve had a great turnout lately with our focus being “Knowing Your Numbers”. This seems to be a pretty popular issue across the board, so we felt it was necessary to highlight it in a couple of webinars.
The business we are in is a numbers game. You need to know and understand your numbers. If you don’t, you risk falling by the wayside after losing a good deal of money. Understanding Overhead & Profit is huge in this business. Calculating Markups for Profitability is a great way to know just how much money you will be making. We should all be adjusting our markup to reflect an accurate profit, making sure we stay afloat. An accurate profit is more than just a dollar figure greater than the project cost. To fully account for this, we have to think about things such as fully burdened labor and all the expenses that make this up. This all comes down to understanding the cost of doing business, making sure your numbers don’t fall short.
Calculate Fully Burdened Labor
- One of the biggest cripplers of business. Most people don’t understand how to fully calculate labor. Labor is much more than the cost per hour. We have to understand all the various expenses that go into our hourly rates. This includes things like benefits, insurance, time wasted, materials wasted, etc. Create some kind of system where you can see the price per employee for ALL costs. We want to calculate this per employee, crew composition & company, etc. In some cases this will dramatically increase the hourly rate for an employee, showing you just how much money you could be losing if you simply charge that base rate. Once you know what you fully burdened labor is per employee, you will know what exactly to charge, avoiding undercutting yourself. Ignoring true labor burden will rid you of making money, you will see your profit dwindle away.
What to think about
- Wasted time – Calculate time cards by hand? Stop doing it, it is wasted time. Switch over to an automated system. Average time card review is about 3 minutes. Add that up and do the math – it’s just too much time wasted.
- Human error – Nobody is perfect, and neither are their time cards. Account for this. Odds are they’re not trying to rip you off, but rather made a simple error.
- Overpayment – Be careful of long lunches, late arrivals and early departures.
Cost of losing an employee
- One thing we have to understand is that there will always be turnover, and when it happens, the onboarding process for a new hire is a huge expense.
- If you are losing employees because the pay is too low, you need to fix that, paying them a fair compensation. Offer clear incentives like moving up the ladder for extra motivation to stay. Our main focus here is to minimize turnover.
Increase Accuracies in Estimating
- Use unit pricing with cost codes to track job costs. This is a great opportunity to create a spreadsheet noting all possible job costs. Once created, you simply go in and enter the unit. Find a project management software to track employee hours too. You can set up cost codes associated with each item. This will take some time up front to set up, but once it is done, countless hours will be saved. The employee will simply log what hours were spent doing what. This is a great way to completely eliminate the “What to Think About” category above. Automation is a great way to avoid human error. It’s also a great way to track work done in real time.
- Use some kind of software to calculate out all of your expenses. In the Webinar, Wyatt has everything mapped out from legal to financial to administrative. Plug in all of your expenses to understand how much your will need to markup in order to turn a certain amount of profit. Talk to Wyatt more about the software he uses.
Thanks again to all that showed up for this webinar. You can rewatch it here at anytime! As always, please let us know if there is a topic you would like to see discussed in future webinars.