3 Ways To eliminate Low-Productivity Habits
Originally published: 12.01.11 by Ruth King
Get serious about increasing profits without raising prices.
The economy is flat, so you are hesitant to raise prices. In fact, your competition has lowered prices just to get jobs. They have no clue how much things really cost, and as a result, are pricing their work below actual costs.
You’ve got to compete. If prices can’t increase, what can you do to increase productivity and decrease costs? You’ve tried in the past. Your field employees and office employees become really productive for a few days or weeks and then slip back into their old, less-productive habits.
What permanent changes do you need to make to get the most profitability and productivity from every dollar that comes in the door? How do you eliminate the old habits and change for good?
Here are three suggestions.
The first and most important step is to track field labor. How many hours are they putting on their time cards? How many hours can you bill to a cus- tomer? Calculate the billable percent- age. Put these percentages on a chart where everyone can see it. Productivity will increase. Why? Simply because it is being tracked. What gets watched
Your service technicians should be billing a minimum of six hours for an eight-hour day. Your installation crews should have a minimum of seven billable hours for an eight-hour day. This means service technicians get dispatched from home. They receive one call at a time and are routed efficiently. Installation crews have all materials ready at the shop when they arrive in the morning. Or, they go directly to the job, and their time starts when they arrive on the job.
Office personnel get the billing and accounting completed on time without overtime. They must answer the tele- phone promptly and handle other office functions when they are not on the telephone. Your office personnel (including managers) are responsible for ensuring the field personnel stay productive.
Second, give everyone an incentive to be productive. The best way to do this is to share the profits of the company. If everyone works toward increasing pro- ductivity and profitability, then everyone deserves a share of the results. How do you do this so it’s fair? The best way is to determine what percentage of profits will be shared. Usually this figure is less than 50%. You need the other profits to be saved for managers’ bonuses based on the profitability of their departments, future growth, increased raises, and company stability. Everyone must understand this.
All non-managers get a piece of the profitability percentage. It is based on their salary and the number of years they have been employed at your company. Many companies maximize the number of years at 20 years. The employee’s percentage is salary times the number of years employed divided by all of the participating employees’ salaries times the number of years they’ve been employed. Here’s an example:
• Tom has two years and a $10,000 sal- ary, so the total for Tom is $20,000.
• Jane has five years a $15,000 salary, so the total for Jane is $75,000.
• Steve has one year and a $30,000 sal- ary, so the total for Steve is $30,000.
• Total Denominator = 20,000 + 75,000 + 30,000 = 125,000
Tom’s percentage of the bo- nus is 20,000/125,000. Jane’s is 75,000/125,000; and Steve’s is 30,000/125,000.
Managers get a bonus based on the profitability of their departments. They receive the percentage of the net oper- ating profit that the department earns. For example, if their department earns 12%, they receive 12% of the net oper- ating profit. If their department earns 20%, then they receive 20% of the net operating profit.
Third, ask everyone how to increase productivity in a manner that they understand. For example, how can we bill 15 minutes more per day? How do we save $100 per month in overhead costs? How do we generate $10 more per ser- vice ticket?
They can visualize a 15-minute increment, a $10 service ticket increase, or $100 overhead decrease. They can’t relate to five hours or $10,000. If five people have a different idea that can be implemented, you’ll increase revenues and cut costs. The key is to take their ideas, implement them, and track the results through a chart on the wall. Keep that chart updated every week.
For any of these ideas to be successful, you as the owner must be serious about change and implementing the changes. Communicate this to your employees, solicit ideas, implement them, track them constantly, and report the results. This is how long-lasting changes get made, productivity increases, and your company’s bottom line profits.
Ruth King has over 25 years of experience in the hvacr industry and has worked with contractors, distributors, and manufacturers to help grow their companies and become more profitable. She is president of HVAC Channel TV and holds a Class II (unrestricted) contractors license in Georgia. Ruth has written two books: The Ugly Truth About Small Business and The Ugly Truth About Managing People. Contact Ruth at email@example.com or 770.729.0258.
Articles by Ruth King
The 20 Percent Profit Myth
For a realistic goal, include owners’ compensation in the net profit equation.
Rethink Your Bonus Strategy
Enact a profit sharing program, rather than a bonus entitlement.
Prevent Employee Embezzlement, Part 4
Most contractors don’t think about how much time is stolen by employees doing personal activities on company time.
Prevent Employee Embezzlement, Part 3
If you ignore locking your warehouse and limiting access to it, don’t use material sheets and don’t make your technicians responsible for the inventory on their trucks, you’re inviting theft.
Keep Your Money Safe
Keeping your hard earned money safe is your responsibility. Put the procedures in place to keep the honest people honest and protect yourself from employee embezzlement.