Commit to these big changes and you’ll see results.
It’s logical, and on the surface sensible to play it safe and grow your business in small increments, but often to get big results you need to take a leap of faith and back yourself.
Implement these changes and I promise you’ll see positive results to your bottom line.
Change 1 – Increase Staff Wages
When it comes to staff you get what you pay for. The difference between a well performing Foreman and bad one is productivity.
A top performing Foreman will increase his team’s productivity by:
- Clean site – You may think having a tidy site is a ‘nice to have’, but a tidy site is a more efficient space to work in, which in turn increases productivity. Staff are not tripping over materials and equipment, and they are not losing time trying to find materials. Not to mention it’s a safer place to work, reducing your risk of being hit with a WorkCover claim!
- Planning – An organised Foreman knows in detail what he is doing over the next 48-32 hours, but he’s also got a good handle on the weeks ahead
- Deliveries – This Foreman knows when deliveries need to arrive and places orders well in advance
- Trips to Bunnings – An organised Foreman rarely heads to Bunnings on the spur of the moment; the only time they get caught out is when something breaks
- Delegation – A top performing Foreman foresees appropriate tasks for each staff member and organises them accordingly
- Machinery – A top Foreman will organise for the machine to knock over as many tasks as possible in one visit, saving on downtime and float
If you pay an extra $10/hr for a top Foreman they cost you an extra $20,800. But if they increase the productivity of their team by 10 percent that Foreman could increase your bottom line by up to $100k per year. Well worth the investment!
And the same applies to all staff, not just Foreman and Managers. Good, well-motivated apprentices and labourers will increase your bottom line on their own. And you have the added bonus of training and retaining good staff up through the ranks, making it much easier to fill those all-important senior roles.
Change 2 – Stop Pricing Every Job That Comes Across Your Desk
If you’re a busy contractor you don’t have time to price every job that comes across your desk. You need to prioritise and price the ones that are the best fit for your business
First, identify the type of work your business is good at. This should be your most profitable work, your bread-and-butter.
Next, identify the type of work you WANT to be good at, hopefully it’s the same as the answer to the first question. If the two answers don’t align you have a little work to do. To align them you need to focus on upskilling your staff and winning this second type of work. The best way to do that is to aggressively chase the work, upskill your staff and watch the pricing like a hawk.
Only price the jobs that you’re either very good at or you want to be very good at, don’t bother with the rest. Unless you’re desperate for work, and if that’s the case you need to switch your focus to work that will fit your scheduling deadlines.
Change 3 – Invest In Equipment And Pass The Costs On
Unless the task is small, a machine will be much more efficient and cheaper than your staff slaving away.
Not only does using machines free up staff to get on with more profitable work, but they’ll be happier and healthier, too.
Owning the equipment outright is the best option IF that machine is kept busy.
If not it’s often more cost effective to hire. Hiring comes with the added advantage of delivery, which I can guarantee is cheaper than sending a bloke to collect it from the yard or another site. Either way, ensure you build the cost of the machines (including downtime and float) into the project.
Finally, don’t fall into the trap of holding up one site while it is waiting for the machine to finish on another. It’s always more efficient to hire an additional machine and keep the site going than create a bottleneck and contribute to downtime.
Change 4 – Set Your Own Prices
Stop looking at your competition and start looking at your own business.
There are two factors you should look at when setting pricing:
Set a labour rate and profit margin that suits your business
The absolute worst thing you can do is set your pricing based on your competition. First, you don’t know how they’re running their business, they could be running up a huge debt for all you know. Secondly, their business model is different from yours so that labour rate is very likely to be too high/low for you.
Calculate your overheads and labour costs to work out what your costs per billable hour are (see my article in the Jan-Feb 2017 edition of BCM for more tips). From there you need to apply mark-ups to resources and labour that will cover your overheads and deliver you a good profit margin.
- Charge a premium for premium work When you’re the expert you need to charge top rates for your work (this, by the way, is the work you should be pricing in point 2 above). No matter the industry, people expect and are willing to pay for the best workmanship. There is a lot of evidence to show that people are wary of the cheapest price and very rarely pick it (this excludes a commercial government tender project, where the tenders have gone through a pre-tender qualification process. In those instances, it is very likely the cheapest bid will win). So, if you have the domain experience then charge a premium for your work. People expect to pay more for the best workmanship and paying more gives them confidence they’ve chosen the right contractor.