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Estimating fundamentals

The battle lines were drawn long ago. The sales department thinks it should be done in a day. The installation department says it should take a week. Who’s right? Likely it is somewhere in between. But as the business owner, the important thing is not so much which one is right, but which one gets you the sale and MAKES YOU MONEY. In this article I want to focus on some of the key elements that you should take into consideration when determining the cost of labour in an installation.


May 11, 2011
By Rob Colman


Topics

The first imperative is that no estimate can be for less than half a day. All estimates must be full or half day in duration. And no weekly estimate can be less than five full days. By that I mean, no job is 36 hours to end at noon on Friday.

Immediately you are going to have someone — either your sales department or your client — debate the merits of this approach. But you must recognize that your hands are tied on this matter. Your priority is productivity and no scheduled installation will take less than four hours. If the work is legitimately less than that, it must be done on a time and materials basis. And as the exercise in the prior article made clear, your hourly rate for service is substantially higher than for scheduled installations.

So how do you address the resistance that you may encounter to the four-hour minimum? The best response is to offer to do more during that time. For instance, let’s assume that the client has asked you to install a new access control point. Including the strike or mag lock, your estimate is six hours. But you must charge for eight. Try proposing to install a camera at the same time. Offer to do the labour for “free” and to charge only the material cost to the client.

From the client’s perspective, you have done them a favour. From your perspective, you have just increased the value of the sale, improved your profit, and been recognized as an outstanding supplier.
If you are in sales and you are reading this, understand that without profit your employer does not need your services. A great top line with no bottom line is not sustainable in any economy or with any product. So suck it up and get with the program.

The second key is to recognize the principle of good – better – best. Most new clients will be looking at competitive proposals. Be your own competitor and demonstrate that you understand that the client has choices. But make it easy for you to be choices 1, 2 and 3. This shows creativity and sensitivity to the issue of cost. And as the spread between 1 and 3 is so much smaller today, it gives you the opportunity to up-sell much more easily. Everyone wants the best but often they think they cannot afford it. It is the “champagne taste but beer money” syndrome.

Offering the client the ability to choose allows them to make an informed decision within the context of one company. They don’t have to try to determine the relative value of competing proposals from various companies. If you have done the right job in representing yourself and your company, the client will be more inclined to negotiate with you because of the options you have presented.

Remember as well, that EVERY proposal should have an offer of a service contract. When calculating the costs though, keep in mind that the least expensive purchase option may actually come with the most expensive maintenance costs. You are not gouging when you price it that way. It is the reality behind the quality of the ‘good’ versus the ‘best’ option.

The third key is “stick to your knitting.” That is, do what you do best and subcontract that which is outside of your areas of expertise. You pay technicians well to focus cameras properly, to set up and program access controls systems or alarm panels. Their technical competence is not being really demonstrated when they are pulling cable or mounting back boxes.

So find a reliable contractor that you can work with to get these tasks completed and focus on that work which is high value to you. Your productivity will improve and your technicians will thank you for engaging them in the type of work that truly challenges them and acknowledges their skill sets. Chances are that the subcontractor will do a much better job running the cable anyway as that feeds some of their core competencies. And you establish a partner who is more likely to feed leads back to you.

Finally, recognize when a client is simply too expensive to deal with or perhaps to keep. We all know who I am talking about. They are the clients who essentially want something for nothing. They argue about every estimate; they pay net 120 days; they find fault with all the work you do; but they keep coming back to you.

Did you ever think why? Because no one else will tolerate their behaviour and as long as you do, you will continue to be abused by them. There comes a time when you must draw the line in the sand. You must confront these clients directly and establish fair ground rules or choose to suspend doing business with them. Overcharging will not do it. First it challenges your ethics. But more importantly, it does not change behaviour. In fact 120 days will become 180 days and you are still engaged with someone who does not value your work.

Move on. Find other clients. Have some fun in your life. Stop pandering to the client who is really costing you money, not making you money.

I trust that this article will get sales and installations singing from the same song sheet. A better understanding and appreciation of the interdependence of the functions is always a good thing. We are driving sustainable profitability and these tips will work for you. Next time we will focus on the value of quality and how that impacts to whole company.


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