How Electrical Contractors Can Reduce Costs
You open up your bank account and notice you have hardly any money in the business account. You know that there are some big wholesaler bills, taxes due and wages coming out in a couple of days and you're like "where the fuck is all of my money?!" This activates a fight or flight physiological response which causes you to get anxious, stress out and irrationally start cutting costs left, right and centre.
I work with a lot of electrical business owners who have this same stress response and often make huge mistakes cutting some of these services which actually save you time and money when you look at the big picture. Let's break it down and help you understand this so you make more educated decisions in future and hopefully think rationally through these, often short term, problems!
The 2 Factors to Purchase Decision Making
If you do this right from the start, you will be able to trust you made the right decision when you made your purchases in the first place so there will be no need to just straight to cutting costs. The 2 most important things you want to consider when making purchases are:
- Will this purchase reduce my operational costs? This could be from saving you or your team time through productivity enhancements or through cheaper services where you receive the exact same product (not lesser quality). We are talking long-term value here.
- Will this purchase increase the revenue I can make? This could be things like productivity increases where you can get the job done quicker but charge the same amount or training courses where your you and your team learn how to be more effective and efficient in the various aspects of your electrical contracting business.
Reduce Un-Billable Time
These are times within your workday where you are paying someone or yourself for the hour but you are not passing on the cost to a job. Some examples of these are:
- Driving to the wholesaler because you were unprepared for a job and you cannot charge your customer for the time to do so.
- Your electricians finishing work early and not charging your customer because you are not onsite.
- Call backs to jobs where you or your electricians have not tested correctly or had poor workmanship where you cannot charge for the additional time - This has a DOUBLE BAD factor to it because you are not at another job making money if you are at the call back and not charging for it!
Increase Your Productivity & Job Performance
You can use a method like the Shopping List Pricing System like we teach in the Academy but the basis is to do more in less time. Labour productivity will have the biggest impact of your electrical contracting business as it is your biggest cost, especially when you hire electricians. Therefore it should be the metric that you pay most attention to and measure daily.
You want to know if you are paying someone for 8 hours that you are able to charge for 8 hours for their days work. The impact can be as big as 100% of your net profit being lost in they can only charge for 6.5 hours and this is calculated on the assumption you have factored 20% net profit into your hourly rate.
There are so many ways to reduce the cost to your electrical business that if you focus on systematically identifying them and then improving them, you will have no need to cut the costs of high value services especially if you had considered the 2 Factors of Purchase Decision Making in your initial purchase. It's good to check over these services quarterly to ensure you are still receiving value from them but it shouldn't be a cut all in a time of crisis. Be proactive - Not Reactive.
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