Tips for Improving Your Business
Question: I get a lot of phone calls for small jobs, repairs and other minor jobs. It just kills me to give estimates on all these jobs. How do most contractors handle this?
Answer: Quoting lots of small jobs can be a killer. Many contractors fail to factor in the cost of sales and estimating. I laugh when I see ads or business cards that quote free estimates. There really isn’t such a thing as a free estimate. What you are really doing when giving an estimate is taking time and money away from your family and personal life and giving it to the customer.
Why no free estimates? Let’s run the numbers. Suppose an owner or estimator costs a minimum of a $1,000 per week or about $50,000 a year. Remember: We have payroll taxes and insurance, benefits and other costs to add to a raw salary. Now suppose a contractor does 20 estimates a week. The cost of estimating is $50 per estimate
($1,000 divided by 20), 15 estimates per week are $75 per estimate, and 10 estimates per week are $100 per estimate. Yes, you can do other things, but preparing 15 to 20 estimates a week is a full-time job.
This $50 to $100 estimate cost is fairly constant. If we estimate a really large job, our time can go up — but most of the time is travel, basic measuring, customer introductions, etc. Let’s suppose we figure $75 per estimate as a cost. On a $500 job, this $75 cost is 15 percent of the sale, on a $1,000 job, 7.5 percent and on a $2,000 job 3.5 percent of the sale. As the job size increases, the cost of estimating and selling drops dramatically.
The numbers also impact contractors in other ways. For example, suppose a contractor gets one out of three estimates. If he does 15 estimates per week, that is five jobs a week. Five jobs at 50 weeks a year (one week off for holidays, another for deer season) are 250 jobs a year. Two hundred and fifty jobs a year at $500 each equal $125,000 in sales. Now remember this is a contractor who is so busy giving estimates, he does little fieldwork. A non-working owner who does $125,000 a year in volume is going to work very hard and make very little money.
So how do you handle small jobs? There are several different approaches to take but they all begin with qualifying the customer. Let’s suppose you have the customer on the phone and they want a small job performed. One option is to quote some type of day rate for two guys. Say such a job normally cost $500 plus a couple of hundred dollars in materials. You are testing the waters. Ask if that is what they had in mind? If they answer positively, you can then tell them you will go by and look at the job, write up what is needed, and put in the schedule. You are trying to separate the small job shoppers from the buyers.
Another approach is to send a field person to look at the job and charge a minimum fee. This is how many service contractors handle the situation. They implement a $65 diagnostic or trip charge and then so much per hour for time and material. If the customer does not want the work done, you simply collect the diagnostic fee. This approach does require a skilled person who can handle paperwork, get along with the customer, etc. For companies who have a construction manager, running such calls as part of his job can be a constructive approach.
There are some exceptions for looking at small jobs. If you have several sales people and are looking for leads, then having them go on all calls makes sense. This is particularly true if someone in the office schedules the salesperson’s appointments and time. Such scheduling allows an efficiency factor and builds more sales and appointment time into the salesperson’s day. Another exception is with commercial work, designers or huge residential estates. Frequently customers will throw you a bone with the small jobs as a way to test you. No purchasing agent is going to risk his or her career by giving a job to a contractor they do not know. Some companies also do not want to give all their work to one contractor and being the second guy and doing the small jobs can be very profitable.
Question: In past articles you have talked about having an office person set my appointments and schedule. I am reluctant to give up that type of control. Will it really help?
Answer: It depends on you and your skill level. As our businesses grow, we get to a point where we cannot do everything ourselves anymore. It is just too overwhelming. When we start to decide what to give up, economics should drive things. Also many contractors are not the most organized and paper-driven people in the world. Having an administrative person to help with basic job costing, scheduling and other details can be a godsend. To really get the bang for your buck, you need to hire a good person. Remember: A good person is going to be hard to find and you may need to pay a premium. This person should be paid similarly to a lead person who works for you.
A good administrative person will run your life. You need them to stay after you a little and make sure your appointments, job schedules and other details are in order. This person also needs to be on your side and loyal to you. Many contractors start off with a family member helping with this task, frequently a spouse. As the business grows, a spouse may not be the right person. Egos, personal life and other issues come into play. Also if you have family commitments, the spouse may not be able to devote the time you need.
A good office person will do a lot of things for you. One of my contractor friends hired the right person after several failed attempts. On her own, this person cleaned and organized the entire office. Everything was neat but his own sloppy desk. As a boss, he had to clean his act up and participate.
Again, finding a good person can be challenging but the right person will reap great rewards. It may reach the point that you will be handed a palm pilot with everything you need and off you go. Remember that stress is driven by decision making and having someone help cut down on the little minute decisions will allow you to have more time to pursue the bigger picture. It may take a while to find the right person. Someone interested in working in a big fancy office downtown and who wants to dress up everyday is probably not your choice. There are lots of working class folks who are smart and can do a good job for you. Find the right person and it will change your life.