Revenue is exciting, but profit is vital. It has been somewhat common for high-revenue integration companies to fold because they haven’t been able to generate solid profit to correspond with their revenues.
Speaking of “vital,” the guest on the latest installment of the D-Tools “What’s the Buzz” podcast was Matt Bernath, president of VITAL LLC, one of the industry’s top consulting firms. Bernath will be presenting a session at the D-Tools User Conference in Atlanta entitled, “The Top Five Labor Profit Leaks and How to Fix Them.”
In the workshop-style session, attendees will be able to complete some hands-on calculations about their own company’s labor efficiency with guidance from Bernath.
“Essentially what we're going to do is highlight some things about labor, and specifically labor profit, that should be incredibly obvious, but they aren't, because many of us in this industry think of labor as wholly different than the boxes and the product that we sell, but the reality is they're all just things we buy and sell. We buy and sell hours just like we buy and sell product,” he says.
One area in which many integration companies spend way too much time is trying to determine their fully burdened labor costs, according to Bernath. He advocates that dealers not worry about determining their specifically burdened labor costs because that figure fluctuates so often it is not worth the effort.
Among the elements that help determine the full cost of labor are direct costs such as:
Among the elements that help determine the full cost of labor are indirect costs such as:
Then, on top of those direct and indirect costs, you must determine your labor utilization rate, which refers to the percentage of time foreach employee that is billable to a customer. As Bernath notes, the exact costs for calculating this fully burdened costs can change constantly.
“We found a very simple way to accomplish essentially the same thing,” says Bernath. “We've figured out what your pricing should be without worrying so much about the fully burdened cost.”
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