• Sign In
  • Create Account
  • Sign Out
  • My Account
  • NEWS
  • PRODUCTS
  • CONTRACTORS
  • ENGINEERS
  • RADIANT & HYDRONICS
  • INSIGHTS
  • MEDIA
  • RESOURCES
  • EMAGAZINE
  • SIGN UP!
cart
facebook instagram twitter linkedin youtube
  • CONTRACTORS
  • BATH & KITCHEN PRO
  • BUSINESS MANAGEMENT
  • HIGH EFFICIENCY HOMES
  • TECHNOLOGY
  • WATER TREATMENT
  • PMC COLUMNS
  • PMC COLUMNS
  • Dave Yates: Contractor’s Corner
  • John Siegenthaler: Hydronics Workshop
  • Kenny Chapman: The Blue Collar Coach
  • Matt Michel: Service Plumbing Pros
  • Scott Secor: Heating Perceptions
  • ENGINEERS
  • CONTINUING EDUCATION
  • DECARBONIZATION | ELECTRIFICATION
  • FIRE PROTECTION
  • GEOTHERMAL | SOLAR THERMAL
  • PIPING | PLUMBING | PVF
  • PME COLUMNS
  • PME COLUMNS
  • Christoph Lohr: Strategic Plumbing Insights
  • David Dexter: Plumbing Talking Points
  • James Dipping: Engineer Viewpoints
  • John Seigenthaler: Renewable Heating Design
  • Lowell Manalo: Plumbing Essentials
  • Misty Guard: Guard on Compliance
  • RADIANT & HYDRONICS
  • RADIANT COMFORT REPORT
  • THE GLITCH & THE FIX
  • INSIGHTS
  • CODES
  • GREEN PLUMBING & MECHANICAL
  • PROJECT PROFILES
  • COLUMNS
  • SPONSOR INSIGHTS
  • COLUMNS
  • Codes Corner
  • Natalie Forster: Editorial Opinion
  • Guest Editorial
  • MEDIA
  • PODCASTS
  • VIDEOS
  • WEBINARS
  • RESOURCES
  • INDUSTRY CALENDAR
  • DIRECTORIES
  • EBOOKS
  • PM BOOKSTORE
  • CE CENTER
  • MARKET RESEARCH
  • CLASSIFIEDS
  • EMAGAZINE
  • EMAGAZINE
  • ARCHIVE ISSUES
  • CONTACT
  • ADVERTISE
  • PME EMAGAZINE ARCHIVES
search
cart
facebook instagram twitter linkedin youtube
  • Sign In
  • Create Account
  • Sign Out
  • My Account
  • NEWS
  • PRODUCTS
  • CONTRACTORS
    • BATH & KITCHEN PRO
    • BUSINESS MANAGEMENT
    • HIGH EFFICIENCY HOMES
    • TECHNOLOGY
    • WATER TREATMENT
    • PMC COLUMNS
      • Dave Yates: Contractor’s Corner
      • John Siegenthaler: Hydronics Workshop
      • Kenny Chapman: The Blue Collar Coach
      • Matt Michel: Service Plumbing Pros
      • Scott Secor: Heating Perceptions
  • ENGINEERS
    • CONTINUING EDUCATION
    • DECARBONIZATION | ELECTRIFICATION
    • FIRE PROTECTION
    • GEOTHERMAL | SOLAR THERMAL
    • PIPING | PLUMBING | PVF
    • PME COLUMNS
      • Christoph Lohr: Strategic Plumbing Insights
      • David Dexter: Plumbing Talking Points
      • James Dipping: Engineer Viewpoints
      • John Seigenthaler: Renewable Heating Design
      • Lowell Manalo: Plumbing Essentials
      • Misty Guard: Guard on Compliance
  • RADIANT & HYDRONICS
    • RADIANT COMFORT REPORT
    • THE GLITCH & THE FIX
  • INSIGHTS
    • CODES
    • GREEN PLUMBING & MECHANICAL
    • PROJECT PROFILES
    • COLUMNS
      • Codes Corner
      • Natalie Forster: Editorial Opinion
      • Guest Editorial
    • SPONSOR INSIGHTS
  • MEDIA
    • PODCASTS
    • VIDEOS
    • WEBINARS
  • RESOURCES
    • INDUSTRY CALENDAR
    • DIRECTORIES
    • EBOOKS
    • PM BOOKSTORE
    • CE CENTER
    • MARKET RESEARCH
    • CLASSIFIEDS
  • EMAGAZINE
    • EMAGAZINE
    • ARCHIVE ISSUES
    • CONTACT
    • ADVERTISE
    • PME EMAGAZINE ARCHIVES
  • SIGN UP!
Columns

Benchmarks - Part Two
Randall Hilton

By Randall Hilton
May 1, 2005
Production benchmarks give your customers more options and give your techs something to shoot for.

Last month we discussed how production should be the number one benchmark you track for operational success. You can find last month's column here. Let's delve into your production benchmark a little more.

Think of your company as a factory. Your primary product is customer service (this is true even if you're in the construction business). Plumbing, heating and/or air conditioning may be the “boxes” in which you deliver customer service, but you're still producing customer service.

Deciding what constitutes a unit of service is part of your job as the production manager. As mentioned last month, if you're a flat rate contractor, your price books are based upon a given number of production units per year, my preference being 1,000 units per truck per year. If you charge by the minute, you might use 1,500 or more units per year, even though many of those production units have more to do with driving a truck than they do with customer service. This will become your production benchmark.

Whatever production unit you use, remember that your cost of production must be divided by the number of production units you can produce.

Beating The Benchmark

Once you've defined your benchmark, you have a target to shoot for. Before you can beat the benchmark, however, you have to have standards in place. One way is to make sure your plumbers/techs use task numbers for all jobs performed. Each time an invoice is created, add up the number of production units delivered according to the “labor” quantity in the tasks. (This is why it is important that you consider your price book system when determining your annual production target).

Note: If you're a T&M contractor, just make sure your plumbers/techs are billing enough hours to meet the production standard.

Dividing overhead costs by producing more units is how factories lower prices and increase profits. The same holds true for PHC “factories.” To beat the benchmark and improve profits, all your plumber/tech has to do is deliver more production than called for in your budget. For example, if you settled on an annual goal of 1,000 units per truck, you may have set a goal of 20 production units per week. If your plumber/tech delivers 20 production units or more, you're in the high profit zone. Less than 20 and your profits are eroding because you're not producing enough “boxes” to cover all the overhead.

How Production Benchmarks Improve Business

Many contractors like to look at the average sale as a sign of good performance. High average invoices are nothing to sneeze at but with a production focus, you have more options to offer customers. A repair produces production units, maybe even more production units than some replacements, even though the selling price is a bit lower. Your company is profitable if you deliver the “boxes” regardless of whether they repair or replace. Either way, your customer made a great choice because they chose you to do the work.

Once your production standard is set, other benchmarks can be created with confidence.

A sales benchmark is the gravy on top of the production benchmark. I am convinced that to find the happiest customers in your files, look for the ones who have spent the most money. But in a production environment, sales is not the lone performance benchmark. There's not as much pressure to push for a big ticket when other options are available so you can set a lower gross sales benchmark. Your sales benchmark should present an achievable goal to your lower performers while providing your top performers the recognition and compensation they deserve.

A simple way to do this is to set your sales benchmark by using the current company average. There is one very important rule about sales bonuses: Bonuses should not kick in until the production goal has been met. Remember, falling short of the production benchmark means overhead is being paid out of your profits. On the other hand, once the production benchmark has been achieved, you can offer fairly liberal bonuses on sales and production. That's when it's fun to hand out checks, cash and awards.

Some Benchmarks That Don't Matter

There are two benchmarks that you don't need to worry about:

  • Labor as a percentage of sales - If your people hit their production goals and are using the pricing you put into place, then the labor percentage is nothing but a statistic. A much more important number is simply the base rate of pay used in your budgeting process. If you budgeted $50,000 per plumber/tech before bonuses, yet in real life you're paying $55,000 before bonuses, you either need to cut their pay or increase the base labor cost in your budget. Note: One of these choices will result in an empty shop, so choose wisely.

  • Materials as a percentage of sales - As I mentioned last month, the plumber who sells more toilets will have a higher material percentage than the plumber who sells more flappers. The benchmark materials number should be, and I rarely hear it mentioned, the budgeted cost of materials. Every task in your price book has a material budget of some sort. Simply track this number, just like you would track selling prices or production units. If the cost of keeping your plumber/tech restocked is less than or equal to the budgeted cost of the tasks he has delivered, then the main thing you need to worry about regarding inventory is making sure your trucks stay stocked. If the cost is creeping above the budget, then start looking to see if the right tasks are being used. Also make sure the right costs and the right quantities are included in each task.

    Your Producers Understand Production

    Start talking about increasing billable efficiency, gross profits and lowering labor percentages and you'll see the glaze creeping across the eyes of your service professionals. These percentages are nebulous concepts that are difficult to visualize. Production benchmarks are something service professionals can sink their teeth into. Talk about who can set the most toilets, troubleshoot a pesky boiler or find leaks the fastest and you'll get more interest because production is the result of getting things done. What's even better, the more production you have, the more service you've delivered to customers.

    Trust is another factor that comes with production. If you base performance bonuses on percentages, factors, efficiencies or other calculations, you open the door to manipulating the numbers. You and I both know you wouldn't stoop so low, but we also would agree that it's much simpler to just count boxes. That's what you do when totaling up your production units. Your service professional will always know where he or she stands in the hunt for bonuses because he or she is dealing with “real” numbers rather than fuzzy percentages. Keep in mind that your production benchmark creates a very tantalizing carrot because exceeding it will unleash the production bonus as well as the sales bonus (if you create such a system).

    Another benefit of the production benchmark is that it applies to the entire company. If you have a weekly benchmark of 20 production units per truck and you have five trucks, then the company benchmark is 100. Everyone from your call taker to your warehouse clerk can get on board with helping your service staff deliver the production. They can watch the numbers add up by the hour and, with your coaching, can begin to support the effort. Production is much more tangible than percentages.

    This is what benchmarking is all about, setting standards that actually help your company grow and improve so make sure the benchmark fits your company, not some “going rate.”

    Attention plumbers! Want a free business tip delivered weekly to your inbox? Join Randall's fun and informative Plumb-Biz list. Each week we include a tip for your plumbing business, share a tirade or two and give members a chance to sound off as well. Don't worry, you won't be hammered by advertisements and your e-mail address won't be added to a spam list. To join, simply point your browser to www.plumb-biz.com. We've been growing by the hundreds!

  • Share This Story

    Looking for a reprint of this article?
    From high-res PDFs to custom plaques, order your copy today!

    Visit Randall's Web site at www.UpFrontPrice.com or e-mail him at Randall@upfrontprice.com.

    Recommended Content

    JOIN TODAY
    to unlock your recommendations.

    Already have an account? Sign In

    • Worker using the Milwaukee Tool SWITCH PACK drain cleaner

      Pipeline profits: Drain cleaning, pipe inspection create opportunities

      Drain cleaning and inspection services offer lucrative...
      Plumbing News
      By: Nicole Krawcke
    • Uponor employee, Arturo Moreno

      The reinvestment in American manufacturing and training

      Plumbing & Mechanical Chief Editor Nicole Krawcke and...
      Plumbing News
      By: Nicole Krawcke and Natalie Forster
    • March 2024 Women in Plumbing hero image of woman engineer overlayed by circle of hexagon shapes with numbers from 1 to 10

      Celebrating 10 Influential Women in the Plumbing Industry

      Celebrating Women's History Month and Women in...
      Plumbing News
      By: Nicole Krawcke
    Subscribe For Free!
    • eNewsletters
    • Online Registration
    • Subscription Customer Service
    • eMagazine
    • Manage My Preferences

    NIBCO Press Solutions

    NIBCO Press Solutions

    IPEX celebrates grand opening of new Florida distribution center

    IPEX celebrates grand opening of new Florida distribution center

    Bell & Gossett Illustrates Path to Net-zero at AHR Expo

    Bell & Gossett Illustrates Path to Net-zero at AHR Expo

    AI can boost efficiency and profitability for plumbing, HVAC contractors

    AI can boost efficiency and profitability for plumbing, HVAC contractors

    More Videos

    Sponsored Content

    Sponsored Content is a special paid section where industry companies provide high quality, objective, non-commercial content around topics of interest to the Plumbing & Mechanical audience. All Sponsored Content is supplied by the advertising company and any opinions expressed in this article are those of the author and not necessarily reflect the views of Plumbing & Mechanical or its parent company, BNP Media. Interested in participating in our Sponsored Content section? Contact your local rep!

    close
    • J.J. Keller CMV vehicles on road
      Sponsored byJ. J. Keller & Associates, Inc.

      The dash cam game-changer for small business safety

    Popular Stories

    Underfloor heating installation with drain sewer hole in bathroom close up on water floor heating.

    Using hydronics to leverage time-of-use electrical rates

    Watts Nexa mobile image

    Behind the Wall: Where smart plumbing gets smarter

    Six tankless water heaters that feed the nutraceutical manufacturer’s operations.

    How to deliver large volumes of hot water quickly and intermittently

    PMCE Home-X April 29 Free Webinar: From Legacy to Leadership: Preparing Your Home Services Business for the Next Generation

    Events

    November 13, 2024

    Future Proofing MEP: Navigating the 2026 High Efficiency Water Heating Standards

    Join our deep dive into DOE’s new standards so you can future-proof your MEP practice.

    EARN: 0.1 ASPE CEU; 1 AIA LU/HSW; 0.1 IACET CEU*; 1 PDH

    View All Submit An Event

    Poll

    Will business be up or down in 2025?

    Do you anticipate business in 2025 to be up or down in comparison to 2024?
    View Results Poll Archive

    Products

    The Water Came To A Stop

    The Water Came To A Stop

    See More Products

    Download the FREE Water Conservation, Quality & Safety eBook: Plumbing Trends Increasing Safe Water Availability

    ×

    Keep your content unclogged with our newsletters!

    Stay in the know on the latest plumbing & piping industry trends.

    JOIN TODAY!
    • RESOURCES
      • Advertise
      • Contact Us
      • Directories
      • Store
      • Want More
      • Supply House Times
    • SIGN UP TODAY
      • Create Account
      • eMagazine
      • eNewsletter
      • Customer Service
      • Manage Preferences
    • SERVICES
      • Marketing Services
      • Reprints
      • Market Research
      • List Rental
      • Survey/Respondent Access
    • STAY CONNECTED
      • LinkedIn
      • Facebook
      • Instagram
      • YouTube
      • X (Twitter)
    • PRIVACY
      • PRIVACY POLICY
      • TERMS & CONDITIONS
      • DO NOT SELL MY PERSONAL INFORMATION
      • PRIVACY REQUEST
      • ACCESSIBILITY

    Copyright ©2025. All Rights Reserved BNP Media.

    Design, CMS, Hosting & Web Development :: ePublishing

    search
    cart
    facebook instagram twitter linkedin youtube
    • Sign In
    • Create Account
    • Sign Out
    • My Account
    • NEWS
    • PRODUCTS
    • CONTRACTORS
      • BATH & KITCHEN PRO
      • BUSINESS MANAGEMENT
      • HIGH EFFICIENCY HOMES
      • TECHNOLOGY
      • WATER TREATMENT
      • PMC COLUMNS
        • Dave Yates: Contractor’s Corner
        • John Siegenthaler: Hydronics Workshop
        • Kenny Chapman: The Blue Collar Coach
        • Matt Michel: Service Plumbing Pros
        • Scott Secor: Heating Perceptions
    • ENGINEERS
      • CONTINUING EDUCATION
      • DECARBONIZATION | ELECTRIFICATION
      • FIRE PROTECTION
      • GEOTHERMAL | SOLAR THERMAL
      • PIPING | PLUMBING | PVF
      • PME COLUMNS
        • Christoph Lohr: Strategic Plumbing Insights
        • David Dexter: Plumbing Talking Points
        • James Dipping: Engineer Viewpoints
        • John Seigenthaler: Renewable Heating Design
        • Lowell Manalo: Plumbing Essentials
        • Misty Guard: Guard on Compliance
    • RADIANT & HYDRONICS
      • RADIANT COMFORT REPORT
      • THE GLITCH & THE FIX
    • INSIGHTS
      • CODES
      • GREEN PLUMBING & MECHANICAL
      • PROJECT PROFILES
      • COLUMNS
        • Codes Corner
        • Natalie Forster: Editorial Opinion
        • Guest Editorial
      • SPONSOR INSIGHTS
    • MEDIA
      • PODCASTS
      • VIDEOS
      • WEBINARS
    • RESOURCES
      • INDUSTRY CALENDAR
      • DIRECTORIES
      • EBOOKS
      • PM BOOKSTORE
      • CE CENTER
      • MARKET RESEARCH
      • CLASSIFIEDS
    • EMAGAZINE
      • EMAGAZINE
      • ARCHIVE ISSUES
      • CONTACT
      • ADVERTISE
      • PME EMAGAZINE ARCHIVES
    • SIGN UP!