Pay Me Now, Or Pay Me Later
This month we’re going to re-visit hiring and recruiting from the vantage point of a production manager. First of all, let’s consider the cost of capital. Capital comes in many forms - it may be a building, equipment or trucks. It might be something less tangible, such as good will or an established phone number (especially if it’s on thousands of equipment stickers in your market area). Capital can also be a valuable investment which can’t even be sold, such as licensing, experience or special knowledge.
No matter how you slice it, capital is a finite resource. There’s only so much to go around and, unless it’s replenished, this capital is eventually used up.
In the mechanical trades, we have the benefit of another kind of capital which is in the form of plumbing and mechanical codes and design criteria. We have a legacy of research, science and the hands-on experience of all those who went before us. Someone had to figure out the pipe-sizing charts and load calculations which we use daily as we manufacture our product of hot showers, potable water and safe, comfortable environments.
These codes protect consumers’ health and safety, but they also protect our market, which means we need to do our part to support the integrity of code authorities.
No matter how vast our capital resources, they are just a big zero on our bottom line unless we do something with them. We have to “add” labor to our capital in order to produce an income. But it’s not that simple, is it? Adding labor can mean polishing the trucks, sorting the fittings and taking out the trash, none of which directly do anything for our income stream.
The labor and capital have to be leveraged into something valuable to a customer. If customers value the finished product more than our investment of capital and labor, then we earn a profit. Profits can be converted into more capital, wealth or some of both.
The more efficiently we combine labor and capital, the easier it is to produce value and profits. Most contractors understand the role that labor efficiency plays in production. That’s why efficient dispatching, scheduling and job coordination are so important. We all know that time spent behind a windshield adds little value for a customer who is interested in having a cool home or a hot shower.
Although many contractors have little trouble identifying tools and equipment for improving production efficiency, many have trouble recognizing the role that marketing and advertising play.
Marketing And AdvertisingAs mentioned, the trucks can be ship-shape, well-stocked and fully equipped, but until and unless that capital is on a jobsite, it will not contribute toward producing anything of value. The labor of advertising increases the number of opportunities to convert labor and capital into profits and wealth. Without advertising, your shop is just a museum, and not a very good one. Contractors who are growing understand that advertising, and the quality of that advertising, is every bit as important as a field production crew and the quality of that crew.
Understanding the cost, as well as the value of advertising, is difficult. From a contractor’s perspective, we know the importance of hiring qualified personnel. If we do a poor job of recruiting and hiring, we get sloppy, unprofitable workmanship. If we don’t hire at all, we have excess capital just sitting there, costing us more money. The problem becomes acute when we see customers choose other companies because we don’t have someone to send out.
The labor of advertising has its costs and benefits as well. If we don’t have enough calls to keep the capital and labor busy, then we’re probably worse off than if we have calls and not enough people to send. Not only will our capital be sitting idle, we’ll be paying for idle labor as well. On the other hand, if we give our advertising the same attention and commitment as we give to our human labor resources, we can improve the efficiency of both capital and labor.
Don’t underestimate the importance of this: The labor of advertising is part of our labor cost, even if accountants don’t drop it into the “labor” bucket. We pay for advertising in one of two ways: One way is by writing a check to the advertising company. The other way we pay for advertising is through underutilized capital and labor. We may not miss something we don’t actually write a check for (this is exactly why the IRS deducts taxes before workers get their paychecks) but that doesn’t mean we’re not paying for it just the same.
Obviously, advertising isn’t the only item that’s traded for increased labor efficiency but, after looking at scores of budget, I can tell you that it’s one of the most frequently underfunded budget items.
Recruiting And TrainingAnother underfunded budget item is recruiting and training. In the advertising example, capital efficiency is being spent in place of the funds we should be investing in advertising. If we fail to recruit, not only are we sacrificing efficiency, we’re losing capital as well. In coming years, we’ll have plenty of work to do but not enough bodies to get to all of the jobs. As our population ages, there will be an increased demand for our technical services.
At the same time, many of our current batch of professionals will be moving from the workforce and becoming consumers of the services we offer. Our capital is shrinking because we’re using it up without rebuilding it. In order to replenish our professional capital, we have to invest. But the investment doesn’t necessarily have to come from our bank account. What if we could offset recruiting expenses with increased efficiency? Here’s one way to do it.
Savvy business owners have long known that windshield time doesn’t earn much revenue. That’s why they measure efficiency by production, or dollars per daily invoice, rather than number of daily invoices generated. For example, an efficient service plumber might only be able to get to a couple of jobs per day because at each job, the tech takes care of as many customer’s needs as possible, resulting in higher average invoices. A gaggle of progressive contractors will regale each other with their daily average of one and a half to three calls per truck and average invoices of $750-$1,500.
But what if those techs could get to three or four calls per day without sacrificing the average invoice? Instead of sending out trucks with a lone tech/plumber, what if these same high-performance shops put an apprentice on every truck? The average calls per day might not change immediately, but if the apprentice has a future in our business, then it shouldn’t take too long before the team is getting more done each day.
If having an apprentice on board changes the efficiency average from one and a half daily jobs to two daily jobs, even at only $750 per invoice the added sales for the day should more than cover for the cost of the additional labor. The added benefit is that capital (in the form of experience and skill) is being built up, which will eventually increase the capacity for the company. If the company doesn’t hire the apprentice, the lost revenue may not be noticed since the owner isn’t signing checks for the unfulfilled production, but the price is being paid anyway in the form of lost efficiency.
Here are a few of the benefits from this type of forward thinking:
- Increased production efficiency means a better return on capital.
- Quicker job completion makes customers happier.
- More completed jobs per day maximizes the use of our experienced and aging professionals.
- Training young professionals reduces the physical strain on our seasoned professionals.
- Our profession gains a new generation, trained by the current generation.