Today’s business environment requires companies to be more savvy than ever to attract new customers. Perhaps the biggest method to do so is to offer your services at the same or higher quality as others but at a lower cost. One way to profitably price your services lower is to properly manage and plan for project costs.
Dave Peters, CR, CLC, production manager with Glenview, Ill.-based Callahan & Peters Inc., relies on software and detailed time cards to track and manage expenses. At the onset of each project, Peters inputs known data, such as carpenter and laborer costs, into HomeTech Advantage Estimating Software. “We can start by managing the cost straight out from the estimating point,” Peters explains. The company also uses QuickBooks and Excel spreadsheets. Once the job is underway, Callahan & Peters employs a purchase-order system. When materials are purchased or subcontractors are hired, a purchase order is issued. This system keeps track of every cost with the exception of in-house labor, which is kept by time cards.
The time cards divide work into 27 categories, each of which is further broken down into about 10 subcategories, making for approximately 270 options. Categories include plumbing work or electrical work, and examples of subcategories are planning, site preparation, excavation and wall framing. Employees round their time estimates to the nearest 15 minutes. “The time card breaks it out so we know how much time they’re spending in which category, almost down to which screw they’re turning in,” Peters says. “It helps when we run a job autopsy at the end of the jobs and we can see where our crew spent too much time or not enough time. The time cards are a huge factor in managing all of our costs.”
One area Peters has noted is heavy on time is material handling. Solutions include combining trips to a supplier or hardware store for multiple jobs and electing one person to make the trip. Peters says some people don’t understand how much time is devoted to material handling until they see the time-card reports. “Once you can show them actual data of how many times they’re running to a store in a given week and they see the data, then they say, ‘We need to do a better job of working together,’” he states.
Material costs vary based on the type and the customer’s budget. “Customers have a say in finished material costs, such as the tile and appliances,” Peters says. “They aren’t always completely forthcoming with their budget, though, so it does get hard to manage those expectations.” As far as building materials, like 2 by 4s and wire, customers do not have a say. Peters manages those behind-the-scenes costs, often relying on experts to choose the best and most economically sensible product. “I usually lean on the electrician for electrical work; he is a really good electrician who is very frugal, which I think a lot of business owners are,” Peters asserts. “If you get someone who has a stake in the business and they’re also looking to improve their bottom line, one of the ways is to hold material costs down as far as we can. Then, we can turn around and give those savings to the customer and we can compete with some of these guys out here. There are so many people trying to make it on their own today that it gets really hard to price things low and still be able to maintain our overhead and be competitive.”
Peters says swinging 10 percent above estimated costs on a job is a big number. If Peters sees a swing of 2 or 3 percent, he takes action. “We’ll see where we can cut back in other areas to make up for it,” he says. But he does stress there is a fine line between cost control and quality. “The one thing that will never suffer for cost control is quality. If that means we need to spend more money to turn out a quality project and keep a customer happy, then we’ll do that. The benefit and end result are a lot better than ruining the relationship for a few dollars.”