We talk to a lot of executives who feel like they’re wasting money.
They struggle to get accurate figures for job costs. They worry they don’t have a solid process for measuring work output. They’re afraid their field team’s daily reports don’t line up with the project’s actual status.
And they might be right, too.
In an episode of our Power to the Trades podcast, STACK Construction Technologies CEO Phil Ogilby noted that, on average, two in three trade contractor businesses will fold in their first five years.
There are a variety of reasons why a given business doesn’t succeed, but in our experience a prime culprit is the executive team’s inability to get a big-picture view of job costs and work outputs.
In other words, they’re wasting money, and they don’t know why.
Let’s answer some of those questions here. Below are four things trades executives can track with hard data to get that big-picture view of how their businesses are doing.
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The viability of any business depends on the number of people who become customers.
In trades businesses, this is measured with the bid-hit ratio. This number lets you compare the number of successful bids versus the total number of bids you submit. If every bid you submit were successful, that number would be 1:1. More realistically, you will be looking at ratios like 1:5, 1:10 or 1:20.
Businesses in every industry track some version of this number. Retailers, for example, compare the number of people who pass by the storefront against the number of people who walk in and buy something.
What Affects Bid Success?
Several factors, many of which are out of your hands.
For example, you might have a local general contractor who always works with the same electrical subcontractor for every job. If yours is an electrical business, you might never win a bid from that GC through no fault of your own.
What you can do, however, is learn your market so that you’ll know where the opportunities lie.
“Never bid jobs without meeting the decision maker,” business coach George Hedley writes. “This is my biggest piece of advice for private construction work. When you meet, ask if he or she will negotiate, who else is bidding, who was used on their last five projects, how the bids will be opened and reviewed, what the selection criteria is and what the most important factor is in determining who they will hire for the work.”
And if your bid-hit ratio seems lower than you would expect, it might be time to check the accuracy of your estimates, the team at CEM Contracting writes. See how high or low your estimates are relative to what your competition is quoting.
Where Do You Find That Data?
For bid data, public records are a good source of intelligence.
Every U.S. state has some kind of regulation governing the procurement of services and how transparent both parties — the state and the contractor — need to be. Your state’s procurement website is a great starting point for seeing what other businesses are quoting for the work your team does.
For example, here is a list of all public contracts between contractors and the Commonwealth of Virginia. If you click on a given project, then click on any of the proposals in the Documents column, you’ll find that the contractors list some of their previous jobs and the monetary value of that work. Information like this can help you determine whether the bids you’re sending out are in the same ballpark as your competitors’.
As a rule, you can break your job costs down into three groups: Labor, materials and overhead.
- Labor costs include worker pay, but also things like workers comp and any taxes you have to pay as an employer. You are likely already tracking these costs on multiple levels with time cards and payroll.
- Materials costs include all of the materials you have to purchase to do the work the project requires. You are likely tracking this spend somewhere, too, and probably have stacks of receipts to confirm your materials costs.
- Overhead costs include all of the things it takes for your business to exist — rent for an office space, recurring monthly bills, taxes, etc. These are all things you are tracking, as well.
What Affects Job Costs?
Too many factors to list here.
If you need to scale up your field crew from 10 people to 20 people for a project, your labor costs will go up correspondingly.
If the price of lumber goes up suddenly, carpenters and framers will see their materials costs rise.
If you have to open a second office to accommodate your company’s growth, then your overhead costs will go up.
Where Do You Find That Data?
With job costing, most businesses have all of the data they need to calculate how much they’re spending on a project.
The problem is that information may not be grouped in a central location and organized. Job costing software solves that problem by organizing and categorizing costs, then translating those into real-time business data so that trades executives can see at a glance where the company’s money is going.
Without such a tool, subcontractors will have to manually comb through time sheets, receipts, reports, balance sheets and any other number of documents to get a sense of their job costs.
Quality of Work
Work output is one of the hardest things to measure with data because “quality of work” sounds like a subjective measure.
But there are plenty of dimensions of work you can measure with precise numbers. We wrote about this in our guide to construction KPIs, which include things like:
- Number of defects.
- Time taken to fix any defects.
- Number of site inspections conducted, and number of inspections passed.
What Affects Quality of Work?
That’s a big question, and not an easy one to answer.
In the U.K., there’s an organization called CIPD that publishes an annual Good Work Index to determine the quality of work the entire U.K. economy is producing. CIPD lists a handful of key factors that determine the quality of work in any given industry or trade. Those include “employment legislation, labour market conditions, HR practices, the quality of people management and by workers themselves.”
Those first two factors are out of the control of any one business. The quality of workers themselves is a function of hiring: If you hire skilled people, then you can have a base level of trust in whatever work they do.
That leaves HR and management, both of whom would ideally have the same goal: To set their people up for success by providing them with whatever tools, processes and security they need to focus on the job at hand.
Where Do You Find That Data?
This is all data that goes into daily and weekly reports that a foreperson writes and sends to the office team.
If your company’s documents are all stored in a single, accessible location, that should be the first place you look whenever you see an uptick in defects, or when the ratio of site inspection passed to total site inspections begins to lean too far in the wrong direction.
Big-Picture Business Performance
Here’s where everything else you track comes together into bottom-line realities of how your trades business is performing. You’re tracking dollar amounts at this point.
And that’s why businesses have accounting and accounting departments. They’re the people tasked with tracking things like cash flow, revenue and expenses, and profit and loss.
The team at FreshBooks writes that a basic review of any business start with an assessment of:
- Cash flow.
- How much working capital the business has.
- The value of the company’s assets.
- The company’s rate of growth.
What Affects Business Performance?
Everything. Every process you optimize, every happy customer, every new hire has some kind of impact on your company’s bottom line.
You can’t optimize any one thing to improve your cash flow or your profitability. At this level of analysis, what you’re doing is assessing the overall health of your business. If something looks off, that’s the first in a series of clues you’ll need to gather to determine what’s not working.
Where Do You Find That Data?
Your accounting software.
Ideally, that software would not exist in a silo, either, but integrate with some of your other tools so you can clearly see how something like better project management leads to more successful bids, which then leads to more revenue and more profitability.
The Case for Construction Data Analytics
When you put all of these things together, you get a picture of how good data can improve your estimates and forecasting, your planning and your project delivery. All the while, you gain an ability to track project progress in real time, which helps trades executives make better business decisions more quickly.
If operational issues like field-to-office communications, documentation and timecard management are putting a drag on your business’s performance, eSUB Construction Software could be the right tool for your team. Contact us today to schedule a demo.