| Contractors are no different to most businesses. There are basic business management practices that need to be appropriately fulfilled to succeed. Failure to do so will lead to failure. And failure does not necessarily mean, “going broke”. The fact is many firms are “failing” while still managing to remain going concerns despite failing to grow and failing to generate sufficient profits.
Most of these problems have been discussed at length in PEA’s “Small Business Management” Series.
1 Poor Pricing
The only way to establish the right price is to cost correctly. Contractors are not alone in “guestimating” prices – just more liable to fall into the trap. Many contractors have entered the Industry to avoid the paperwork and drudgery of office occupations. If you have made such a lifestyle decision, it can be hard to then force yourself to go through the exercise of proper costing.
However, poor pricing is the main reason any business will fail to generate adequate returns for suitable profits. If this happens it will be unable to grow and will likely fail to provide its customers with suitable services. And “Too High” can be as detrimental as “Too Low”.
If your prices are too high you will likely find it more difficult to get your quotes accepted. And even when they’re accepted, sooner or later the owner/manager will find out what the real “go rate” is. This does not mean that better service does not provide better returns. Just don’t rip people off. It’s hardly the recipe for good, on-going customer relations. High prices reduce sales volumes. This may not be a bad thing (if you’re flooded with work). But rasing prices needs to be managed properly. Too high and sales will drop off too much.
When your prices are too low you also run the risk of having unsatisfied customers.
What?
Cut your margins and you will find yourself cutting corners. This is another recipe for bad customer relations. Sure he’ll be happy when he first gets the quote. But wait until he finds that you are doing less work than he bargained for.
Don’t expect him to stay happy very long. And don’t expect to keep the job long either.
2 Bad Productivity
Productivity is a word that’s thrown about like confetti these days. So much so that is has become a cliché. Clichés are by definition, words that have become so overused that they lose their meaning. This does not make productivity any less important.
As an industry contracting is generally inefficient. For example, there may be long distances between worksites. Or jobs that are close together may need numbers of workers or different skills. Good “routing” can minimise these crew inefficiencies, as can “multi-skilling” employees.
Further productivity gains can be achieved by having the right equipment, properly maintaining it and training staff to use it properly. And having a job plan that maximises the output from them all.
3 Inefficient Work Practices
Productivity is the combination of the right equipment, properly maintained being operated by an appropriate number of well training staff using a job plan that maximises the output from them all.
Would that it were that simple.
In practice, one, or more, or all the above don’t happen.
Gangs containing too many (or too few), untrained people often descend on a worksite with inappropriate, badly maintained equipment and no idea of what jobs need to be done in what order to achieve the best result.
We can blame the staff – but really it’s management’s fault. Gangs should be trained in the most productive work practices.
Get the big mower out and knock a dirty great hole in the job, might seem to be a good idea. But before you do that it’s worth making sure that someone checks the area for major surface debris. Nobody will do much mowing with a unit that’s just hit a block of concrete.
Then follow up (if necessary) with the walk-behind, brushcutter and edger. Meanwhile other gardening jobs and hedgetrimming should be completed as required before the clean-up. Some branches may need pruning. There are potential efficiency gains to be made here too. Trips to a tip can be costly and time consuming. Mulching them on site provides a useful service (possibly income generating) and a substantial saving in gang time and business costs.
Finally the clean up with a blower after removing any large debris.
4 Inefficient Equipment
In PEA October we reviewed the huge potential productivity gains possible through investment in an appropriate ZT mower. This can as much as double mowing output, while potentially reducing the number of operatives on site.
This rule goes across the board. A 21 or 22” walk-behind is 10-15% more productive that a standard 19” deck. A commercial grade brushcutter, chainsaw or blower will go longer without requiring major repairs.
Field observations indicate that equipment accounts for roughly 15% of a contractor’s revenue. Yet equipment can cause 75% of the problems. Often this is a result of the wrong units being used in an application, operator neglect, poor maintenance and/or inappropriate operation. Even the simplest item of OPE requires correct operator training. Assuming someone knows how to use and routinely maintain a mower properly is asking for disappointment.
Even using a piece of equipment in the most productive manner may need instilling. Try to avoid wasted movements. There is no point having ZT manoeuvrability and then go backwards and forwards like you are driving a conventional rider!
5 Cash Flow
“Cash is King” the saying goes.
It is easy to attribute cash flow problems to under-capitalisation. While this may be the case (and often is with small contracting outfits) the truth is that it can also be a result of the invisible financial attrition caused by getting the four preceding factors wrong.
The problem is, as we have alluded earlier, when you are cash-short, the temptation is always there to cut corners. This only serves to make matters worse. Employing people just because they are cheap, buying equipment, just because it is the least expensive, failing to perform all the tasks required in your contract description, will not solve your problem.
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“Go back to Go – do not collect your $200”
Get the basics right in your business. Then having invested in appropriate equipment, increased productivity and costed your work properly take the time to work out a cash flow budget. List your projection of income receipts and outgoings with when they will fall due. This should help you make sure that you can always pay your bills on time.
6 Customer Issues
Customers are the lifeblood of any business. And customer retention is important because it costs nine times as much to acquire a new customer as it does to retain an existing one. However, roughly one-in-five customers really are not worth having. They are the ones who want it all without paying for it.
They don’t pay on time and they complain about your work. It is important to build a relationship with your customers – but you just can’t with these guys.
You are better off without them.
The other 80% are the “Good” customers that you want to develop a good, ongoing relationship with.
How do you manage that?
The first thing is reliability. If you say you are going to do such-and-such next Tuesday, do it and do it then. If by any chance an unavoidable situation means you can’t make that appointment, let them know as soon as you can.
Then make sure that you do what you’re supposed to do. A new customer will naturally check. After a while he’ll be satisfied that he doesn’t need to do that because he can trust you. Trust – now that’s a huge customer issue. Trust means that the client doesn’t need to constantly review each account. Trust means that he can get on with doing what he is good at and leave you to do your job.
Critical to this is your employee attitude. Unless they buy into this behaviour however hard you work to gain trust, they can be losing it for you. Make sure that your staff treat your clients as if they were theirs. Set them a good example. Show them they way you want them to act and then follow this up by treating them that way too. Happy employees will make for happy clients and happy employers.
7 Sales Issues
Most businesses focus on “making the sale”. That is successfully winning the business – regardless. The fact is, not all customers suit your business. There is little to be gained for either party if you win a lucrative 2-acre mowing job when you only have three walk-behind mowers.
The first key is to be selective about which contracts you bid for. Pick the customers that fit the strengths of your business. Do as much research on the customers as they likely will do about your business.
The first thing is to make sure that you’re not dealing with one of those 20% customers mentioned above, who are not worth having. Do your homework. Has there been a high turnover of contractors there? If so why has this happened? Your predecessors may fill you in on why they dropped the contract.
Be professional – but don’t oversell.
Arrive neat, tidy and clean. Show them your qualifications, portfolio and references. But don’t raise their expectations unreasonably. Don’t make promises that you cannot keep. If there is remedial work needed before the lawn or garden will present well, tell them. If you can do the work, tell them. And if it’s beyond your ability, tell them. If you oversell you are going to have an unhappy customer. It’s only a mater of time. And one unhappy client tells over 30 others. Not good.
8 Knowing What a Customer Really Wants
We can become fixated on the idea that all customers want “quality”.
Contractors do this because we think: Quality = Higher Cost = Higher Income. Raise the “quality” and you’ll be able to raise the price. This is not true. Some simply want their property tidied up. Costs and Income are a direct product of the previously mentioned pricing, productivity, equipment time issues. If you have the right gear and the right methods with trained people you’ll spend less time doing it and make more money – regardless of the level of finish the client wants.
You need to know your clients, their needs and their aspirations. You need to develop a close relationship with them. The closer the relationship the better. No clients will be happy with bad work. But not all want the finest finish – particularly if they are going to have to pay substantially more for it.
9 Appropriate Skills
This harks back to effective work practices. Your employees need to be appropriately trained in both operation and technique. PEA has recommended some form of external accreditation (ie licensing) for OPE operatives. It does two things: Fulfils the employers “Duty of Care” in a workplace for OHS and should result in more effective, more productive workers.
Simply knowing how to perform routine maintenance will minimise time lost through breakdowns. It will take a minimum of an hour to drop off a mower at a dealership for repair and return to work. That’s two man-hours for a typical two-man gang. After you’ve properly costed your business, you may find that is well over $100 down the drain. A three-man gang that takes an unnecessary 20-minutes isn’t 20-minutes it’s one man-hour.
Cost your jobs in man-hours rather than time. You’ll quickly see where you are wasting this valuable but limited resource.
10 Operating Systems
This goes back to Item 3. Every business will have staff turnover. Contracting firms particularly suffer from this problem. Whenever new people start a job, they will bring with them their way of doing things. You need them to do things YOUR way. To ensure this you need to have operating systems in place. That is a recognised order of actions for each activity. Do this, then that, then that and then that.
What if it isn’t he best?
Having a system will permit you to evaluate its performance. It will allow you to compare it with other systems. If field experience demonstrates one is superior to another then you can change/adopt it. It also allows you to compare employee/gang productivity and make suitable adjustments.
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