George got Blindsided
George runs a shop that he started with his partner 33 years ago. (’86 to be exact)
His partner passed away a few years ago and he’s kept things going. But- as he told me- things have been flat and declining a bit in the business. Where his average job used to be well over 120k, for the last 2 years, a normal job now is 100k-ish.
How does that make sense?
He tells me things that I hear a lot from other guys in the industry….. Costs are going up. Material prices are what they are. Labour rates are going up, and “the new guys” are just killing me on price. (There’s a certain amount of “W-T-F” in his voice but he doesn’t say it out loud)
Frustrating- isn’t it?
It’s easy for me to tell that George’s shop does fantastic work. Even though it’s old and outdated, his website has pics of jobs that anyone would envy. Big, complicated jobs, with a million angles and matched veneers- and they look flawless. He has loads of awards. His top guys are all solid. How can this be?
How am I losing deals that I know I should get?
Look- I don’t know how to answer that for you- but I can pass on some things you need to know. NOW. A short history lesson you already know:
- Shops that started in the 70’s and 80’s went through a ton of cost and struggle to put computers in place and use the software. They built their company on new ways of doing things (and still do it that way today). The phone system alone would have cost them 20-100K.
- Shops that started in the late 80’s and 90’s had it different. Computers and software were normal to them. The big decision was “what software?” A phone system in the 80’s still cost 20-100k, but by the 90s it was down to 10k-ish.
- A shop that starts (or re-invents itself) from the late 90’s to today has ridiculously low costs for computers, software, phones…and PEOPLE. It’s all in the cloud, and software is paid for on a monthly subscription
Huh? How are they getting PEOPLE cheaper than me?
This is the trend that’s smacking you in the face every time you lose a deal. When you lose a job, shake your head and say… “How the $#%^& were we high on that job?” this is certainly part of the answer.
Woodworking already changed. When is it your turn?
Look, working with wood is beautiful. Geez, even sawdust from melamine sheets smells good. Wood feels good. It bends to our will. What’s not to love?
Forget the floor and the smell of sawdust. You need to focus on the office. The biggest secret that’s losing you deals is your fixed costs and turnaround time invested in PEOPLE. The word is Subcontracting. Subcontracting is the exactly the same as you doing work for ABC Megacorp.
The fancy word for it today is “outsourcing”- and a lot of it is being done offshore.
Why outsource? Because you can subcontract little pieces of work to other people who are cheaper and faster than your team is. You don’t have to let any of your team go. What other shops are doing is getting their guys to do more estimates and outsource the donkey-work.
Your fixed cost of estimating a job now becomes a variable cost, and you bid more jobs, faster.
A few quick examples. I’m going to show you some full-time wages for Nebraska, USA and Ontario, Canada. To each salary, you need to add a MINIMUM of 0.25c/hour for benefits and payroll taxes. (ask your business coach or accountant about this-it’s called your “burden rate”)
Then I’ll show you the rates I found on Upwork.com. You hire these people hourly, per project. NO burden. NO desk. NO vacation worries.
* average salary from Indeed.com (salary + burden rate of taxes and benefits)
(1) from Canadian Business Magazine
(2) from Upwork.com
Ok. See what’s happening here? In your shop, you have a full-time person doing Drafting and 3D work. He’s on salary so he works at his own pace, right? Lets say he costs you $25/hour, plus burden for a total of approx. $62,500/year. Fixed cost. Fixed pace. He gets paid whether you’re busy or not. He gets paid before you. When you bid a job his cost goes into your bid as part of your overhead. If he WINS YOU 2 jobs a month, his cost is $62,500/ 24 jobs , or $2600/job. You add that into every bid you submit.
Now, look at a subcontractor from Upwork. He or she is paid to produce. Just like a GC pays you. They want to do your job fast and do it well, (so that you give them more jobs). If you use what you pay a full-time employee as a budget you have $2600 available. Let’s go to the top range and use the $90 Contractor. That’s 2600/90 = 29 hours of drafting and 3D on a job.
29 hours is a lot of work. But there it is. Can you use that info to shave off a few bucks, or add to your profits?
On my podcast I just interviewed Nick from Kiev, Ukraine. His company has 300 staff who pump out over 500 jobs a week! To give you a small kitchen in 3D is approx. $500. Flat. No vacations. No desk. No bonuses. Just output.
The new way of doing things is to outsource to subcontractors. Your fixed overhead drops and becomes variable by the job. Once you have your subs figured out and trained, you’ll know how tight you can bid a job and still win it with profit.
And now you know the answer to “W-T-F? How can we be high? Why are we losing jobs to other guys?”
I hope this all makes sense because this is probably the single most important article you’ve ever read.
If you have questions, concerns, or you just want to vent- give me a call. I’m happy to help. Use this link to book a 20-minute phone call with me.