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HRAI19082018a

 For many in the contracting business, there is a lack of profitability. Perhaps the consultants are right. There may be ways to act quickly to change profitability almost immediately, without losing valuable customers.

According to Gary Elekes “Contracting in the 21st century is a complicated business with many moving parts… Get your financials departmentalized and organized, timely and accurate, then move to a method by segment.”

HRAI19082018bWriting in ACHR News, the HVAC profitability analyst identifies pricing well as a key challenge, and suggests that the primary reason the HVAC industry suffers from lack of profitability is the lack of reliable information from accounting systems on which to base pricing strategies.

He points out that if you use blanket markup multipliers or gross profit per man-day, you may be creating a distorted picture that leads to creeping erosion of margins. Instead, the business could be divided by departments, with a clear understanding of the direct costs and overhead within each. On the market side, not all segments have the same cost characteristics or perceived customer value levels. We might consider conducting granular analysis for residential replacements, service labor, service parts sales, service sales, maintenance, new construction, light commercial, and so forth.

He gives the example of working for a company that was not making a profit and that pricing seemed to be the issue. “The choice was to either raise the prices using dual overhead…or stop accepting so many of those style units in high-labor areas. We opted for dual overhead, raised the price, learned to sell better, and presto, the company began making a lucrative profit.”

Here are some pricing strategy guidelines promoted by his company:

The Commandments of Financial Success (© EPC Training Inc.)

1. Define markets you do business in operationally.

2. Establish the new chart of accounts with bookkeeping.

3. Departmentalize the financial statements in those markets at least to the gross profit levels.

4. Adjust your paperwork and forms to account for the new chart of accounts.

5. Train all personnel on the departmental process. Meaning, they need to understand where to put their labor hours, and allocate information on the forms, so the financial data gets allocated properly by bookkeeping.

6. Hold the field and technical personnel accountable for accurate and timely completion of field invoices, time cards, and paperwork.

7. Set clear concise expectations for your accounting and bookkeeping function, to have the reports you need by the 5th of the month. Ask their feedback as to what and how this can be accomplished.

8. Create benchmarks for each department, and for the total company. If you are not sure about what benchmarks, review the industry standards and Key performance Measurements section of the web site.

9. Create performance based pay systems that tie to the employee and departmental benchmarks.

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