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Making any money on labor?


Nobody is going to be in business without making some level of margin; however, in the service business, margin on labor without anything else is not that great. Many service companies need to have parts, new equipment, or replacement equipment included in their work scope in order to see the type of margins we need to run our fairly inefficient businesses. It begs the question "why don't you just take longer"? Besides it being morally wrong, we still could not make enough margin, frankly if we took two hours and our competitors took one hour we would not be in business very long. So, what do you do, should you keep providing labor with shrinking margin expectations as competition enters the market? Or, do you think about how you apply labor differently.



For many organizations, they feel that they have a safe position by defaulting to a time and materials approach.  Hey, the risk is low for the service organization, if they take a little bit longer, nobody is the wiser and the customer generally pays.  I would say that recipe may have worked years ago, when information was not being collected and leveraged as it is today. If you believe that your company is productive and run efficiently, push more towards risk-based contracts. The customer gets a predictable cost and the more efficiently that you can operate within that scope the generally the higher the margin. Continuing down our current path is going to do nothing more than challenge us to figure out how we can survive on these dwindling margins. Instead we need to change the game, full risk contracting has been in place for many years, get your house in order and attack it with fervor.



You can change the story, and drive additional margin into your business.  Take the time to shore up your operations to ensure that when you enter the risky arena of full risk contracts you come out the other side making a profit. Good luck.



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Next post:  taking the time to build a balanced scorecard?

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