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Find the Time

How much time does your company spend (and squander) on certain projects?

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Recently, we reviewed our 2005 job costing, which yielded some surprising information. The last few years, I've never completely evaluated job costing for every job for an entire year. For several years in which I dealt with geriatric parenting and other stressful side issues, I costed one month per year. This told me enough to keep pricing current. Or so I thought.

During 2005, I costed interesting jobs, large projects and those I felt we severely under- or overbid. I overlooked the small, insignificant, "10-minute" jobs.

Because our income is down, I decided to job cost the entire year — every job and customer, and 126 active codes. Until I had the results firmly in hand (this isn't easy when done retroactively), I blamed the cost of new equipment and my erratic (and limited) work time (barely 40 hours a week) for the income loss. The previous year, I blamed the time, much of it personal, spent out of town.

I was wrong.

Of the 386 jobs completed for 189 customers, the 79 that netted more than $100 per costable hour saved our necks, or at least our credit rating. However, if we had broken even (or better) on the 148 jobs that lost money, our net income would've more than doubled. So, I initially evaluated these "losers."

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Red flags

First, we disregarded the 37 jobs that continued through the next year. These costs, which won't be losses, transfer to 2006, when the jobs will be completed and invoiced. We also isolated the two warranty repairs on 2004 projects (transformers can fail). Although the manufacturer warrants the replacement, the labor (and overhead) is our loss. This drops the total to 109 losses.

After we assembled the figures (and after I convinced Kent to sit down and do this), Kent evaluated every job that lost money, and we decided how to solve the discovered problems. No loss can be blamed on the customer.

Careful analysis, however, revealed several "red flags" (Table A). Note that the COH in every table category is positive, which proves pricing problems lie in time, not cost. Hopefully, our losses (and this article) will save others from making the same mistakes.

Shop minimums

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Smith Sign Studio costs hour to every job (additional to the time clocked on the job) to cover communication, bidding, selling, invoicing, billing and collecting, or any related task that's often overlooked or difficult to isolate. This eliminates dividing income by 0 hours on a particular job (which is a mathematical impossibility).

However, we don't (or didn't) add the cost of this hour to the job price. Our shop supposedly charges a minimum $25 labor charge for all jobs, even those in which we invested no time or materials (we actually had six of those this year). We based that charge on the assumption our hourly rate will break even. We waive the minimum for VIP customers, who bring us considerable work. Losses on a few, small, incidental jobs can be buried in the overall gain.

We invoiced 26 jobs under the minimum (18 were VIPs), and only one produced income ($1.55). Only two of the seven jobs that charged the minimum showed a profit (less than $5 each). Thus, we'll definitely add the $12 that covers -hr. overhead to each invoice, and the new minimum, $33, will keep pace with rising costs.

Of course, VIPs (including our customers who are signshops) will continue to be exempt from minimums – after all, every VIP customer is profitable. Neverthe-less, 33 losing jobs become profitable if new overhead charges and minimums are carefully and consistently applied.

This drops the count to 76 losses.

Recordkeeping needs attention

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Next, we excluded two categories in which overhead costs were unavoidably buried in direct time. A new piece of equipment had been "acting up," which required phone calls to, and two visits from, the "Tech." Although these visits didn't cost us money, we lost time. Beta testing, whether intentional or not, has its downside.

Also, we've been training a new employee (our granddaughter). Her unsupervised jobs (she began working unsupervised in 2005) take longer, but still must support the same, $48.39-per-hr. overhead cost. Our granddaughter now produces profitable work on her own, so the investment was worth it.

Sometimes we spend too much time "visiting" with the customer, either for marketing purposes, or simply because we need a break. Customers must be educated in what we can do, and this generally benefits us in the long run, but it's marketing, not costable, time.

Also, family time isn't free. We recently lost money on a job because my siblings, who were visiting, "watched Kent's new machine work." Time is more valuable than money.

We intend to isolate superfluous time as personal time when we combine work and play. Our granddaughter calls this "half-working." Sometimes our employees also mix work and break time. We've finally admitted we can't afford to pay employees for unlimited breaks. We tell our office staff they can't "half-work" for full pay and shouldn't record non-costable work activities on jobs for customers.

Every shop makes such clerical mistakes as mathematical or typing errors, or "missed" ingredients (time or expense) on invoices. Typing a "3" instead of a "5" cost us $200 on one job. In the future, two individuals will check the pricing before we deliver a bid or final price. Perhaps a second set of eyes will catch these mistakes.

The count is now 52 losing jobs.

A few, ongoing contracts, for trucks and property rentals, must be adjusted. We tend to allow these to run their course, until we pay, through overhead, to do the job. Letterhead "how-to-host-a-meet" books fall into this category (intentionally), and, this year, we netted 6 cents a booklet — not including the time it took to update it. Also, non-signmaking, contractual jobs – for which we must plan to lose or restrict the time we invest — include teaching classes for organizations, which rarely fully cover the expenses, and this very article, which I must learn to write faster if I want to break even.

I'm looking for a creative (and practical) way to redistribute overhead – even insurance rates vary enormously. Until I establish a system, these jobs count as a loss, even if we knew that upfront.

Also included here are the inhouse pricing "systems" used until something happens to call our attention to the need to update. We all know these should be reviewed every year. Also, using old, out-of date pricing costs us, as it did on 13 jobs.

Remainder: 30 jobs.

We spotted only three jobs with individual, identifiable reasons. Job 1: One banner that disintegrated had to be replaced on warranty. Job 2: Kent took our smaller vehicle to a job location and returned with the crane. Job 3: One out of a seven-truck fleet had to be lettered in such cold weather it required a heat gun.

Similarly, my husband, the origi-nal "good guy," failed to charge many customers for: changed orders (for example, no upcharge from banners to plastic faces), trips to the site, fixing artwork, delivering signs and rush-order fees.

The biggest hazard

Here's our shop's biggest threat to profitable pricing: We work as though there are 240 minutes in every hour — or, at least, we think we can accomplish that much work in that timeframe.

Maybe you remember a game show called "Name That Tune," where contestants claimed, "I can name that tune in ___ notes." Here's my new game show, "Name That Price," where "I can do that job in ___ minutes."

A salesman, especially one who sells his own creativity, needs confidence in the product — himself! However, sometimes Kent gets a little overconfident. For 11 of our underbid jobs, we simply miscalculated to try to get the bid. For five other jobs, no one else even bid! These customers didn't even ask for a competitive bid, but, in trying to give good friends and worthy causes a good deal, we outbid ourselves.

For an additional seven jobs, for no apparent reason, we obviously underestimated our time. We charge "$105 per costable hour," which aims for an $85 Contribution to Overhead (COH). This rate can absorb a 25% underestimation of the required time a job will take.

For 2005, the average COH per costable hour was only $69.43 (including all markup on our costs and including all income for Kent and me). This falls $24,234 short of expectations.

Customer costing

As we all know, some customers are simply more profitable than others. They're ready to order when they call, know what they want and need; allow us design latitude and respect our abilities. That's why they're our VIPs. Every VIP is profitable.

The remaining four jobs are small losses on jobs for VIPs (exempt from minimum), but we recoup these losses in their overall profitability.

Of our 189 active customers, 161 were profitable contacts, including those jobs in progress at year end that are invoiced in 2006 (all data from these jobs will carry forward). This leaves 28 customers who cost us to do work for them. They aren't the interesting, fun jobs. Working for the small, single-job customer isn't worth paying for the privilege. We can afford to charge what we're worth.

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