Issue link: https://read.dmtmag.com/i/465691
WORLD FENCE NEWS • MARCH 2015 • 31 tion supplies. Lastly there are semi-variable costs. A semi-variable cost is a mix of fixed or direct costs and variable or indirect costs, costs that are reduced when sales fall but do not go away en- tirely. An example might be phone lines (hard line and cell), travel and en- tertainment, some taxes, fees, fines, licenses, and permits, some employ- ee benefits (again part of workers' comp costs). Some office expenses are semi-variable, like postage, clean- ing and janitorial, as well as banking charges and some utilities. OK, that being said, what are your true costs and how do you calculate them? All money earned by the com- pany must fall into one of four catego- ries: Direct (variable) costs, indirect (fixed) costs, semi-variable costs and profits. Any and all money you earn that is not profit must be assigned to pay- ing all expenses associated with a job. You must expense all money earned as costs to some job(s) to know your true costs of doing business. Someone must pay for every company expense. The best way to accurately ascer- tain your true costs and establish a real value overhead number for your company is thru the creation of a "master budget." I will speak on this issue next month, but if you have any pressing questions, please feel free to inquire directly to me at my contact info posted at the end of every article. Next, I spoke last month in Orlan- do about your company's "break even" point. A break even point is when you have reached a point (in time or dol- lars) where all of your overhead is paid, either measured by job or for the entire company for the year. Break evens can be measured by dollars or in time. Calculating break even points by jobs can be problemat- ic, and for smaller jobs is not practical; even larger jobs can be misleading. Usually we talk about break even points for the entire company and usu- ally that is measured in time or vol- ume of sales. Most break even points for the fence industry occur in mid or late fall. October is a fairly common time frame. After you reach your break even point, what then? Next, ask your- self what is your company's "mis- sion statement." Are you in business to grow without profit to dominate your market area, or to make money? Once you have reached your break even point you can then choose to do one of two things: Dominate a mar- ket area and grow your business by under-bidding jobs, or focus on profit for the company. From the break even point onward, all non-direct costs are already paid, therefore your profit will begin to rapidly accumulate. Next, I spoke about the impor- tance of maintaining every small bid margin opportunity. The idea is to teach what I call the "cream at the top" principle. Let me give you an example, the concept of which might require some careful thought to grasp. And as al- ways I am available to clarify, as I did at my FENCETECH presentation. Imagine a fence job where your net (direct plus indirect overhead) job cost is $800 total and your bid goal is $1,000. You want to make a net profit of $200. Further, imagine your sales staff discounting only 10% to the cus- tomer, which cuts your profit in half! Selling the job for $1,000 would result in $200 gross profit; selling the job for a 10% discount, or for a $100 discount of $900, would leave only a $100 profit, half of the original amount. On the other hand, an industri- ous and clever sales staff might in- crease the bid by 20%, from $1,000 to $1,200, by value selling the fence job because they work for a superior company with superior products and installers. In effect that salesperson has doubled your profits – from $200 to $400. Also keep in mind that the com- pany would need to sell four times the volume of jobs with four times the work and four times the workforce re- quired to make the same money using the discounted price as opposed to one crew and one quarter the amount of work using the model of sales per- son number two. Moral of the story: It is so very important to know your true costs and bid accordingly, and to be aware of the true impact of discounting. Another point from my seminar last month regarding bidding was the importance of timing in your sales presentation. A customer (especially a residen- tial one) is like a boiling pot of water; after you make your sales pitch, the water comes to a boil, but the longer you wait to close (days and sometimes weeks for some sales staff) the cool- er the customer becomes and the less continued on next page