CLIP's Tips

If you followed the steps in year end project #2, you have a spreadsheet containing all of the job costing data from 2009.  We are now going to analyze that data and adjust prices as necessary.

First, a couple of words about adjusting prices.  Raising prices is certainly an art and a science to.  Raise prices too quickly or too often, and you will end up losing too many customers—Don’t raise prices enough, and you will end up forfeiting profits.  When you raise prices, it should be carefully done—like surgery with a scalpel rather than hacking with an axe.  Consider these ways you can be a surgeon rather than a lumberjack when raising prices:

A.  Only raise the prices of customers who are under your target $ per hour rate (we now have this information by using our spreadsheet and our job costing report).  If you only raise prices for those who are unprofitable, you minimize your risk.  If the customer decides to go elsewhere for a lower price, the only thing you have lost is an unprofitable customer.  By not raising the prices of those who are profitable, you won’t rock the boat or risk them going somewhere else for service.

B.  Consider special cases.  For example, at CLIP Lawn Care, we have one customer whose lawn we mow for much lower than our hourly rate.  Why?  He has enabled us to gain the profitable HOA contract for his community.  Another example would be a long time customer whose property was recently damaged by accident.  In this case, he is already perturbed, and if I think he has a chance of sticking with us long-term, raising his price would not be a wise decision.

Steps for Adjusting Prices

1. Open the job costing spreadsheet we created.

2. If it has not already been done, sort the spreadsheet by $ per hour including travel time.  Do this by clicking at the top of column H to select the entire column.  Then choose “Sort & Filter” > Sort Smallest to Largest.  If Excel asks you to “expand the selection”, go ahead and do it.

3.  Scroll down the list to find the point at which the customers are meeting your $ per hour goal.  For the customers below this point, we do not want to raise their prices, so we will leave them alone.

4.  Next, we will create a formula to determine what percentage we need to raise the prices for these customers.  We need to incorporate the following factors into the formula:

• • The maximum percentage that we will raise prices.  In our example, we are not going to raise anyone’s prices more than 20%.  You pick your number.
  • The $ per hour goal we have set.  In our example, $45.

Enter the following formula into cell K1, replacing the red numbers with your $ per hour goal and the green with the max percentage you will raise a price (in decimal format i.e. .2 =20%):

=IF(45/H2>(1+.2), (1+.2), 45/H2)

The result will be the percentage that you should raise this customer’s price.

Now, copy the formula to the cells below, stopping where the $ per hour goal is being met.  Check out the following short video on how to do that.

Finally, change the whole column to display in percentage format by clicking the % button on the top of the screen.

5.  Now, have those who are most familiar with these clients go through the list to look for any special exceptions as in point B above.  Make any changes necessary.

6.  Open CLIP and change prices as necessary.  In order to calculate the new price, simply take their current prices and multiply by the percentage.  i.e.  $30 x 1.2 = $36 as the new price.

If you got lost along the way, feel free to ask a question in the comments so that I can clarify.

We are now halfway done with our end of year projects.  See below for the next steps.

Application Action: Post a comment or send me an email describing the way you go about raising prices.

End of Year Projects Overview:

1.  Revise our dollar-per-hour goal to account for any changes in the upcoming year.

Part 1 & Part 2

2.  Use CLIP to create a job costing report for this year.

3.  Analyze profitability of customers.  Adjust prices as necessary.

4.  Create and send renewal contracts.

5.  Survey customers for feedback from this year.

6.  Follow up in order to maximize contract renewals.

I have been informed by a few readers that they have been unable to download the excel spreadsheet for determining $ per hour pricing.  I have attached the file below along with copy for users of Excel 97-2003.

Spreadsheet Excel 2007 (.xlsm)

Spreadsheet Excel 97-2003 (.xls)

If you have any more trouble, please let me know by email or comment on this page.

Whether you were connecting with relatives or just enjoying some downtime, I hope everyone had a great Thanksgiving holiday.

Now that you have had time to digest that Thanksgiving meal, we are on to Project #2 in my recommended End or Year Projects.  This project will give you a customer by customer, job by job analysis of your revenues per hour—one of you most important metrics for profitability.

This project will set the stage for knowing how to price our contracts for next year.  This can be used for any type of job for any period of time.  The example below, however, will be for our mowing contracts in 2009.

Here’s the step by step:

1.  On the top menu in the main screen of CLIP go to Reports > Job Reports > Job Costing

2.  Select which crews you want to run the report for (in our case, we want to see all of the crews so we select 0-999).

3.  Select customer range (we want to see everyone so we select 0-9999).

4.  Choose the job numbers that you want to analyze.  Keep in mind here that you may want to analyze the profitability of one type of job or multiple jobs grouped together.

For example, you may have a maintenance contract where you do not profit much from the mowing, but you make up for it in mulching and leaf removal.  In this example you would want to include all three jobs in the report and the report would show you an average $ per man hour for all of the jobs combined.  (In our example, we will use only job 1 – Mowing).  To type a combination of jobs, separate the numbers with commas.

5.  Choose the dates you want to report.  (I want all of 2009 year to date so I choose 01/01/09 – 11/30/09.)

6.  Choose which options you want on the right hand side of the screen (Show History, Contract Jobs Only, Only jobs under or over projected time, Include Jobs on Hold, Active Customers Only).  The only boxes I want checked off are Show History and Include Jobs on Hold.

7.  Click Prepare Files.  Wait for CLIP to prepare the files.

8.  Choose Sort Options.  I recommend sorting by Dollars/Hr Including Travel Time because this is the most important piece of information about these customers.

9.  Choose Detail as your print option.

10.  Print the report or preview it on your screen.

11.  Unless you are certain that your time entries in CLIP are 100% accurate, you should go through this report customer by customer to look for any data entry errors.   Two areas that I recommend you double check are “Actual Time” and “Travel Time.”  This is where most data entry errors will be seen.  Look for anything out of the ordinary.

In the example below, most of the travel times are under 1/2 hour.  In the circled time, it is over two hours.  I need to check to see if this was a mistake or not and then correct it if necessary.  (To correct the mistake, go into customer history, click the line item, then click edit.)

12.  After you have corrected any mistakes, repeat steps 1-8.

13.  This time choose “Summary” instead of “Detail” as your print option.

14.  Instead of choosing to print the report, click “To Excel” to export as a spreadsheet.  Save the file as “2009 Job Costing Report.”

You will now have an excel spreadsheet containing all of the job costing data, sorted by Dollars/Hr. including travel time.  The benefit of having this in spreadsheet form is the ability to sort, use and manipulate the data for any purpose.

Stay tuned for the next post on how to use the Job Costing Report to analyze the profitability of your customers in order to discern whose prices to raise and by how much.

Application Action: Follow the steps above to get your report ready, then try running the report with different options to get familiar with how it works.  I cannot emphasize enough how important this report is for running a profitable business.

End of Year Projects Overview:

1.  Revise our dollar-per-hour goal to account for any changes in the upcoming year.

Part 1 & Part 2

2.  Use CLIP to create a job costing report for this year.

3.  Analyze profitability of customers.  Adjust prices as necessary.

4.  Create and send renewal contracts.

5.  Survey customers for feedback from this year.

6.  Follow up in order to maximize contract renewals.

Photo credit: shutterberrry

In my last post, I described the general method for calculating how much you should be charging per hour.  In this post, I will describe how to use the spreadsheet we have created to make this calculation.

This is going to be a long one…so grab a cup of coffee and hang on.  Believe me, its worth it.  (Also, check out the links along the way for some explanations and also some humor.)

First Steps

First, download our spreadsheet here:  Per Hour Costing Spreadsheet.  Save this to your computer.

Second, look at the Instructions page on the first worksheet and read it carefully.  (You can navigate between the worksheets by clicking the tabs along the bottom of the worksheet as shown below)

Next, we will go through the four spreadsheets, step by step filling out what is necessary on each spreadsheet.

Labor

In this spreadsheet you will calculate everything involved with payroll and man power in your company.

1.  Enter the percentage of your company’s share of FICA (social security tax) for field and office employees (there probably will not be a difference).  This can by determined from looking at your payroll expenses.

2.  Enter your Federal Unemployment percentage for field and office employees.

3.  Enter your Workman’s Compensation insurance percentage for field and office employees (these numbers could be different for each).  This can be determined by calling your insurance agent or by looking at your P&L’s.  If you are given a total rather than a percentage, you can calculate the percentage using this formula:  total workman’s comp for 1 year / total payroll.

4.  Enter the amount you spend per employee on health insurance per month.

Employees

5.  Enter all your employee names in column A.  Include everyone who is on your payroll (laborers, managers, yourself, office staff).

6.  Enter their hourly pay in the next column.  For salaried staff you can calculate their hourly rate by dividing their annual salary by 2000 hours.  Ex.  50,000 / 2000 = $25/hr. This is based on a forty hour work week.

7.  Enter any paid vacation or sick days.

8.  Enter how many hours are paid for those sick days.

9.  Enter their regular week work hours (ex. 40).  If you used the method in step 6 for calculating salary, use 40 here.

10.  Enter average overtime hours per week.  Try to be as accurate as possible here, not hopeful—if you underestimate, it will hurt you.

11.  In the column titled “Work weeks per year” type the number of weeks each employee works.  Note that this may be different for each employee—a manager may work 50 while a seasonal may work 25.

12.  Enter T or F (true or false) for whether you pay health insurance for each employee.

13.  Check the totals on the top of the screen.  All should now be calculated.

Equipment

In this spreadsheet you will determine how much you need to collect to cover your equipment costs.

1.  Enter the current average inflation rate.  You can find this by doing a little google research.  I used 3% this year to be on the safe side.

2.  Enter your yearly auto insurance premium.

3.  Next, in column A, enter each piece of equipment that your company owns.  (i.e.  trucks, cars, mowers, blowers, trimmers, etc.)

4.  Enter serial numbers if you wish to keep track of which is which.

5.  Enter the purchase date.  If you haven’t kept track of this, try looking at your accounting records and receipts or call your dealer.

6.  Enter the purchase price for each piece of equipment.  Try not to guess unless you really have to.

7.  If you financed the equipment, enter the amount financed and the interest rate.

8.  Under “Years of Service” enter the expected life of the equipment.  Be conservative here so that you will not end up retiring equipment before you have recovered the cost.

9.  If you expect the equipment to be able to be sold after its life expectancy, enter its expected sale value under “Residual Value.”

10.  Enter how many miles or hours this equipment is used each week.

11.  Enter how many weeks out of the year this equipment is used.

12.  Enter expected gas price per gallon.

13.  Enter the equipment’s Miles per Gallon or Hours per Gallon.  FYI, I am using 1.5 HPG for mowers and 8 HPG for blowers and trimmers.

14.  Lastly, enter the anticipated lifetime maintenance costs for the vehicle.  If you don’t have any idea, try looking at your accounting records over the last few years to see how much you spent on these items for equipment maintenance/repairs.  FYI, we do most of our work in-house and our estimated repairs on a mower expected to last 4 years are $800.

15.  You should now be able to see what you need to collect per hour to recover your equipment costs.

Overhead

Here, you will enter in all other expenses such as advertising, rent, office supplies, internet, phones, CLIP, CLIP On Sites, etc.

1.  Go through your P&L’s for last year and collect all of your expenses that would not fit under Labor or Equipment.

2.  Categorize these expenses and enter the categories into the spreadsheet if they do not already exist on the spreadsheet.

3.  Calculate the average monthly expense for each category by taking the annual total and dividing by 12.  Enter these expense on the spreadsheet under “$ per month.”

4.  Add or change any expenses that will be different in the coming year.

5.  You should now be able to see your overhead total expenses and how much you need to collect per hour to recover these costs.

Totals

Finally, we must enter a few last details to complete the spreadsheet and get you on your way to making some profit!

1.  Enter the efficiency of your employees.  You can determine this from CLIP by printing an efficiency report (Reports > Employees > Efficiency Report).  The basic formula is this:

Budgeted Man Hours / Actual Man Hours = Efficiency

Ex.  If you employee has 10 budgeted man hours to do, and it takes him 11 payroll hours do do this, his efficiency is 91%.

This is another area where being conservative is important.  If you over-estimate the efficiency of your employees, you will not be making enough to cover all of your expenses.

2.  Lastly, enter your target profit percentage.  You will be able to adjust this later if you find that your prices are too high to be competitive.

Whew!  You made it!  Good Job!  Now for the conclusion:

At this point, you will be able to see what you need to make per hour in order to cover all of your expenses and make the profit that you desire.  You can now tweak the spreadsheet to test what would happen if things changed in your business:

What if I could increase the efficiency of my employees 10%?

What if I could cut out this expense?

What if I hired a new employee?

What if I gave everyone a raise?

What if I bought a new mower?

The financial answer to these types of questions is now easy to answer.

Application Action: Set aside one day in the next week to work through the spreadsheet, at least to get comfortable with it.  Then, next week, spend another day fine tuning it and playing around with it (remember to make a backup copy of course.)

If you have any questions or comments, please feel free to post a comment or email me.

2009 is quickly coming to a close, and as green industry veteran Mike Rorie said a few weeks ago, we need to “load our guns” by looking ahead.  Now is the time to think about your 2010 season.

At CLIP Lawn Care, in order to position ourselves for another profitable year, we are focused on 6 projects over the next few weeks:

1.  Revise our dollar-per-hour goal to account for any changes in the upcoming year.

2.  Use CLIP to create a job costing report for this year.

3.  Analyze profitability of customers.  Adjust prices as necessary.

4.  Create and send renewal contracts.

5.  Survey customers for feedback from this year.

6.  Follow up in order to maximize contract renewals.

As I go through each of the projects, I will be sharing with you how I do it.  If you haven’t yet subscribed, I suggest that you do.  This way, you can follow these processes step by step.

Click here to subscribe.

Because these processes are so crucial, I encourage you to ask any questions that you may have by posting a comment or emailing me at editor@clipblog.net.  I would be happy to help!

Application Action:  Email me or post a comment about any end-of-the-year process that you would like me to cover on the blog.

“Ahhh!  I just came in from a three day weekend and my email inbox has 150 emails!”

“I don’t feel like I got anything done this morning except answering emails.”

“Did you get my email?”  “Oh, yeah, I did.  Umm, I think it slipped down in my inbox.  Sorry.”

Can you relate to any of these scenarios?  Most of us at one time or another, or almost constantly, feel like we are being sucked into a black hole of email.  In this post, I plan to explain the system by which I got email stress under control.

What is Inbox Zero?

Having become a standard in productivity best practices, this term denotes a system of processing email for the purpose of increased control and effectiveness of which the end result is an empty email inbox.  Just as you clear out your voicemail or mail inbox, each time you process your email inbox, you should get it to zero.

Why Inbox Zero?

From the original coiner of the term, Merlin Mann:

Clearly, the problem of email overload is taking a toll on all our time, productivity, and sanity, mainly because most of us lack a cohesive system for processing our messages and converting them into appropriate actions as quickly as possible.

And from the productivity blog What’s Best Next: (emphasis mine):

It is possible to get your email in-box to zero every day, even if you get 100 emails a day.

And it’s not super complicated — though it does take effort and some discipline. But I don’t think that lack of effort has been the main problem. I think the main problem has been not knowing how to manage email effectively.

A lot of people have simply never been taught some of the basic best practices for keeping email under control. For example, most of us fall into the trap of using our email in-box as a small to-do list from time to time (really bad), and sometimes we even end up using our in-box as a holding tank for major project items (far worse).

The result is that we go through the day with the sense of having a thousand “open loops” continually before us.

How to get to Inbox Zero

Setting up the System

Here’s how I recommend setting up your email program, whether it be a desktop application like Outlook or a web based email service like Gmail.

The folders:

I recommend that you have three folders for sorting your email.  Any more than this is unnecessary considering the powerful search features native to all email programs.

1.  Answer – For answers that take more than two minutes.

2.  Hold – For emails for which you are waiting for something from someone else.

3.  Archive – For emails that potentially have reference use in the future.

Note:  I use my recycle bin as my archive folder so that all I have to do is hit the delete button to archive.  Of course, to do this you must set your email program NOT to automatically empty the recycle bin.

Processing

Start at the top of your email inbox and work through one email at a time, IN ORDER.  Resist the urge to jump to the “hot” emails and ignore the rest.  Remember, the goal is ZERO.

With each of the emails, think about what it means and do one or more of the following:

1.  Answer it – if it takes two minutes or less to respond, do it now.  This simple rule will save you enormous amounts of time and stress due to the re-reading that you probably do if you are not following this rule.  Take the 30 seconds necessary to make a decision about how you should respond, and DO IT.

2.  Extract action items or reference material – If the email contains required actions or on your part (i.e. your boss gives you a list of calls to make or a customer requests an estimate), put this on your “to-do” or action list.  If an appointment is requested, put it on your calendar.  If there is vital reference material that you want to file away, print it and file it or put it into a knowledge database like Know-It-All.  I cannot emphasize this more strongly:  DO NOT LEAVE “TO-DO” ITEMS IN YOUR EMAIL.

3.  Delegate it – if you are not the appropriate person to deal with this email, forward it to the appropriate person with a short summary of what the email is and what you expect the recipient to do with it.

4.  Defer it – This involves two different aspects:

• If this email requires an answer that will take more than two minutes, put it in your “Answer” folder to respond to when you choose to.
• If you are waiting on something in order to answer this email or want to keep tabs on it until an event occurs (i.e. the new book you ordered to arrive), put it in your “HOLD” folder as a place-marker to remind you that you are waiting.

5.  Archive or Delete it – If this email has potential reference value for the future, archive it.  If not , delete it.

Go through your email inbox using this process until you are at ZERO!

Check your ANSWER and HOLD folders at least daily for possible answer or completion.

Believe me, when you experience INBOX ZERO you will never want to go back to this again:

Application Action:  Follow these procedures to get your inbox to zero for the next week and  then get your merit badge.

If you’re left hungry for more, check out the post that originally inspired me to this method:

How to Get Your Email Inbox to Zero Every Day

Agree?  Disagree?  Questions?  Let me know in the comments.

Photo credits: stuartpilbrow, adamjackson1984

We’ve already learned about Pareto’s Principle (the 80/20 rule)—Now I would like to share  another productivity principle to eliminate wasted time:

Parkinson’s Law: Work expands so as to fill the time available for its completion.

What does this mean?  It means that although you normally take 8 hours per day to accomplish your work, you probably could get it done in 6 on a regular basis, or even 4 if you were really pressed.

Most people drag out their 9-5 days with paper shuffling, constant email checking, and unnecessary meetings rather than focusing on the most important tasks and getting them done.

Consider the following example from The 4-Hour Workweek by Tim Ferriss about when he learned this lesson at Princeton:

I had arrived to class nervous and unable to concentrate.  The final paper, worth a full 25% of the semester’s grade, was due in 24 hours.  One of the options, and that which I had chosen, was to interview the top executives of a start-up and provide an in-depth analysis of their business model.  The corporate powers that be had decided last minute that I couldn’t interview two key figures or use their information due to confidentiality issues and pre-IPO precautions.  Game over.

I approached [my professor] after class to deliver the bad news.

“Ed, I think I’m going to need an extension on the paper.”  I explained the situation, and Ed smiled before he replied without so much as a hint of concern.

“I think you’ll be OK.  Entrepreneurs are those who make things happen, right?”

Twenty four hours later and one minute before the deadline, as his assistant was locking the office, I handed in a 30-page final paper, dissected with an intense all-nighter and enough caffeine to get an entire Olympic track team disqualified.  It ended up being one of the best papers I’d written in four years, and I received and A.

Before I left the classroom the previous day, Ed had given me some parting advice:  Parkinson’s Law.

Use aggressive time limits to force your focus on important tasks.  For example, if you have a proposal to put together for a big commercial client, set yourself an aggressive deadline.  The deadline will provide you with an intense focus that will allow you to finish sooner and produce superior results.

Application Action: If you have the freedom to make this decision, work two hours less per day for the next week.  You will see that you can accomplish the same amount of work in less time.  If you don’t have the freedom to take off work two hours per day, set a goal to be done with all of your normal responsibilities two hours early.  When you are done, invest that time in learning a valuable skill that will help your company.

I love the last line:

“Plan for 2010. Get a handle on your year-end numbers, and your predictions for next year. ‘What do I want to do in 2010 that I failed to do in 2009 that I’m not going to allow to happen again and what’s it going to require?’ Too many guys are willing to be day planners or week planners. There’s no leverage there. You need to load your guns.”

Source:  Lawn & Landscaping Online

Looking for more ways to “bring home the bacon?” Here are some more ideas for how to apply the 80/20 principle in your business:

• After finding your top 20% most profitable customers, visit their properties and suggest any improvements you see.  You are likely to get a high return on investment.
  • Example: I joined a mowing crew for a day last week.  While on the job, I noticed three customers with various things that could be improved on their properties (i.e. apply fertilizer and weed control, trim bushes, etc.).  I spent 10 minutes calling them and have one new job lined up already.
• Think about what 20% of your job produces 80% of your unhappiness at work.   Brainstorm for 15 minutes about how you could automate, eliminate, delegate, or outsource these responsibilities.
  • Example: Although I can do it, I realized that doing equipment repairs in the Spring myself is a real drag on my momentum.  I have decided to outsource this to a mechanic for at least the months of April-May.  I would rather spend the time selling or training.
• For the next two days, keep a log of what you do.  Update this log every hour with what you accomplished during the previous hour.  After the two days, pick out 3 activities that were most effective toward reaching your goals (greater customer satisfaction, working less hours, more sales, etc.).  Write down what these activities are and increase the time you spend on them.  Why waste your time on the least effective things?
  • Example: I found that by tracking my actions for the last two days that one of the most effective things I did was to mind-map (more on this to come) about this blog to generate new ideas.  Within thirty minutes, I generated dozens of ideas which will help achieve my goal of helping you, the readers.

  Do you have any ideas about how to apply the 80/20 rule?  Please share by clicking on the comments icon on the top right hand side of this post.

Happy dog picture by: waimeastyle

Somewhat related to my previous post, here is a great little proverb:

“The more you sweat in peace, the less you bleed in war.”

I came across this while reading Ready for Anything by David Allen.