by Ryan Spencer for SprayFoam.com
BIDDING
So you’re landing jobs on a regular basis and revenue is flowing in, but what about profit? Is it where you’d like it to be? Sure, it’s sensible to improve operational aspects of your business, but what about improving the business of your business? It can be difficult to take a step back in the midst of the day-to-day grind, but doing so is key to maximizing profit. In that regard, what happens before and after the job is just as important as the job itself. Taking time to improve can have a beneficial impact on your bottom line, and below we’ll outline some fundamental considerations. The basis of a successful and profitable bid begins with accurate measurements. Contractors who can’t utilize electronic or paper blueprints offered by new construction applications must generate accurate measurements themselves, and laser measuring devices can come in handy.
Common measurement oversights include ambiguities related to the building envelope, and the exclusion of non-insulated areas like windows, doors, and studs. The latter might seem like a no-brainer, but can be easily overlooked, and the insulation materials saved versus the labor and protective materials are usually comparable. Additionally, estimators must be aware that the plans may change, and be prepared to communicate any changes with the installation crew. Applicators must be fully aware of the scope of work that is agreed upon–nothing more, nothing less. Changes to the scope of work sometimes occur and must be identified and documented prior to installation–if it isn’t in writing, it didn’t happen. Cost of goods for spray foam applications can soar to be 70% of the total cost, so foam yield is directly and appreciably tied to profitability. To accurately project foam yields, contractors must consider factors like ambient temperature, substrate type, overspray, waste, and scheduling.
Further complicating the issue is the difference between the chemical estimate and the actual chemical used, a disparity created by estimating worst case scenarios and then maximizing yield through preparation and planning. Chemical companies often provide yield estimates of their products but they’re often based on ideal conditions. Contractors must measure their chemical performance with their equipment and personnel, and any changes in conditions require changes to the machine settings to provide maximum yield. When it comes to accounting for labor, regulations and market forces may largely determine pay schemes. However, the high cost of materials puts a premium on worker efficiency, and that can be influenced by incentives from the management team. Goals can include: measuring and meeting job time estimates; comparing chemical usage and product yields; and gauging customer satisfaction. Customer satisfaction can be measured via the amount of callbacks or having salesmen provide feedback they receive from their contacts. Of course, there is a symbiotic relationship between the installers and the management and sales team, and everyone must excel at their crafts in order to make the team successful.
Additional costs like travel time and fuel are significant but are largely dependent on project specifics. Costs like maintenance and downtime, on the other hand are highly variable and can be difficult to estimate. Start up costs can also be problematic and negatively impact profitability if sporadic obstacles, such as the job site not being ready, are experienced. It’s the responsibility of the management team to ensure a smooth start up process on every job. Margins can be tricky. Sure, it’s easy to add up all your costs and then tack on your margin. However, when operational efficiencies are attained, that practice can leave money on the table, as we’ll see below.
ANALYSIS
After the job, a thorough analysis is crucial to the viability and profitability of a spray foam business. Since cost of goods can be so high, yield calculations and yield maximization should be considered critical components of business management, not just field parameters. The process begins with determining actual yields, and often times contractors will leave the yield calculation to the end of month, but if management does not evaluate each project daily, margins will decrease immediately. Stroke count is often used to pin down chemical consumption, but it’s more of a rough rule of thumb when it comes to determining the amount of foam installed. There’s really no substitute for actual physical measurements of the installed foam to accurately determine average thickness and total board feet. In order to maximize yields, the product and installation must be similarly exceptional. Selecting the right supplier and product, as well as the utilization and implementation of the supplier’s processes and procedures, will increase yield and margins. In following a supplier’s recommended processes, assuming they constitute accepted best practices, the performance in the field must be assessed and continually improved.
While both the management team and the crew are equally vested in safe and successful applications, most of the responsibility falls on the installers, as they are the ones doing the work. It’s in everyone’s best interest that the management team gauges the efficiency, effectiveness, and safety practices of the foreman and the sprayers on a daily basis if possible. An effectively managed workforce will necessarily translate to operational efficiencies. This is the goal of every operation, but the efficiencies themselves must also be managed. For instance, assume a company has been able to manage a more effective crew and also reduce costs. Is it going to benefit the company to take these savings, simply add its standard margin, and hit a lower price point? In that case, the company took its gains and gave it all to the marketplace. Gains in efficiency should be viewed as proprietary practices: developed processes, procedures, and product knowledge that are the exclusive property of the contractor. Efficiencies should always be retained, reinvested, and utilized for future growth. And that’s really the goal of any business–future growth. While everyone may strive for that goal while working in their business, it’s those who are taking the time and making the effort to work on their business who will see it come to fruition. You really have to sit down and look at the numbers and make business decisions based on what numbers come up. That’s when you’re really managing your business.
