Trey,
I can't sit across the table from you but here's my thought's if I could.
I think you may think that prime contractors are making a killing of an Installation Contract. The fact is a 10% to 14% margin are probably the industry average (that's 10 to 14 cents profit on ever dollar of revenue after expenses).
A fully burdened labor expense (includes wages for production labor, dispatchers, project management and administrative support along with employer FUDA/FICA and WC liabilities) makes up roughly 67% in expense on every dollar made (leaving 33 cents or a 33% margin after labor expense).
Now that labor is paid for there is an expense for facilities, utilities, communication (for both office land lines and field Nextel services). this is about 6% in expense for every dollar of revenue. We are now at 73 cents of every dollar in revenue for labor and facilities (27% margin).
Now that we have the labor and facilities paid for there is an expense for furniture and fixtures (i.e. copier leases, computers, desks, chairs, etc.). In most cases copiers are leased and are a re-occurring monthly expense and hard assets such as the computers, desks and chairs are capitalized and depreciated monthly for the expected life of asset (usually 36 months straight line deprecation method is used). Rolled all up this expense usually is 4% of expense for every dollar in revenue. We are know at 77 cents in expense for every dollar made for labor, facilities and office equipment (23% margin).
Vehicles vehicle maintenance, insurance and fuel are usually provided to the projects PM's and field supervisors as a condition of employment. The expense usually is about 2% for every dollar made in revenue. We are now at 78 cents in expense for every dollar (21% margin).
Project administration is a support for the operations and include all Overhead expenses to keep the project running (salaries and benefits, payroll processing, invoicing, bank charges, etc.). Travel expenses for the regional manager / owner to insure the customer is happy and the contract is not in jeopardy (nearly all installation contracts are renewed annually, but all have a 30 day early termination cause for poor performance). Usually these expenses is 4.0% for every dollar made in revenue. We are know at a 82 cents in expense for every dollar (18% margin).
Liability insurance is needed to successfully bid on any project with 3M in vehicle, 3M in general liability, 2M in WC and a 5M umbrella policy. The policy is not cheap even with a 3K deductible for any single claim. After paying for any deductibles and the policy premiums the expense is usually 2% for every dollar made. We are now at 84 cents in expense for every dollar (16% margin).
Recruiting for new employees and turnover is becoming a major expense for all contractors. The recent hurricanes over the last several months left the primes in a bad position with supporting their customers as employees left with no notice to chase "the big payday". This has double the recruiting expenses for my company over the last several months. We never chased these opportunities as a company even though tempting with the payouts, we look at the big picture and supported our long term customers through some difficult times (it paid off for us with our customers going forward). Back to the expense for recruiting without the recent events usually recruiting is 2% in expense for every dollar made. We are now at 86 cents in expense for every dollar (14% margin)
The catch all other expenses is other expenses. This holds all expenses from bad debit (believe it or not primes get "stiffed " to on payments from their customer), lost equipment (DCT's, DVR's, etc. from past employees), QA short pays, unreturned tools and equipment, uniforms, vehicle sign age, etc.. If managed aggressively the expense is usually 2% for every dollar made. We are now at 88 cents in expense for every dollar (12% margin).
Not a bad deal.....a project with 500K in revenue monthly and a 12% margin is 60K in profit pre-tax.
But know is were you really need to manage the business and CASH FLOW. The primes obligation to successfully run the business is to pay their employees/contractors as promised or lose them to the other prime down the road. MSO's are usually 45 days out on the primes invoicing receivables however a submitted invoicing error found after 30 days into the process could push the payment out 75 days. Unless you have at least 3 months cash in the bank for monthly expenses, you will start to factor receivables at 50 cents on the dollar, or mortgage your personnel assets just to make the next payroll and pray for a payment for next weeks payroll.
I am not Bic***** about the choice I have made to manage these challenges (I love the challenge) You have a choice for your career (get out now, life is to short) and to be honest I don't have the time or the desire to deal with a employee/contractor who needs someone to speak for them. With a 12% margin and if my employees/contractors organized the additional OH with union red tape would but me out of business unless I choose to self terminate the contract. Where else can a person out of high school make 48K a year?
Your turn Trey, sit across the table from me and give me your thought's on how to raise your wages and provide a suitable career for you.
Good Luck.....
Re: Feelings on Union
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