By Ron Coleman
Almost half of the construction sector companies are facing problems with recruiting skilled workers. But do we know how bad productivity is within the construction sector?
Construction activity in Canada is rated at 48.6 per cent — well below the average rates for all other industries (63.6 per cent). Labour productivity is defined as the ratio between real value added and hours worked.
If Canada doesn’t play to win in labour productivity, it risks a continued drop in living standards, worsening wage stagnation, and a dangerous deterioration in public services. The pronounced downshift in labour productivity since the pandemic has manifested in most industries. The goods-producing sector accounts for the largest share. In a turn of fortune, a decades-long outperformance in productivity is now marred by a 1.2 per cent average annual decline since 2019.
Today, Canada ranks 18th globally on the most common measure of productivity, with our position dropping steadily over the last several years.
Due to a shortage of skilled labour, there are not many things we can do to increase our earnings. One way is to buy a competitor and consolidate the two businesses for greater efficiency and lower overhead. A second option is to increase selling prices so that you are generating more profit from existing labour resources. The third, easiest, and least expensive option is to increase productivity.
Exit Ready
I have dealt quite extensively with buying and selling construction businesses both in this magazine and in my book, “Exit Ready Crucial Tools for Selling Your Construction Business.” Let’s discuss the other two options: raising prices and improving productivity.
Raising prices is a no-brainer. Add $10 per hour to your charge-out rate and with a little luck, you will lose some very price-sensitive, high-maintenance clients. In plumbing and HVAC services, speed of service and quality of service always rank higher than price. What good is a low price if the homeowner can’t get you when they need you, or the technician takes too long to fix the problem?
No heat or a burst pipe waits for no man or woman. Put your rates up by $10 per hour. At a productivity rate of 80 per cent, this would generate $1,280 per technician per month. With five technicians, that equates to an additional profit of around $70,000 per year. In 10 years, you could easily have an extra $750,000 in your retirement fund.
Additional costs
Increasing other costs also gets you a better return on labour. Such items as fuel charges, remembering to charge for using vacuum pumps, and many other specialty tools all add to the bottom line.
This is not about getting your workers to work harder; it’s about you providing better information to your technicians so that they can work smarter. Most companies have no idea what their productivity rate is.
Divide the payroll for technicians by the number of hours billed in a period and that gives you the average real cost of labour.
This example uses a one-month pay period, five technicians, and improving productivity from 80 to 90 per cent.
You can only manage what you can measure. If you don’t know the answers to the above, there is nothing you can do to make more money and increase the value of your business. The real reason for being in business is to be able to sell it for the best price that allows you to retire in comfort.
If you go through this exercise for a few pay periods, you will start to get a better feeling for your productivity.
Share this with your employees and ask them how you improve their level of productivity. One example could be the time it takes for the technician to travel between jobs. Many cities in Canada have congestion issues and are not designed properly to take current peak traffic flows. I live in Richmond, B.C., with a population of 212,000 and 85,000 homes.
A smart contractor in Richmond should be able to get more than enough business in this city without having to cross any bridges or go through tunnels. So, why do I see Richmond-based service vehicles all over the Lower Mainland? Why do I see service vehicles from other municipalities working in our city? Hamilton, Ont, has a population of more than 550,000. Why do you need to spend time on the 401?
There are lots of small and medium-sized businesses in your city. Get focused. Target your geographical area. Stay within 10 km of your base.
Another example could be a lack of materials and supplies. A trip to the wholesaler can be fun as many still provide free coffee and doughnuts for their customers. Before going to a specific job, the technician needs to know the specifications of the equipment that needs to be repaired so that they can have the right materials on hand. As a general rule, all service vehicles should have the standard industry tools, and the technicians trained in using them effectively.
This leads to the next example, there may be a lack of knowledge about how to diagnose or repair an issue. Fully trained technicians are very valuable. Keep them trained and keep them happy. They are the backbone of your business. Look back at the diagnostic processes within your company and determine if your technicians are trained to effectively use them.
Ensure that a highly experienced and knowledgeable person is available by phone to provide support to your technicians. Build your team and ensure the success of your business.