What are the two most important business metrics for integrators to track? It’s an important question that gets asked all the time to Matt Bernath, principal at industry consulting firm VITAL.
“We track more than 30 key metrics at VITAL, and we review those monthly with our members and they serve as a report card,” says Bernath, who was a longtime integrator himself and sold his company before joining, then acquiring VITAL. “The most important metric for any business is gross margin, and second to that is labor utilization. Those are the two areas that most integrators have the biggest opportunity.”
Bernath recently joined the D-Tools “What’s the Buzz” podcast with hosts Tim Bigoness and Jason Knott of D-Tools to discuss some of the important operational objectives that integrators need to be targeting to keep moving their businesses forward.
Bernath says there are several ways in accounting to calculate gross margin, but at VITAL they simply consider it as minus the cost of equipment and parts. His labor utilization calculation is also pretty simple: the number of hours you pay your technicians versus the number of hours you actually billed.
“The way we look at labor utilization takes into account not just the job costing component, but also the off-the-job productivity. It takes into account the trips to Home Depot, the burrito breaks in the morning, the washing of the vans, and the loading of the vans. We're paying our technicians for that work and sometimes we're paying them overtime to do that right,” he explains.
Bernath says the target labor utilization rate for integrators is 50% or better.
If you aren’t hitting that milestone, it might be a good indicator you could use the services of the industry consulting firm VITAL. Unfortunately, many integrators may not even know what labor utilization rate is or how to calculate it, let alone know their own company’s performance for that important metric.
Fighting Against Stagnation
Every integration company at some point in its evolution is going to encounter a time of stagnancy. It can sometimes occur when the owner realizes that he or she is not reaching that desired “destination” often characterized by steady growth, high customer satisfaction, efficient operations, reliable revenues and profits, and perhaps most importantly work/life balance. To find that nirvana, integrators occasionally turn to friendly peers for advice met via buying groups or at industry trade shows. But for those looking for a deep-dive analysis of the company, industry consultants like VITAL are available to help.
“Two years ago when we started our monthly CI business Mastery Webinar series we did a bunch of surveys. We noticed in our second year that a number of these businesses actually improved some of the metrics that we were talking about,” says Bernath. “We'd like to think that some of it is from the education we're providing, but I think it's also a maturation of the industry integrators valuing their labor much greater than they than they did in the past.
Bernath says many more integrators are recognizing that they need to make data-driven decisions to run their companies more efficiently.
“We are recognizing that the most successful businesses in any industry are tracking data and tracking KPIs and measuring against those,” he comments.
Bigoness sees a lot of synergy between VITAL’s services and D-Tools, which has its mission to help integrators run their businesses better.
“I think it is something everybody should be doing looking at their business… figuring out what to measure, what's their KPIs are,” he adds.
To watch this and other podcasts, go to D-Tools YouTube channel. Previous D-Tools podcast focused on how to build a successful and profitable service department. To listen to the full What’s the Buzz podcast, you can subscribe via Spotify, Apple or several other podcast platforms.
