Schneider Electric

May 14, 2018

Sponsored by Schneider Electric

 Quite simply put if you feel that job site costing and quote development are a lot of work, you are right! To properly assess a job and estimate the required work time, product costs and various other expenses can take more time than is often feasible for a small company. You need to be spending your time completing projects, which can become difficult if you are spending your hours doing cost analysis.

We learned this first hand in last month’s edition of the Electrician Forum when Steve Beeby of Beehive Electric discussed the balance required to own and operate an electrical contracting company. In fact, the day I met Steve he had reserved the entire day for undertaking job site costing, which he noted is necessary from time to time. However, he did note that we have come a long way in terms of resources available and the various methods of cost analysis utilized by electrical contractors.

First and foremost, the days of doing long mathematical equations to determine costs are gone. There are now various electrical estimation software packages on the market to help electrical contractors develop job site costs. These programs can be relatively simple, or complex depending on the software, but one key feature is that they identify areas of cost that may at times be overlooked when undertaking cost analysis.

There are a number of costs that often get overlooked or are at times considered too small to have any affect on your bottom line, however when you consider your annual costs those small fees can add up and be the defining factor for a positive or even a bumper year. Simple additions such as costs for vehicle maintenance, equipment upgrades, and administrative fees are often left out or simply forgotten in the rush of getting the quote together. Having a well-developed software package or costing template can help with this. But how does your cost analysis measure against costing trends across Canada?

To gain true insight into how Canadian electrical contractors develop their cost analysis Electrical Industry Canada, with the support of Schneider Electric and its Partner Portal, conducted a survey of electrical contractors across Canada to determine what factors are essential for developing job costs and to identifying costing trends.

To begin, and for reference in regard to the respondents’ industry expertise, of those who responded 89% have established electrical contractor companies that have been in operation for 10+ years. 5% have been in operation for 6 to 10 years, 5% for 1 to 5 years and 1% have been in operation for less than 1 year.

To gain general insight before digging too deep we asked respondents to rank the importance of several contributing factors when they are determining their charge-out rates.

1.jpgAs seen in chart 1 the primary concern for electrical contractors is determining the estimated time frame for a job. The elevated level of respondents identifying this as the key factor is unsurprising, particularly as assessing the length of time required to complete a job is often the most difficult portion of developing potential job costs.

Without fail there is often unforeseen issues that arise throughout the job process which can quickly unbalance any job cost analysis.

Interestingly, industry average came in as the second most important with 18% of companies identifying this as their primary concern. This is an extremely important point that is often overlooked. A solid understanding of the industry average within your area of operation provides value when determining your general approach to cost analysis. Regions tend to vary in terms of typical costs and an industry understanding allows one to develop a costing analysis that ensures they maintain a competitive edge and are not over or under pricing. The current article provides insight into exactly this concern.

Interestingly the remaining factors have all received essentially an even share among respondents with Product Costs at 15%, Profit at 16%, Wages at 15% and Overhead also at 15%.

What this identifies is that although there is an identifiable focus on time estimation there are a number of factors that are deemed most important to electrical contractors, the key is to identify what factors best serve your business model for sustainability while simultaneously providing a competitive edge among customers.

One of the most important factors that is also overlooked or is considered less important are additional or add-on fees. We asked our respondents if they charge additional fees over and above hourly rates, if they charge additional fees for travel and how the assess additional costs to after hours calls. Each of these factors will have a significant impact for service and job costing.

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The consideration of fees over and above an hourly rate had an extremely focused response that we can clearly say identifies an industry standard. 82% of respondents identified that they do not charge a service fee over and above hourly rates. It was expected that responses to this question would be skewed toward no additional service fee, however, not to this degree. What this identifies is that there is a clear national trend to not charge a standard fee in additional to hourly rates. The national trend shows a level of standardization is present in job site costing basics in at least some respects and is likely the result of the service driven philosophy of electrical contractors to provide a competitive price.

 3.jpgThe consideration of additional fees for travel identifies a much wider response pattern. The most common answer, identified by 37% of respondents, was to charge a standard hourly rate for travel. The second most common response, identified by 23% of respondents, was to charge a fee by the km. Again, we can identify a national trend here that identifies the importance of travel fees to job costing and the business models of small electrical contractors. When combined fees charged by the hour and km equal 60% of responses. The importance of travel fees for job costing is an essential component, particularly as vehicle purchase costs, maintenance fees and fuel prices continue to rise, not to mention that time spent in a vehicle is largely unproductive in terms of job task completion.

Interestingly the third highest response rate, at 17%, represented companies that charge no additional fee for travel. Now it is important to again to think about geography. If we consider remote towns or companies that have a relatively small service area there may not be a need for additional fees and if there are it may be the result of other local competitors that don’t charge additional fees requiring companies near offer the same advantage to its customers.

A further 14% identified charging a flat rate, which again could be the affect of a small service area that does not require long travel but is an attempt to recover maintenance and fuel fees without charging accumulative fees.

A key takeaway from this response is the important consideration of your service area and which method of travel costing fits with your business model, but make no doubt, this consideration is a key factor and should be included in

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 you cost analysis.

The consideration surrounding after hours fees has always been an in interesting point as most companies do charge for this, however it is not uncommon to see a company 

advertising no additional after-hours fees. Does this contribute to an increase in calls that offset the lack of additional fees? Again, there are geographic considerations that need to be applied, but when considering the overall trend of companies, it is unlikely that enough additional business is attracted to offset zero fees for after hours work. There is significant importance attached to after hours calls and additional fees should be a considerable part of job costing for emergency calls.

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Chart 4 identifies that 35% of companies are increasing fees by 31-50% for after hours calls. An additional 21% charge over a 50% increase and another 21% increase fees by just 16-30%, only 6% increase by 15% or less. Notably only 17% of respondents identified that they charge no additional fee.

Another intriguing point of consideration is the mark up on products. This is not often an openly discussed concept, which can lead to substantial variations even within specific geographic areas.

However, product pricing and increases are a key component for job costing, both in terms of quotation and for job profitability. Notable is that 68% of respondents identified increasing costs over trade prices between 10 and 29%. This identifies a trend zone for product increases that are relatively standard across the country.

A further 17% identified increasing product costs by 30-39%, and only 9% identified increasing between 40-49%. There were no cases of product increases over 50% and only 6% of respondents identified applying no increase to product costs.

Again, the relative standard trend in product increases demonstrates a degree of stability in the mark up of products among electrical contractors, likely being driven by the need to remain competitive.

Finally, we asked respondents to identify how Material, Labour and Overhead costs had been affected as a result of industry trends over the last 12 months.

6.jpgCharts 6 and 7 demonstrate that many companies have chosen to keep their material and labour costs consistent over the last 12 months. However, when we consider Overhead costs 34% of respondents identified increases of more than 10%, however, they are followed closely by 28% of respondents who chose to keep overhead costs the same. The rise in overhead costs is to be expected as costs in general for fuel and equipment tend to increase regularly and require additional fees to offset these costs.

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Quite interesting is that 52% of respondents identified that their labour costs have not increased. This is interesting when we consider rising labour

costs, particular with the recent increase of the minimum wage in Ontario to $14hr. However, companies addressing these concerns are likely found in the 17% of respondents that increased by more than 10% and 13% of respondents that increased by less than 10%.

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Overall when respondent’s percentages for increases are accumulated there is an identifiable trend that companies are either maintaining costs or increasing. As seen above, relatively few companies have decreased their costs, and can be considered as an anomaly across the industry as a whole.

The included charts and considerations offer a view into some of the primary concerns among electrical contractors when determining job site costs and demonstrate that although some standardization has developed there is yet distinct variation in costing analysis across the country. What is provided is insight into the trends and direction of electrical contractor costing considerations that can be viewed against your current analysis as a means of comparison to how you register alongside similar Canadian companies.

 

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