creating an efficiency scoreboard for your service business!

Hey, everyone, it's Mike Andes. I'm the founder of Augusta Lawn Care. We have almost 100 locations around North America. And today I'm talking about the most important thing for every single home improvement business. I don't care what industry you're in, I don't care how big you are. At the end of the day, knowing how efficient your labor is is the most important thing. For most small businesses that are doing landscaping, lawn care, roofing, construction, whatever it is you do, pool service or janitorial, whatever it is, this is the most important thing for your business and that is how efficient is the labor that is going out to the customer? Because ultimately in the home improvement industry, really all we're doing is selling labor at a marked up cost. We try to buy labor for $20, $30 an hour from an employee and sell it to a customer for $70, $80 per hour by making sure there's scheduling and there's routing. Also having inputs of materials and equipment that we need to get the job done. So all we're trying to do is sell labor for a marked up cost. That's all we're doing. The same way that you would sell a shirt, buy it for $5, and sell it to the customer for $20 at a retail store, we're trying to do the same thing with labor. Trying to sell one hour's worth of labor from an employee and mark it up to a customer. And that is how we make money. So knowing how efficient you are with that labor is extremely important. Now this is something we track all the time@p4psoftware.com and you can go there, check out all the training for free. Just go to p4psoftware.com training but these two numbers you've got to know. How do you detect and be able to analyze the efficiency of your employees? Who are your highest performers? And over the course of time, how efficient is all of your team? Not only who's the best performers, but over the course of time, are you improving or are you decreasing in your efficiency and how well you are allocating hours and labor inside the business? Let's jump into it. But before we do, I want to say a big thank you to everyone that supported the channel. We're actually hiring another person on the media team to, to be able to make this content even better. And I put every single dollar in from lawncarewebdesign.com, homeservicewebdesign.com, p4Psoftware.com, lawncaremedia.com, the MBA for Entrepreneurs course, all of that money goes back into making this channel and this content better. And so I just wanted to say thank you as we grow the team, it's because of all of you supporting the channel and all that's in the links, in the description, or just go to mikeganige.com I just want to say thank you as you see the channel continue to grow. We're over 44,000 subscribers now. It's gonna start growing here. It's because all of you just supporting so much, and I'm able to invest that back into making the content better. So thank you so much. But back to our regularly scheduled programming. We're talking about efficiency. So this is the first way that you can calculate efficiency. And you can take your effective hourly rate divided by your target hourly rate, and you're like, okay, this is too much, too much math for this early in the morning. Okay, let me explain. Okay, so effective hourly, right down here, is basically the labor revenue that the employee earns for the day, week, year, whatever, divided by clocked hours. So let's run the math on a daily basis to find our effective hourly rate. For one employee, let's just say that they earned $600 in labor revenue for the business. Doesn't matter what services they're doing, mowing, landscaping, whatever they've got in labor revenue. Not total gross revenue, that includes supplies, materials, all the rest of it, but labor revenue, how much they earn for the business, and divide that by how many clocked hours that they worked in that day. So let's just say it's 10. They worked 10 hours in the day, and that's how much. How long they clocked in to clock out was 10 hours. That would mean that our effective hourly rate would be $60, $600 in labor revenue divided by clocked hours. That is our effective hourly rate for that employee. Now, let's say that our target hourly rate, or the amount that we try to charge the customer per hour on the job is $80. And so when you go to an estimate, you're like, that's gonna take five hours. Well, if your target hourly rate is 80, that would mean that 80 times 5 equals 400. So that's what our target hourly rate is. Simply the number that we are charging per hour to the customer on a job. So if we're gonna determine that as being 80, well, that means if we take our effective hourly rate of 60 and we divide that by 80, that is going to mean that this efficiency score is 75%. And this is the number you want to track. Because look, if this person was more efficient, and Instead of taking 10 hours to get that $600 in labor revenue, if it only took them nine hours, all of a sudden, now you do the math. 600 divided by 9 is approximately 67. So now if I take that 67, divide that by 80. Now all of a sudden, my efficiency score jumps up to 84, approximately percent. So this is a score that you can track for every one of your employees. And it's simply a matter of how efficient are you. The higher this number is, the more efficient the employee is. The higher this number is over the course of time would mean that you're becoming more efficient with your labor. The same thing can be said. Okay, you just do the math here. Like, if they made more money, this number's gonna go up. If this number goes up, then their efficiency score is gonna go up. This is a great way to do it. Effective hourly rate divided by your target hourly rate. You can do this for every single day. All you need to know is how. How much labor revenue did that employee or crew make? And divide that by their total number of clocked hours. And if you have two people on a crew, that's fine. Maybe they make $1,600 a day and they worked 18 hours combined. You can do this math. As long as you're consistent every single day, this percentage will tell you how efficient that crew or employee is. Now, another way that you can do this is use budget hours divided by clocked hours. For example, you have a big project and you're like, hey, I think it's going to take 68 budgeted hours to get this paver patio installed. There's retaining wall installed. Great. Well, how many clocked hours did it take to get the job done? Well, it took 40. Okay. Well, if you do the math on this, literally this comes out to 170%. Very, very high. What happened here was we budgeted the project will take 68 hours. They got it done in such so fast. So that's why they have such a high efficiency score. Now maybe you're on a mowing route for the day and we're going to use the same method again. You can use either of these methods. And really what's going to come down to is if you use budget hours and in your commonplace, in your business, and this is what we Recommend inside of p2psoftware.com this is kind of the simple method we call it, and it's Called the advanced method, where in the advanced method, you have the budgeted hours on every single job. So for example, what I'm going to do is for a mowing route, for example, budgeted hours for the day, I might have eight budgeted hours on the cruise route, on one employee's route, solo person in the truck working all day long. Okay, great. Well, they're going to get the jobs done and it's going to take them 10 clocked hours. So they're gonna work from say 7am till 5pm That's 10 clocked hours. And they're gonna complete eight budget hours worth of work. Again, eight divided by 10, what is that? 80%. So there again is my efficiency score. Now you're asking, everyone always asks, what is the right score and what is the right a good number for me to be targeting? In my opinion, you want to be at least 70 to 80%. Anything above that usually is really efficient. What that means is, is there's not a lot of waste. Because between budgeted hours and clocked hours is waste. The difference between eight budget hours on my mowing route and then the 10 hours it takes me to clock for the day is drive time. Fueling up, unloading the equipment, loading it back up. That's all wasted time. So what that would infer is if I'm 80% efficient, it would mean that I'm 20% inefficient, or there's 20% of my day that is spent on wasteful activities. And not necessarily wasteful. They might be actually crucial to getting the jobs done, like fueling up and taking care of the equipment, but it's not actually producing revenue. So 20% of my day would be considered waste. Okay, now for different types of services or different types of areas of the country, this might be different for you. For example, if you're doing really high end design build commercial work, 50 or 60% might be fine for you because you're charging such a high hourly rate, a target hourly rate of $120 or $150 per hour doing excavation, for example. This number could be a lot lower because you have a lot more load time picking up materials, etc. But in general, I consistently see companies have under 60, 65% of their efficiency score. This number right here, if they're consistently under 60 or 65%, they will almost never be profitable. And the businesses that I see in the home improvement industry that consistently have an 80, 90, 95% efficiency score, they're the ones that constantly are running very high profit Margin businesses, businesses that have management in place run without the business owner because you need these type of margins in order to run without the owner. Because guess what, if I have a really a crew that's just not very on top of their game, Instead of taking 10 hours, it takes them, let's just say 16 hours. Maybe a crew, a crew of two people, they work eight hours. So a total of clocked hours of 16. So now instead of this one person getting eight budget hours done, it takes two people working eight hours each. 16 clocked hours. All of a sudden, look what happens. Eight divided by 16. And I am now at 50%. I can guarantee you, I can guarantee you this company is inefficient. There's lots and lots of waste, and they're not going to become profitable because that means that 50% of their day, 50% of their clocked hours are spent driving, sleeping at a gas station, going to the bathroom, taking a nap, smoke breaks, loading and unloading, getting coffee in the morning, jibbering, jabbering, whatever it is, they're wasting time throughout the day. And at a 50% efficiency score, it means that literally 50% of their day is waste. It's not producing revenue for the company. I can almost guarantee you this company will not be able to make money. They will definitely not have high profit margins. And so what I recommend you do, there's no right or wrong percentage. I'm kind of giving you a general theme of, hey, shoot for above 70%. That's what I want you to shoot for. Anything below that, I'd try to be working on your efficiency. Anything above that, I'd be knowing that there's always room for improvement. You can always make your routes tighter. You can always make sure that you cut out the jobs that are way far away. You can make sure that your trucks are parked in a way that they can get out the door faster in the morning. Make sure your crew understands how P4P pay for performance works so they actually are motivated to get out, get working, and have as few clocked hours and get as many budget hours done in their day as possible to improve the score. You can do all those things, but it's not so much about having a good number. I want you just to start tracking it over time so you can see what is the trend over time for every employee and for my team and my business as a whole in terms of efficiency. This is a number that you must know. This is actually why@p4psoftware.com, we are in the next few weeks, rolling out a feature. Because we've always tracked this number, we've always tracked the efficiency score and the target hourly rate or the effective hourly rate. We've been tracking this for a long time. But over the next few weeks, we're actually rolling out a feature where you're gonna be able to see these numbers over the course of time for your whole team, your whole business, and for each employee. And furthermore, the employees are gonna be able to see it too. So when they might just get started, they're just learning how to do their job, getting trained up, first few weeks, and they're gonna see they're not very efficient. They might see a 30, 40, 50% score, but over a course of time, they say you see 60, 70, 80%. And then all of a sudden on P4P pay for performance, they actually start making more money and getting more incentive and more bonuses because this efficiency score starts to go up. And depending on how do your calculations inside of P4P. And again, we can help you with that. Our team, Brad, he's a cpa. He's happy to get on a zoom call with you, make sure you get set up correctly. But when you start getting above 70% is usually about the time they start making above base pay. They start making performance dollars, we call it. When they start making more money on their paycheck and they're incentivized to get out the door faster in the morning. They're incentivized to move quicker throughout the day. Not take 5,000 breaks, not take three at every gas station. They see that is the ability for them to make more money, the business being more efficient. And everyone is able to benefit because ultimately waste people stopping doing absolutely nothing makes no money for the business. The customer is not helped. And the employee, there's no meat on the bone. There's no profit for the business for them to make more money, or performance dollars, as we call it. And bonus on their paycheck for being efficient. The harder they work, the more money they can make. Check out p4pssoftware.comtraining for more information. Or if that's a completely foreign concept to you, watch this video here. I Talk all about P4P and why it's so important to know what your effective hourly rate is. To be able to know what budgeted hours are on a job. It's very, very important to know what your efficiency is. Check out this video right here.