Contractor Cents: Can you afford not to hire a warehouse staffer?
August 1, 2006
No matter the size of your operation, you need someone to pay attention to your warehouse, be responsible for it, and get materials for the installation and service personnel.
I've found that even relatively small companies - under $1 million in annual volume - can afford a warehouse person or parts runner. Here's how to calculate the revenues you have to generate or the savings this person must provide your company to pay for the position.
For the purpose of this exercise, assume the worker would earn $10 per hour with a benefits package that adds 33 percent to their total compensation. In addition, assume that this person's truck will cost $8 an hour to operate.
With the cost of gasoline near record highs, this assumption is the toughest to make.
If prices keep increasing, you might have to adjust it.
The total labor cost of this person to your company is $10 per hour, multiplied by 2,080 hours per year, times 1.33 (including the benefits).
This total cost of the employee is $27,664. If the truck is also operated for 2,080 hours per year, the truck cost is $16,640 (2,080 times $8 per hour). The total cost of this employee is $27,664 plus $16,640, which equals $44,304.
Since this is an "overhead" position - the worker doesn't directly generate revenues - to calculate the sales needed or costs saved you divide $44,304 by your company's gross margin. If your company's gross margin is 35 percent, then the amount is $126,583.
Keep tabs on techsNext, you need to know how many technicians or crews you have. If there are five people who deal with inventory, then the savings must be $126,583 divided by five or $25,317 per employee. Can a parts runner/warehouse person save this much? Usually.
First, determine your inventory losses last year. I'm not going to even guess what they are in your company. You should know.
Figure that the warehouse person/parts runner can decrease 95 percent of those losses.
From an operations standpoint:
If you can keep a technician productive one additional hour per day, that gives you an extra 250 hours per year (assuming holidays and vacation). If your hourly rate is $100 per hour (flat rate), that is $25,000 per technician - not including parts sales.
If you can generate one additional hour per day on an installation job the same way, the warehouse person/parts runner has paid for himself or herself.
Do the exercise for your company. There are different labor and truck costs depending on the geographical location you are in.
Calculate your saving based on your actual financial statements.
If you lost $126,000 in inventory last year (and I know some contractors who lost more), the warehouse person is paid for without field-labor savings.
I think that you'll find that hiring a warehouse person can be justified.
ServiceAfter you've hired a warehouse person, the next group to keep productive is your service department. Your warehouse person can help by making sure the technicians always have the parts they need.
Each technician brings, at a maximum, 2,080 hours of labor per year.
Most produce much less. It is the manager's job to ensure workers are as productive as possible. Your service technicians are your eyes and ears. That means looking for things that are going to cost the customer money. This also means looking for work.
I don't mean changing parts even if they don't need to be changed, or charging customers for services they don't really need. A technician's job is to educate customers and bring up things that can potentially cause problems in the future - preventive maintenance.
Tell technicians to write everything down. Technicians will find dirty systems, out-of-balance blower wheels, worn bearings, leaks, etc. Bring these to customers' attention and quote the repairs. If your company has a flat-rate pricing system, all the technicians have to do is look in the book.
When they quote the repair, many times the customer will OK the job. After all, the technician is already there.
Imagine what would happen if you increased the revenues on each service ticket by just $10 each. Most of that $10 will fall to the bottom line. If you generate 1,000 service tickets per year, that is almost $10,000 extra.