Finding the Right Person Can be Easy

Q:
I am interested in your knowledge and resources on hiring a manager for our flooring company. We have a thirty-year-old business, great customers, great employees, but not enough time for ourselves.  Please help.
Susan Kenser
Kenser Flooring, Inc.

 
A:
Hiring in today’s times should be easy. You don’t need someone with flooring experience-you can teach them the business. You need a good business manager! Call your customers, homebuilders and contractors and ask if they know someone looking for a job, who might fit the job description. There are a lot of good people seeking employment today. Call your local builders association, and ask for referrals. Also advertise on Craig’s List and Monster.com. If you spend one hour each day looking, you’ll find the right person within two months. Good hunting!

 
Q:
We are structuring sales commissions for our salespeople and wanted to see if you had any thoughts on compensation by percentage of net profit. Should there be a cap? Should percentage be different for customers the company already has established relationships with versus new clients brought in? Any ideas would be greatly appreciated.
William Pickering
Teton Contractors

 
A:
I always suggest construction salespeople have a base salary equal to superintendents or project managers plus an incentive that allows them to make an additional 50 percent based on their performance. The base pay compensates them to perform regular duties required by the company as a part of their job. Sales people don’t control job costs and should never set the pricing or estimate the work and then get a bonus on total sales revenue. I recommend commission be based on total bid gross profit or markup amount. For repeat customers, sales commission reduces over time to 25 percent of the initial commission. This diminishing fee structure motivates them to find new customers first and keep the old ones happy. For example: after their base salary, a 10 percent commission on gross profit for a new customer’s job is $1 million job at 15 percent gross profit = $150,000 x 1 percent = $1,500 commission. For repeat customers, reduce the commission to 50 percent or 25 percent, your choice. Happy selling!

 
Q:
I attended your “Profit-Builders Circle,” and you mentioned a “Safety Bucks” program you used in your construction company. Do you have any additional information on how this program works?
David Mangelo
MMM Concrete

 
A:
To get everyone on your field crew working together and on full-time alert to keep safe projects, implement this “Safety Bucks” program. Pay each field crew employee $1 per day for every day the entire crew has no loss time accidents. If any crew member has a loss time accident or injury, the entire crew loses their safety bucks for the entire period or job. This crew based performance incentive keeps them looking out for each other. You can pay out the bucks every month, quarter or at the end of every job by crew or entire company-your choice depending on how your crews are organized. Hold regular monthly or quarterly company safety training meetings and pay out the “Safety Bucks” in cash. Your crew members will enjoy a little spending money as their reward for a safe job well done. This program reduced our worker’s compensation rating from 128 percent to 78 percent in less than a year.

 
Q:
Do you have any advice addressing the dilemma of large general contractors (GC) bidding against small GCs who have much smaller overhead and workforce, etc.? We are consistently bidding projects against fifteen to twenty competitors! But most disturbing, in my opinion, we are leaving our “niche” to bid these projects. Our niche tends to be projects greater than $8 million, and we get absolutely killed in projects less than $5 million. I’m looking for any direct ammunition, statistics, logic, etc., to convince upper management to stay away from these smaller jobs. All I’m hearing is, “If we take it apart in more pieces, we’ll lower costs!”
Steve Palmer
Shelton Construction Inc.

 
A:
You are mistaken! Smaller contractors have a larger overhead as a percentage of their sales than larger contractors. For example, a larger contractor that does $20 million in sales most likely has an overhead of 5 percent, while a smaller contractor who only does $1 million in sales probably has an overhead of at least 15 percent to 20 percent. The real reason smaller contractors are cheaper than you is because they don’t know their costs and are working for wages and don’t markup enough for overhead or profit. To build a profitable business building projects in the size range you are best at, make decisions to never bid jobs against unqualified contractors, to customers who will even consider these unqualified small contractors, when there are more than a few qualified bidders to compete against or that don’t fit into your minimum size job category. Stop wasting your time seeking jobs too small for your company.

Taking a job apart actually costs more to build-more overhead, supervision, etc. More than six bidders is a waste of time and estimating. You have zero chance to make any money against twenty bidders. At least three of them are bidding at cost or less to just stay busy. It’s time to look for a new way to run your business. Perhaps you need to add more value, try design-build, become a niche builder and stick to it, or close your company and open a donut store. People will always pay for a better donut!


Construction Business Owner, March 2009