As I write this column, it's Black Friday, the day after Thanksgiving, a day that for many retailers symbolizes a positive turn into the black for the financial year. It prompts me to review my own operating statements for the installed sales programs of all of our centers to determine if we are in fact making money at this. Thankfully, our answer is “Yes.” But I know we can do better.

Making money from installed sales is obviously important. But there's more to analyzing the success of your program than just those numbers. You must understand the true cost of doing business and understand how inefficiencies add to that cost.

Many installed sales managers think that if they are paying an installer $15 per hour and they are charging their customer $17.50 per hour, they are making money on labor. But that isn't necessarily the case. In the Yard Foreman seminar I used to teach, one of the issues I dealt with was the cost of delivery. The trucking cost. It never ceased to amaze me the number of yard foremen/managers who simply did not know the real cost of operating their trucking fleet. The same holds true for installers: A large number of installed sales managers don't know the true cost of running their installed operation.

The primary culprit is that installed sales managers fail to understand the true hourly cost of labor. While it's quite simple to determine the cost of material, labor is a bit more complex. You have your obvious hourly rate of pay for your installers, adjusted for local practice and demographics. Then add to this a benefit package of whatever percent. Many managers will consider this complete and use that figure as a cost for labor. But there's more.

You also have to add a certain percentage for other “miscellaneous costs,” such as downtime. In the Midwest, we have what is known as snow, a phenomenon that not only can hamper the ability to work, but also turns installers into $17.50-an-hour broom pushers. Or they're sent home. So downtime needs to be factored in, along with holidays, vacation days, sick days, and the non-productive time they spend hanging around the warehouse, loading and unloading trucks and trailers. This can add up rather quickly if you're not on top of it.

What are the annual salary and wage costs for your operation? Start with the hours available during the work year (2,080 hours x 7 employees = 14,560 hours available). Now take your total salary and wage cost, let's assume it's $222,000, and divide it by total hours available. This gives you $15.24 per hour total “actual” cost. Now add the miscellaneous. You can use whatever multiplier you feel is appropriate or realistic for your company. For this example I'll use 1.5 to account for “downtime” and the other factors listed earlier. So now our figure looks like this: $15.24 x 1.5 = $22.87 per hour. This is now your “working cost” of labor per hour for every hour your installers spend on the clock, whether on the job or standing around the water cooler.

Finally, in addition to the installers' wages and costs listed above, you must factor in the manager's salary, any anticipated bonuses, wage increases, etc.

Without doing these calculations, you really do not know the true cost of your installed sales operation, and therefore can't fully answer the question “Are we making money at this?” Doing these calculations also demonstrates why operating efficiently is key. As a man-hour–sensitive service, installed sales is particularly vulnerable to “wasted” time. Keep your crews on track as much as possible to limit downtime, increase efficiency, and decrease your true costs.

Mike Butts is director of installation services for United Building Centers. 507.457.8453. E-mail: