All right, here’s the problem, construction business owners are bleeding cash from a hidden cost. It doesn’t show up on the bank statements or on an invoice, but you can bet it’s hitting your bottom line. It’s called opportunity cost, and here’s how it works. Think of your business as a machine, you put in back log or contracts, your expertise, resources like capital, labor, equipment, material, and your business turns it into revenue. Your machine has a maximum output of revenue per day based on the amount of inputs you can feed it. Labor, equipment, backlog et cetera.
What you’ve got to realize is that time is a non-renewable resource, once it’s gone you can’t get it back. So basically your machine turns days into dollars. And you need to make sure your machine is generating as many dollars per day as possible. So let’s look at how opportunity cost is calculated. Let’s assume your company has the capacity to generate two and a half million dollars a year or about $12,500 per day. But because your guys were delayed by an owner change or a lack of material, no plan, field change, they had to double handle material, the job wasn’t ready, there was an equipment breakdown, somebody forgot to pick up tools, spent an hour at the supply house or whatever, the actual revenue was $10,000 for that day.
In that case your company is getting hit with an opportunity cost of $2,500 per day. You’re paying for all the overhead, the labor, the equipment, but you’re missing out on $2,500 of revenue every single day. Now if you total that up for a year, you’re looking at half a million dollars in opportunity cost. Wouldn’t you like to have that revenue? What would that do for your profit margin?
That was at 80% efficiency. If you operate at 60% efficiency, the numbers are even worse, you’re getting hit with five grand of opportunity cost everyday, which totals up to a million dollars per year. There’s also a big opportunity cost for you as the construction business owner. What are you spending your time on? Are you spending time picking up materials, entering invoices? Are you doing stuff to try to save money? See a lot of business owners are trying to cut expenses, trying to reduce costs, but they’re focusing on the wrong cost, and they’re missing out on opportunity cost. Let me give you an example.
Let’s say a typical project for you is $200,000, that’s the contract amount. Assume that you win 20% of the projects you bid on, and let’s say you spend eight hours estimating and selling to get one of those projects. $200,000. Let’s say you’ve got 20% gross profit. If you do the math, that means the eight hours you spent estimating and selling that project are worth $1,000 per hour.
Let’s look at another example. Let’s say you could spend four hours planning your work for the next week or two, going through plans, looking for missing information, sequencing, scheduling, looking for mistakes in the drawings, and let’s say you could spend four hours planning the next two weeks worth of work and you could save $10,000 of mistakes, or improve your plan, improve your profits by $10,000. That means your time spent planning is worth $2,500 an hour.
So, the way to calculate the opportunity cost would be the amount of money you could make per hour minus whatever you could pay somebody to do it. So if you’re spending let’s say you’re bulking at paying somebody $50 an hour to do book keeping for you, you’re actually getting hit with a $950 an hour opportunity cost for every hour you’re doing book keeping, because you could be spending it doing something that’s going to make you a thousand dollars an hour. That’s how you need to think about how you spend your time. You’ve got to think about reducing opportunity cost, not avoiding cost. Does that make sense?
Well the good news is, there is a better way, all right? There is a better way to operate and you’re going to learn about it in these bonuses that I’m giving away today.
Well, here’s the good news, there’s a better way, and you’re going to learn about the better way in these bonuses that I want to give you. Frankly they’re game changers. One guy who learned about it said this, said, “This was so simple, but so many contractors work the hard way and still come up short. Love it.”
This guy, Shawn Van Dyke called me a genius when I shared this left to right thinking with him. I don’t know about a genius, but you can ask him about that. “This is so powerful, but simple. You might kick yourself for not thinking of it.”
But here are a few things that are going to happen when you start operating with this better way, when you start operating from left to right. First, your revenue is going to go up, period. And you’re going to have more time. Think about this, what would you do with more time? If you had four to six hours during the week, how would you invest that time into your business?
Have you ever thought about investing time into your business? When you invest something you expect to get a return, right? So what would you invest that time into so it would give you the maximum return? Would it be selling? Would it be building relationships? Would it be training your people? Would it be building systems to eliminate chaos? Maybe planning your projects? Think about how would you invest that time and what would that do for your business? What would that do for you?
Is your current situation preventing you from spending your time on things that would yield a better return? Well if you’d like some help figuring out what’s holding your business back and getting to the underlying problems behind those symptoms and then making a plan to attack those problems, and then having the resources and the training and the information and the proven ways to solve them, and I’ve got something for you. It’s the construction business accelerator. Right now I’m giving away thousands of dollars of free bonuses when you sign up, including my revenue maximizer, the sales accelerator, the project execution formula, the mindset upgrade and a whole bunch of other stuff.
Click the button below, or go to constructionbusinessaccelerator.com to see how you can grow your business, put cashflow problems behind you and turn your construction business into a well oiled profitable machine.