What's the Real Cost of Landing the Job?

If you’re a small remodeling sole proprietor you’re probably working a very long week and wondering where all your time goes. Time spent at the jobsite is fairly easy to account for, but that’s not the case for many of the other functions you perform for your business.

Take generating work, for example. People talk about “backlog” and “jobs in the pipeline” when referring to the amount of work that’s waiting to be produced. The metaphor works if you think about raw leads going in one end and contracted jobs coming out the other. The transformation seems to happen as if by magic, but in reality, three basic things happen in the pipeline:

• You receive a “lead”—a request for service from a potential client—and decide to pursue it.
• You estimate how much the project will cost to produce and calculate a selling price.
• You present your proposal to the prospect who either accepts or rejects it.

Let’s look a little closer at that process and apply some industry-standard numbers to determine how long, on average, it takes to complete each of the three stages.

1. Develop the lead. On average, it takes 30 minutes to handle a call from a prospect to your business number. You have to get the customer’s basic contact information, find out what kind of project they are interested in, determine their timeline for start and completion, and maybe even discuss price range. If your company isn’t the best fit, you have to explain why and refer the caller to someone else.

If it’s the kind of work you like to do and it’s within the geographical limits of the territory you typically cover, a second set of lead-related activities kicks in, beginning with setting up an appointment to visit the site. Travel to and from your business location averages one hour, and once at the site, there’s a lot to be done. You’ll listen to the homeowner explain what they want in greater detail, will ask questions, take pictures of the site, and write down or otherwise record information that will be essential to estimating the job. All of this could take several hours, but let’s say you accomplish it all in just one hour. The total thus far to handle the lead is 2½ hours.

2. Prepare an estimate. Back in your office, you will likely spend one hour using the photos you took and your notes to create a sketch with all of the details you’ll need to create an estimate. The time it takes to estimate costs will vary depending on the scope of work and the methods you use, but the average for the industry is three hours. This is regardless of whether you estimate with unit prices or by counting sticks and bricks, and it also takes into account the need to make and follow up on calls to your suppliers and trade contractors. The total time for this phase is four hours.

3. Present your proposal and sell the job. On average, it takes about 2½ hours to prepare a proposal, meet with the homeowners, and reach a buy decision. Add an hour of travel time, and the total for this phase is 3½ hours.

All told, the average total time expended in attempting to transform one lead into one sale is 10 hours.

Where the Time Goes

So, how much time will it take to generate $500,000 in sales? To find out, let’s start with close ratio—the number of sales divided by the number of leads. In the remodeling industry, the average is somewhere around 33 percent. Assuming an average job size of $10,000, some quick math ($500,000 ÷ 0.33) tells us that you will have to estimate a bit more than $1.5 million worth of potential work to get $500,000 of actual work. That means looking at about 150 jobs to sell 50 of them, which at 10 hours each will require about 1,500 hours of your time.

That amounts to nine months of spending 40 hours each week doing nothing but handling leads, bids, and sales. Add that to the time you have to spend running the rest of the business—which, in addition to actually building out the project, includes scheduling subcontractors, paying the bills, and handling callbacks, to name a few—and it’s no wonder that you have to work such long hours when you are the only one in your company.

What’s the lesson here? First, it doesn’t matter what the industry-average numbers are, it matters what your numbers are. If you aren’t already keeping track of the kind of data I’ve used in the above example, now would be a good time to start.

As for solving the problem of being overworked, knowing your numbers will help you see where you get maximum return for your time. But it’s a complex problem that has many possible solutions. I promise to address some of them in future columns. In the meantime, I would like to hear your thoughts and ideas about good solutions. PR

Regular contributor Les Cunningham takes a closer look at the cost of turning a lead into a sale