How to Stop Selling Jobs that Don't Make You MoneyWednesday, February 20th, 2019
Have you ever heard anyone say, “There’s no such thing as bad sale or job, just bad pricing”?
I have. And I thought it was true. But then I learned about hotdogs.
What is a “HOT DOG?”
Let’s think about McDonald’s. They are super-efficient at delivering hamburgers. They have hamburgers down.
You order a Big Mac, Quarter Pounder, or a cheeseburger and it’s on the counter before you can pay for it.
But if you order a hot dog, they say, “Sorry, we don’t have hot dogs.”
Do you think that hot dogs are more difficult to make than cheeseburgers? Hot dogs aren’t any more difficult. They are just different.
In order for McDonald’s to give you a hot dog today, they have to go get the meat and buy the buns. McDonald’s will need relish and sauerkraut, things they don’t normally carry.
Because McDonald’s doesn’t have a supply chain set up, they will over pay.
Then they have to figure out how to cook the hot dogs and train their employees to cook the hot dogs. Next there is packaging and pricing. You get the idea.
McDonald’s CAN sell hot dogs, but they choose not to because they are not good at it and want to focus on what they are good at.
What Does a Hot Dog Have to do with Contractors?
Many contractors take jobs just because they can get them. Not because they are good at them, love doing them, or know what they are doing.
This is not adding on a service, but just taking on an odd job here and there.
The deck builder taking on the painting, the roofer taking on new gutters, or the basement remodeler adding a custom wine cellar. Yes, the contractor can figure out how to do it. But will it get priced right? Will the quality be there? Will it take the crew more time than considered?
The contractors wind up paying the price for an education and not making any money, even though the job seemed very lucrative when they sold it.
These types of jobs are hot dogs.
If your home improvement business is selling hot dogs, do the job costing on them and see if they are profitable. Compare them to the job cost of your regular services and see how the hot dogs stack up.
“Job Costing” is looking at the direct cost of doing an individual job, and calculating gross profit on that job.
To get enough information to understand what is happening, manually job cost the jobs you want to know your gross profit on. Do enough of them to see a pattern of what is happening with your direct costs and pricing.
At first glance, the added revenue on a hot dog seems great. But when we cost-out the job and look at margin, then we see the true cost of that hot dog.
Be disciplined and avoid hot dogs until you understand their true cost.
Job Costing is a module in The School of Entrepreneurship. Start your Free Trial subscription to the School today!