ONE RATE FOR THREE THINGS. PAST SIX HOURS IT LOST MONEY.
A site work and civil contractor came to us at $550,000 annualized in a partial first year. He wasn't in trouble. After thirty years of starting and owning businesses he knew his own habit: run flat out to survive, put off cash flow and systems until it's too late. This time he wanted the system built first. His time and material rate turned out to be the fault, and it was invisible because the work was profitable enough to cover it. He billed operator, machine and fuel as one combined number, so anything past a six hour day lost money and nothing reported it.
The ticket said something close to excavator operator, $650, nine hours. That is a number nobody can check, including the person writing it. Itemizing it raised his price 15 percent and the customer preferred the new invoice, because for the first time it showed what they were buying.
A $550K SITEWORK SUB. HE WANTED THE SYSTEM BEFORE THE CRISIS.
A site work and civil contractor at $550,000 annualized in a partial first year, with one primary customer sending regular hourly work at a decent profit. He knew the concentration was a threat and he wanted to know what it cost to run his business before he started bidding competitive work.
ONE COMBINED RATE, THREE DIFFERENT COSTS.
He billed a flat rate with the operator, the machine and the fuel inside it. Nothing in that number carried overtime, additional fuel burn on a long day, insurance, or general maintenance on the machine.
So the rate worked for a normal day and reversed on a long one. Past about six hours the combined number stopped covering what the day cost, and because the three components were never separated, no report could show which one had moved.
The reason it survived is that the work was good. Profit on the underlying jobs was healthy enough to absorb the loss on long days, so the business felt fine while a structural pricing fault ran underneath it.
A NUMBER NOBODY COULD VERIFY.
The tickets told the story. Excavator operator, $650, nine hours. One line, one price, three costs inside it and no way for anyone to audit any of them. The customer couldn't check it and neither could he.
Breaking it apart made each component answerable. What does the machine cost per day to own, fuel and maintain. What does the operator cost fully burdened, including the hours past eight. What does insurance on that machine cost against the days it really works.
The estimating review that followed put the honest price 15 percent above what he had been charging. He was certain the customer would refuse it.
WHAT CHANGED, WEEK BY WEEK.
THE NUMBERS, NOT THE FEELING.
Fifty five days from first call to eight contractors in the fold at the new pricing. The rate rebuild took about four weeks, and the diversification ran alongside it, never after, which is what made the next part survivable.
DOES THIS SOUND FAMILIAR?
Two things put a contractor in this position. The first is a combined billing rate. If your ticket carries one number for machine plus operator plus fuel, you cannot know which of the three moved when a job goes wrong, and a long day is the most common way it goes wrong.
The second is a customer who is most of your revenue. This one was profitable and reliable, which is what makes concentration so hard to act on. The work is good, the relationship is good, and the risk is invisible until the day it isn't.
The test is simple. Take your last time and material ticket and try to justify each dollar in it to somebody who has never seen your business. If you can't, your customer can't either, and neither of you can tell whether the price is right.
See how CFOS applies to sitework subcontractors specifically on theSitework Operating System page, or book a 20 minute call and bring your own numbers.
FREQUENTLY ASKED.
