Biggest Mistakes when Estimating Labor – and How Sales Software Can Help

Estimating labor is an art form..Here are 7 common mistakes made when quoting labor and how sales software can help!

By Tracy Larson

Estimating labor is an art form. It’s where the wiggle room exists – where jobs become profitable. Parts are parts. You can only add so much profit margin to them. When you charge for labor, customers are paying for your company’s specialized skills, services, and expertise. They expect to pay a premium for it, but it can be tricky to come up with just the right hours to support project needs and finalize the sales investment. Overestimate labor, and you might lose the job. Underestimate, and you’re leaving money on the table and decreasing company profitability.

Here are seven common mistakes made when quoting labor and how sales software can help prevent you from making them.

  1. Lack of definition of labor categories with fully burdened hourly costs

At the heart of job estimating is inclusion of the proper labor types, hours, and cost and sell rates.  Sales management software enables definition of company labor categories with fully burdened hourly costs, and proper hourly sell rates.  Ensuring hourly rates account for burdened costs, not just the average hourly salary, is a huge boost to increasing profitable estimating.  Software also allows user settings to control what can be done, or not, at the user level.  For instance, users may be able to adjust the hours included per labor category, the types of labor included, and perhaps even adjust profit margin per category, while not changing hourly costs or sell rates above or below set profit margins.

  1. Miscalculating the correct number of labor hours

Estimating labor for simple, routine jobs, like home security systems and small business access control and video, is pretty straightforward, especially considering the emphasis is on selling longer term contracts with monthly services versus, immediate profitability. However, larger commercial security projects can be anything but simple. Estimating installation of pipe, wire, cameras, card readers, door sensors, motion detectors, intercoms, and other devices, requires labor. So does installing and configuring networks, servers, software, engineering system integrations, providing As-Build drawings, and training customers.

Sales management software allows for configuration of baseline labor types and time, associated with devices within the parts database. For example, a card reader might require an average of 30 minutes of a technician’s installation time; each camera – one hour. As parts are added to estimates, the associated labor is automatically included as well. Part level labor is accounted for and can be shown as separate line-item totals. Adjustments sometimes need to be made to default values, but having a reasonable starting point helps sales and estimating teams eliminate errors, keeping margins in line with desired profitability.

Furthermore, the software can be configured to require review and approval of quotes before they are presented to customers. For example, quotes by junior salespeople, large sales beyond an established threshold, or quotes that fail to surpass a minimum margin can automatically notify the proper personnel responsible for review and approval. Only after they ascertain that everything, including labor, has been estimated accurately, can the salesperson hit the “send” button.

Even better – a the software maintains an audit trail of job approval reviews, satisfying everyone, and enabling the sales process to move forward efficiently and effectively.

  1. Quoting the wrong kind or level of labor

We all know that labor rates vary by labor categories, typically associated to a required skill level and job performed. For instance, a junior installation technician’s cost and sell rate per hour is lower than that of a senior low-voltage technician, who is less than an IT specialist.  Some projects require “prevailing wage” labor.  Salespeople don’t always know the type of labor needed for a specific job, the proper ratio between less-skilled and more specialized workers, or the proper hourly sell rates. Manual processes and getting it wrong can harm project profitability.  Software that enables selection of various kinds of labor per job is invaluable in getting the right labor, labor rates, and hours on estimates.

Just as sales management software can associate labor with parts, it also allows definition of the correct type of labor and pre-defined hourly cost and sell rates, critical factors in achieving the most accurate estimated profit margins for sales. And, as mentioned previously, automated approval processes for certain types of projects provide another safety check to keep inaccurate estimates from going out the door.

  1. Failing to adhere to required labor rates based on geographic region or contract pricing

The same labor type may have varying cost and sell rates based on different geographic regions, or prevailing rate schedules for different states or contracts. A Project Manager in one geographic area may have higher hourly cost and sell rates than the same title in another geographic area. Rates can also be dictated by pre-negotiated contract pricing through various procurement networks. Salespeople might work with a customer and quote labor using one table of hourly rates, and for another customer need to use a completely rate schedule. When quoting projects for state or federal contracts, getting part pricing and labor rates wrong isn’t just a mistake; it can be illegal.

Sales management software that automatically shifts rates per geographic region, or per contract type selected, makes quoting more efficient, accurate, and buys down risk.  Allowing salespeople and system designers to easily switch between labor rates, choosing the proper pricing based on the customer, contract, or geographic region is essential to growth and profitability. Labor rates can even be associated with particular customers by default so that there’s never an opportunity to make a labor rate mistake.

  1. Tax Errors

What’s almost as painful as paying taxes? Calculating them! Every state and province has its own rules about how labor is taxed, and not all labor necessarily falls into the same bucket.

Specialized tax modules, designed for the types of labor provided by security solutions and service providers, can dramatically reduce the headache of estimating taxes on labor. The software keeps track of labor line items separately from the rest of the quote, then applies the tax rate and calculates the correct sales tax as an estimate is generated.

  1. Inconsistencies for multi-site customers

Who doesn’t love winning a national or regional account? With customers located all over the place, they’re frequently handled by more than one office and multiple salespeople.

Keeping these accounts happy and loyal is incredibly important. Make one customer contact unhappy, and you risk losing the entire account. So, what happens when the customer in Buffalo, NY, finds out that the location in Hartford, CT paid a whole lot less for a similar security system? There could be valid reasons for the differences, but if there aren’t, it’s pretty embarrassing and hard to recover from.

Sales management software offers a centralized platform that ensures consistent quoting by all of your offices. It’s easy to compare, and even copy, quotes provided to a single customer from different salespeople. If a specific camera takes 1.5 hours to install and program in Hartford, that’s how long it takes in Buffalo too. Plus, if the customer has a standard set of parts and systems that it uses at all its locations, the software will make sure that’s what’s quoted – along with associated labor.

  1. Overlooking miscellaneous labor costs

Even with quoting software that simplifies calculating labor, miscellaneous labor-related expenses are easy to overlook. For example, any subcontracted labor must be added to estimates, including cost and sell pricing.  Travel to and from a remote job site not only requires gas and wear-and-tear on vehicles, but it is time workers can’t be doing something else. Renting special equipment for workers to use, like a lift to install warehouse cameras, is another miscellaneous labor-related expense. The cost of permits is a fourth example.  Although some of these are not direct labor, the job is not done without them and these costs must be accounted for and invoiced to the customer. Here’s where quoting software designed especially for the security industry really stands out. These platforms include a category for these common miscellaneous expenses and provide prompts to make sure they’re not forgotten.

Summary

For security sales, quoting labor correctly can be one of the most challenging aspects of estimating properly. Given the complexity and unique site-specific challenges of security projects, even the most seasoned sales reps are prone to making errors. Sales management software provides tools and automated processes to eliminate the most common mistakes and increase estimating efficiency. It ensures consistency in how hours are estimated, that the right labor categories are quoted, taxes are correctly applied, necessary approval processes happen, and miscellaneous labor-related expenses are not overlooked. Furthermore, given the unique nature of security sales, industry-specific solutions are best suited to accommodate sales and estimating needs for flexibility to quote jobs of any size and any level of complexity.

How has sales management software helped your organization get a handle on quoting labor? Please share your success story!

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