Azione's Richard Glikes on "Cloudy Labor"December 3, 2013 By Richard Glikes
(Richard Glikes, founder of the Azione Unlimited buying group, issued this open letter Monday with some of his thoughts on labor costs. Here we republish the letter, with his permission:)
Recently I attended the IPRO annual conference in Ft. Lauderdale. For those of you who are unfamiliar with Ipro, it is the independent manufacturers’ representatives’ organization. The conference message was frightening. I mean really scary. They had three great speakers and two of them had me questioning the viability of integrators in the future. It seems like there is a clock on profitability and hardware. Both speakers, Rich Green and Mark Valenti, spoke about the omnipresent cloud and how control systems would become apps on a phone. Hardware for the most part will be like the cassette and 8 track of the past, gone but not forgotten and decreasing in margin rapidly.
They got me thinking about what we would be left with if the cloud contains the sources like movies, music, and data as well as apps to run everything. What’s left is labor. It’s the one thing you can’t substitute. We have an infinite amount of products. Think about being out of a particular speaker what do you do? You replace it with another from the same or a different manufacturer. Same with all our hardware, there is an infinite amount. But what about labor, there is only so much. We have an infinite amount of product and a finite amount of labor. What we do wrong is twofold; one, we don’t charge enough and two, we don’t manage it well.
What’s the right price for an hour of labor? You have to put all the hard costs and soft costs into your profit blender to come up with the right number. In goes hourly pay, the truck, the gas, insurance, the office expense, workman comp, taxes, and call backs to list a few. What about the profit on labor? That too should be in the equation. Does your plumber or electrician have any compunction about charging you a flat fee to enter your home regardless of problem, time, or materials?
No, and you pay it because that is the way they conduct business. What is wrong with us? We charge too little and are inefficient. Raise your labor rates! Whatever you think the right price is, add at least $25. My guess is we should get used to charging $149 an hour. You only have so much. We must think of it as scarce!