D-Tools Certified Partner Process Dealer Services Group offers integrators advice on key business metrics.
We get to look under the hoods of many Systems Integration businesses each year through our work in implementing D-Tools SI software. This has given us broad insight to what successful System Integrators are doing within their operations as well as the metrics used to measure and maintain success. We have seen operational efficiency take center stage this past year for businesses to sustain viability.
Profit margins in many product categories are thinner than ever. Margins are dropping not just as a result of manufacturer price decreases and cost increases, but also as a result of increased competition among manufacturers, increased warranty period equipment failures as more manufacturers strive to meet lower price points for higher sales volume, and performance issues such as incompatible video technologies and digital rights management hurdles. We believe that lower equipment margins will force Systems Integrators to shift to more of a professional services business model near term. In the shift to such a model, the profit on equipment will no longer be significant enough to make up for production inefficiencies that have been deemed acceptable in the past.
So, all this talk of efficiency brings us to a key business metric that we will cover in detail in upcoming posts as well as in our newsletter Stuff That Works. That metric is Gross Profit per Man Hour or GPMH. Understanding how to evaluate a project’s profit potential by measuring the projected GPMH is essential to making a successful shift to a professional services model as a Systems Integrator. Measuring GPMH properly is actually very simple, but requires establishing thorough incremental estimating practices and a mandate to generate revenue from every service your company performs, right down to loading the trucks and driving to project job-sites, these tasks are valuable services.
To prepare for using this key metric, pull the records on one of the projects your company completed in 2007. For the selected project, record the total number of hours your company dedicated to the discovery, design, engineering, installation, programming, project management, travel, training, and warranty support tasks. Divide the total number of hours you record into the gross profit number accounted for the project. This result is the GPMH for the project. If you send me your findings before our next issue, I’ll share with you typical GPMH we see among our most successful System Integrator clients. What’s your number? Send it to firstname.lastname@example.org and we’ll all learn something!