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The fine art of job costing

April 1st, 2008 / By: / Feature, Finances

How to avoid surprises that could hurt your bottom line.

There’s no such thing as a free lunch. No matter where a tented luncheon or special event takes place, you can be sure that every tent, chair, table, glass and fork has been accounted for and assigned a price. Every minor detail that goes into creating a memorable event has costs associated with it, and rental companies that don’t figure those costs correctly don’t stay in business for long.

Time is money

Installing and tearing down a tent efficiently is the key to keeping labor costs at a minimum. When putting together a costing model, companies often track every aspect of the job to make sure every minute counts. This allows companies to factor in direct and overhead costs, track expenditures and have more control over the bottom line.

Steve Frost, president of Stamford Tent & Event Services in Stamford, Conn., says he costs about 90 percent of the company’s jobs because he knows that administrative work, insurance and labor play a part in the big picture. He tracks the number of hours in pulling and preparing the truck for installation, then reverses the process for teardown. He doesn’t stop examining costs until the tent is washed and put back in storage.

“We take all of that into account to find the ideal job cost,” Frost says. “We have standard rental rates and we know how to adjust those costs when it comes to extraordinary installation costs.”

Dennis Birdsall, general manager of Premier Party Rentals Inc. in Stuart, Fla., says he works backward when pricing out the job in order to determine the bottom line for every variable. Can the truck be driven into the job site? Will installers have to haul the tent 200 yards to the site? Are they going over trees and bushes? Is it winter, making the ground difficult to work with?

“We don’t think about how much time it should take, because every job is different,” he says, noting that unforeseen circumstances can greatly change the way the job is configured. “Sometimes the smallest thing can make or break the profit. Sometimes the sales department misinforms us about the job, which can waste time on some of the more complicated jobs.”

Keeping track of every detail

Rental companies generally know their overhead costs well and factor them into the pricing model effortlessly.
“In our job costing, we do break down all of our direct costs because we know our indirect costs and we know where our bottom line should be,” says John Crabbe, president of Vermont Tent Co. in South Burlington, Vt. “We break down every part of the job from pickup to unloading the truck. Job costing helps to decide how many men should go on each type of job. We know that weddings have more detail work and take longer than a backyard party. We feel it is important to keep track of what we can in order to be able to make adjustments and become more profitable as a company.”

Fluctuating fuel costs are a particularly tricky issue for rental companies. Tent rentals are booked months in advance, and it’s difficult to predict what fuel prices might do between the time the client locks in a price and the time of the actual event.

Ken Jacobs, owner of Raymond Brothers Ltd. of London, Ontario, Canada, began purchasing fuel 2,000 liters (528 gallons) at a time to keep his fuel costs manageable. “Having onsite refueling is a huge asset,” Jacobs says. “We plan on two trips per job, but if we have to make a third trip that we weren’t planning on, we have to try and balance it on the jobs where only one trip is needed. You become good at not forgetting stuff.”

When onsite refueling isn’t an option, some companies increase delivery charges or add a surcharge to balance fluctuating fuel prices. Birdsall says he has had to increase his delivery charges, but he has also taken the extra step to arrange setups geographically to minimize delivery costs.

“One of the things we can control is getting as much equipment on the truck and being as efficient as possible,” he says. “If you are making small deliveries, you have to try and cram as many of them on a route as you can. We plan accordingly, and if you have another job nearby, that can help you a lot.”

Crabbe says a lot of clients are put off by additional surcharges, so his company has raised its prices to compensate for fluctuating fuel costs, and he has also focused on the truck-loading crew.

“We don’t want to make mistakes loading the truck, so we have hired a specific loading crew that has bonuses and incentives for loading the trucks accurately, and that has made a difference,” he says.

Controlling inventory

Adding new equipment and depreciating older materials are additional factors in the job-costing model. Software programs that help price out jobs and inventory can also help you decide where new materials are needed. Crabbe says he looks at how often they have had plenty of a particular product or have run out and had to sub-rent. After 30 years in the business, he says he knows what his tents earn him per square foot and what kind of return he gets per item. His company also depreciates its materials per IRS standards annually.

Jacobs says he inspects tents yearly for quality purposes and depreciates them over a 10-year period.

“We don’t get rid of too much of our inventory, such as dishes and cutlery. We find that we are adding to it and making sure that anything that is damaged gets repaired so that it is not down for any length of time,” he says.

Loss of items can quickly add up to major financial problems. At any event, tables can be moved or misplaced, so it is important that everything is accounted for. Damage also has to be evaluated. Frost says his foreman analyzes the condition of materials during takedown and notes any repair or cleaning needs for a particular tent. Having an in-house maintenance staff helps with necessary repairs. He plans each year to reinvest 10-12 percent on new equipment, which balances the company’s depreciation figures.

Of course, the best inventory investment is to take care of materials in order to get the most life out of them.

“I see many companies throw equipment around, and that puts a lot of tear and strain on it,” Birdsall says. “Taking the time to lay ground cloths to prevent scratches and stocking materials clean rather than dirty will help you get the most out of your money.”

Julie Young is a freelance writer in Indianapolis, Ind

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