Posted by Mark Rossi on 20th Nov 2015
Focusing on what drives profitability
It’s easy in business, like life, to get distracted by the myriad of new trends and products. The trick is to remain focused on the core elements that drive the profitability of your business. Here’s where it gets tricky - you have to understand your business to know where to focus your attention.
Concrete grinding and polishing are both diamond processes and if you don’t have good diamond tooling, you are compromising the entire process. The current market trend is to go cheaper and cheaper with diamond tooling without any knowledge of the impact on the business. Why is this happening? Probably because it’s the easiest place to cut. If tool A sells for $30 and tool B for $60, I’ll take the cheaper one and save $30/piece. Unfortunately, this is perceived cost, not actual cost. To obtain actual cost, you need to run the tools head to head on the same floor, with the same grinder and calculate the cost per sqft. A tool costing less to purchase may actually cost substantially more to use, or worse, it may compromise productivity and cost you thousands in profits every month.
The more you examine your business model, the more it becomes clear that tooling is the worst place to compromise. It’s like buying cheap summer tires in a snow storm because they’re cheaper than snow tires. Yes, you will save money but it’s a very foolish place to penny pinch.
I have been developing diamond tooling exclusively for the concrete grinding and polishing industry for almost 15 years and at no point have I ever developed a tool for a price point. We develop tools based on the best business case for contractors. If that means a $500 or $750 cost per set then so be it. It’s counterproductive to develop a tool for a lower price point when it delivers less real value (although it may be great from a marketing point of view). The math doesn’t lie and I can’t encourage contractors enough to start doing the math and paying attention to the facts and not the perception.
Doing the Math
Understanding how to evaluate your tooling is one of the most important skills you can have as a concrete polishing contractor. It’s time to learn how to analyze tools, cost seems to be the biggest concern so we’ll start there.
Evaluating the cost of your tooling is a simple formula. You take the purchase cost of a set of tools and divide it by the number of sqft you ground with that set. If your set cost $500 and you got 15’000sqft of grinding out of the set, the equation would be 500 divided by 15000 which equals 0.033 or a cost of 3.3 cents per sqft. Make sure the tool's were used on appropriate floors for the type of bond and grit. This essentially means, that you ran a medium concrete tool on a medium concrete floor. You require a basic level of skill and proper tool selection to perform tool evaluations.
Evaluating tool cost is something you should do on a regular basis to establish baseline numbers for different types of floors and removals. The reality is that most good brands, although there aren’t many, will provide an acceptable cost per sqft. The real advantage is in production rates.
While cost per sqft is important, it pales in comparison to your production rate, which is your single most important stat and where contractors can find their true competitive advantage.
Like cost per sqft, production rate is equally simple to calculate. The formula for calculating your production rate is your sqft ground divided by time in hours. So if you ground 5500sqft in 8 hours it would mean a production rate of 687.5 sqft per hour. High production rates are the holy grail of the industry because the amount of work you complete in a day or week is directly tied to the amount of work you can bill. If you could bill 50% more work per week you would make far more money than if you reduced your diamond tool cost to zero. You can only save so much by cutting your diamond tool cost.
I’m going to cover this topic in more detail in a future episode of Concrete Profile because it’s too complex and important to cover with one blog post.
Just Do It
There’s only one thing left to do, get out there and use your new found knowledge. Remember to focus on your production rate and how you can increase it without compromising quality. Second, make sure you understand your tool cost and that it stays within an acceptable range but don’t obsess over it because it will only distract you from focusing on what truly drives profitability - high production.
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