Cost Control: Know Thy Overhead
Mike Yantis, the chief financial officer of Yantis Corp., a San Antonio-based construction company, tracks overhead closely. "During our region's last downturn, volume decreased while our overhead remained constant, and we didn't know how to lower it."
After careful analysis, Yantis notes, "we figured out that not every dollar of overhead cost is the same." Every expenditure for labor, for example, leads to quantifiable, additional expenditures for items such as payroll taxes and benefits.
"Now we analyze the related overhead costs for labor -- and other items, like materials -- with every job we bid on, to help us figure out where and when to lower overhead."
Yantis also distinguishes between the company's main-office (or administrative) overhead and the more variable costs of performing each job. "Based on last year's results, we know that 33% of our labor costs and 10% of material costs are main-office overhead. That helps me figure out our minimum profit margins on any job. If we can't cover main-office overhead, we pass."