5 Critical Metrics Every Scaffold Business Needs to Know
“Domino’s 30-Minute Delivery or Free Pizza” is not just a marketing gimmick. It’s also a quality metric that measures the efficiency of the company at delivering goals (and, of course, pizza).
With performance metrics, you can evaluate how successful your business operations are at accomplishing key company objectives. Most importantly, you can swiftly make amendments should the metrics show a downward trend.
But there are a lot of performance metrics, and using them all is not practical or helpful. They key is to choose metrics that can accurately and concisely reflect your company’s main objectives.
In today’s blog post, we’ll let you in on the five critical metrics that the most productive and profitable scaffolding businesses use to track their success.
Using Company Objectives to Establish Meaningful Metrics
For mariners, a lighthouse serves as a navigational tool and warns them of potentially dangerous areas. In the business context, performance metrics function as the lighthouse for organizations.
These metrics guide your company to accomplish goals successfully by evaluating the effectiveness of business operations. They keep your company afloat by quickly revealing activities that fail to achieve business goals.
Since these metrics can make or break your business, it’s important that you establish meaningful metrics based on your scaffolding company’s key strategic objectives. This way, when you achieve your Key Performance Indicator (KPI), you’ll successfully accomplish important business objectives too.
For most scaffolding businesses, key objectives and the corresponding metrics may revolve around the following important departments.
- Key Objective 1: Achieve and maintain high profitability
- Key Objective 2: Maintain healthy cash flow
- Key Objective 3: Minimize inventory losses
Customer Service Department
- Key Objective 1: Provide excellent customer service
- Key Objective 2: Attract and retain profitable customers
- Key Objective: Achieve and maintain high yard productivity
Note that the objectives are all long-term and help paint the big picture about what’s important to your scaffolding company.
The next step is to match these objectives with appropriate metrics so that you can monitor the progress of said objectives regularly.
More on that below.
Critical Metrics That You Must Know to Achieve Your Company’s Business Objectives
We’ve narrowed down five critical metrics that can successfully steer your scaffolding company and operations in-line with important long-term key objectives.
1. Inventory Accuracy
This metric is crucial, especially for a business that relies on accurate inventory counts to maximize profitability.
Inventory Accuracy can be interpreted differently by various departments in your scaffolding business. For example, the Finance department may calculate it in terms of dollar value. Their goal would be to ensure that the dollar value of scaffolding materials in the ERP system and those out in the yard match. On the other hand, the Sales department’s take on Inventory Accuracy is even more straightforward in terms of actual scaffolding material counts.
💡 How to calculate: The difference between physical goods and inventory items reported by ERP software or department.
No matter the approach, Inventory Accuracy helps you to gauge if you have adequate scaffolding pieces to furnish your customer’s project. Besides that, it also gives a clue if your bookkeeping and data management practices are working well for your company. A high discrepancy between physical scaffolding pieces and inventory items in the system could be due to theft or human error at manual data entry. And if left uncorrected, these problems could affect your company’s profitability.
🎯 Target: Aim for the difference to be as low as possible.
2. Rental Rate
This is why regular inventory audits throughout the scaffolding process – in yard/depot, before shipping to customers, at the customer’s jobsite, and after a job – is crucial. While the practice of conducting cycle counts is advantageous, take it up a notch by leveraging innovative technology like ERP accounting software and barcodes. With one-stop ERP solutions like Quantify, you can easily barcode serialized and non-serialized items for efficient inventory management.
Another equally important metric for a scaffolding business is the Rental Rate, as it’s directly responsible for your company’s cash flow and profitability. There are many factors that can influence Rental Rate; one of them is the type of scaffolding material that you provide to your customers. Usually, systems scaffold fetches a higher Rental Rate because it’s easier and faster to erect; thus, efficiently reducing the customer’s labor costs and project timeline. Additional expenditures like labor and transport costs can also inflate or deflate your Rental Rate.
💡 How to calculate: The total rental revenue that you receive for each piece of scaffolding item.
An accurate Rental Rate also cements your company’s reputation as a competitive and reliable scaffolding business. We know how cutthroat the scaffolding industry can be, where frequently the lowest scaffolding bids win! So, be sure to merge the original cost of your scaffolding materials into the total average fleet cost to ensure higher ROI from your Rental Rate, regardless of your business operations.
🎯 Target: Aim for accurate and competitive Rental Rates.
With an automated scaffold management system, you can easily manage Rental Rates and successfully recoup costs incurred due to maintenance, storage, administration, etc.
3. Time Utilization Rate
While you can always rent out various scaffolding materials, you must understand the value – in terms of productivity and monetary – that each piece brings to your company. You can measure the former via Time Utilization. In simpler terms, this performance metric tells you how often a scaffolding item is being rented out.
💡 How to calculate: Items on rent against items owned. The items could be by scaffolding piece or total value of equipment.
Knowing which scaffold inventory is heavily rotated can also guide you to track items that require servicing for optimal performance. You can even create a routine maintenance period for high-value scaffolding parts.
Too high a Time Utilization Rate is bad, as you may have to turn away potential customers if your materials are always away for use. In contrast, a low Time Utilization Rate could mean that the scaffolding item is not being sought after by your customers. Or perhaps you have too many of the same item. Try to avoid this as the cost of storing and maintaining these items can quickly add up and affect your company’s long-term profitability.
🎯 Target: Aim for a 70% to 80% Time Utilization Rate for optimal inventory usage.
4. Financial Utilization Rate
Combat too low and high Time Utilization rates by keeping rental rates of the scaffolding materials low and high, respectively. For example, if your scaffolding item is not heavily rotated, you could always reduce its rental rate within a reasonable limit to capture more demand.
The next vital metric is Financial Utilization Rate. To put it simply, this performance metric indicates the scaffolding item that’s bringing your company the big bucks. You can then manage its supply chain for higher ROI. Financial Utilization Rate is usually measured throughout an item’s lifetime; or, the shortest time period is over a year.
💡 How to calculate: Cost of scaffolding items at rent against the total cost of scaffolding materials.
For example, if your scaffolding materials cost a total of $1,000,000 and you have rented out $900,000 worth of scaffolding pieces, then your Financial Utilization Rate is 90%. Watch out for too low of a Financial Utilization Rate as it could mean that your rental rate is either too low or too high. The former prevents you from getting adequate ROI from each job. While the latter simply makes it difficult for you to win bids.
Or it could also mean that you’re offering scaffolding items that are not commonly used in construction projects; hence the low demand and poor utilization. In the long run, this could drain your business of its profit. Ideally, your scaffolding items should have high rates for both Time Utilization and Financial Utilization.
🎯 Target: High Time and Financial Utilization rates.
5. Day Sales Outstanding (DSO)
Reach this target by achieving the right balance between sending out scaffolding items to generate revenue and cover business expenditures while ensuring that they’re not out for too long. Not only that, consider increasing the quantity of items with high Financial Utilization Rate to ensure sustainable productivity and profitability.
A business is nothing without its customers and, of course, their payments. Keep track of your customer invoices and how quickly you are collecting payment from your customers via Days Sales Outstanding metric.
💡 How to calculate: The amount of accounts receivable divided by the total credit sales in a certain period of time. The number is then multiplied by the number of days in that period of time.
A standard DSO schedule is usually categorized in a monthly, quarterly or annual basis. However, it’s important that you collect outstanding accounts receivable as quickly as possible so that you can put the cash to use efficiently.
Elevated Days Sales Outstanding could mean that you have slow-paying customers or that your business is slowing down. So, implement appropriate corrective and preventive actions to nip these issues in the bud. For example, if your customers aren’t paying on time, charge late payment fees. Alternatively, offer reasonable discounts for early payments to encourage customers to pay on time. Also use this metric to cultivate a healthy list of customers by weeding out slow-paying ones.
For seamless invoicing and bill tracking, leverage an automated and comprehensive scaffold management system. With it, you can customize billing and invoicing options based on different rent rates and job costs.
Tracking Performance Metrics via Quantify for Sustainable Scaffolding Productivity and Profitability
From increased productivity to assured profitability, leverage an all-encompassing scaffold management system like Quantify.
With Quantify, easily accomplish important business objectives and get real-time data to see the progress of your metrics. Most importantly, make data-backed business decisions for optimal company performance.
Want to see Quantify in action? Just check out these videos.