IMPROVING YOUR PROFITABILITY PUMPING CONCRETE

by Joe Sostaric

Many people who got in the concrete pumping business are proud of the fact that they started from the ground up. A large percentage of concrete pumping business owners started their career by pumping concrete and then eventually bought one pump that over time led to a flourishing business with many pumps. We have many proud owners that know all the inner workings of pumps. When they go to trade shows, they crawl all over the equipment and ask questions about the mechanics of it that I will never understand.

My path into the pumping industry was far different. Most of my career was as a ready mixed concrete supplier. I ran a 300-plus truck fleet for a large, multi-national, vertically integrated cement company. In addition to being a concrete supplier and a pumper, I worked for a concrete contractor and ran a process-control business that served the ready mixed concrete industry. I tell people that I got into the concrete industry as a fluke. I was a recent college graduate with a degree in accounting who didn’t know the difference between cement and concrete. But almost 40 years later, I am still involved in this industry. Although I have retired from running day-to-day operations, I am still very much tied to the concrete industry by consulting and providing software solutions for businesses.

Even though I ran a concrete pumping business, I tell people that I never pumped a yard of concrete in my life! Don’t ask me my preference for a roll-and-fold versus a Z-boom, but I can tell you that my background brings a different perspective to the pumping industry. First and foremost, people who know me would say that I am a “bean counter” by nature. Although I only worked as an accountant for six months in my career, I look at things with an eye on cost and thoughts about making more profit doing what we do.

DIFFERENCES BETWEEN THE PUMPING AND READY MIXED INDUSTRIES

The pumping business has a lot of similarities to the ready mixed concrete business. The obvious thing they have in common is the link with concrete. They both share the same customer base and chase the same projects. The other thing they have in common is that both are considered low-margin businesses. There are not many people that have made a killing either pumping or manufacturing and delivering concrete.

Where there is a difference, however, is that some people in the ready mixed concrete business have made a whole lot of money when they sold their businesses, while pump companies are being sold for the used value of their equipment. So why does the ready mixed concrete business command a premium while the pumping business does not? Concrete has two advantages over the pumpers. One is the barriers to entry. It is more difficult to get into the ready mixed business. People often buy a ready mixed business (as opposed to starting one from scratch) because they would not be able to get the necessary permits or properties to construct plants in certain markets. In the pumping business, you simply buy a used concrete pump and you are a pumper!

The other main reason is the synergy their business creates with existing businesses. Ready mixed integration creates a built-in market for cement and aggregate manufacturers. Cement kilns (and plants) are high-fixed-cost assets that must operate 24/7 to be efficient. By controlling downstream use, there are tremendous opportunities for enhancing profitability for both cement and aggregates. Conversely, the integration play with pump companies is primarily with their customers. A concrete contractor or a general contractor who uses concrete pumps on a regular basis often gets into the pumping business to control their own destiny. If they don’t get good service and lose work, or if they absorb costs because of delays/issues, they may decide to buy a few pumps. The other reason that pushes pump customers into the pumping business is because they believe they are paying a premium to have concrete pumped and would be better served if they kept the money in their own pockets.

If pump companies look at the pumping industry through their customers’ eyes, they see these customers often believe that pumping companies are making a very good profit on the services they provide. Customers might say, “You are killing me with your high prices,” when they pay a daily invoice of $4,000 for a 61-meter. How do they come to this conclusion? The answer is simple math. A customer sees one operator going out to pump the concrete. The customer deduces that the operator costs about $800 to $1,000 for the day, with the only other variable expense for the pumping company being fuel. If the assumption is that the fuel needed to pump the job was $400, the total variable costs (operator and fuel) would be only $1,600, leaving a margin of $2,400 to $2,600. Whenever a customer loses a job to a competitor of theirs that pumps their own concrete, they start to wonder if they need to buy their own pumps to be competitive, as the “extra” money they pay can make them more competitive if they could keep it for themselves.

But the reality is far different. If pumping companies make so much money and have cultivated a loyal customer base with excellent operators and employees, why are they not commanding huge premiums when they sell their businesses? It is a fact of life that profit margins for pumping companies (and ready mixed companies) are often low compared to other industries. This is why even long-established pumping companies are sometimes sold solely based on the current value of their assets (namely pumps) with no consideration for the infrastructure and customer base they have cultivated.

THE DISCONNECT

Why is there such a disconnect? Well, let’s take an objective look at what our business is all about.

• We buy expensive pieces of equipment that typically range in price from $500,000 to $1.5 million and send one operator out to run the equipment properly and safely.
• We send out a machine that is very complex and powerful. If it is operated improperly or experiences a mechanical failure, it could lead to a catastrophic event or cause serious bodily harm or death.
• We send operators out over a 100-mile radius (sometimes more) at all hours of the day and night, making it very difficult to train them and monitor how they perform their jobs.
• Our operators are often the first person to arrive on site and the last person to leave, which makes for some long days of work. Although the money is good, quality of life often suffers as the lack of control over the amount of time it takes to complete a job can cause the operators (and the company) great distress.
• We pump a material (concrete) that we often do not manufacture. The material, which can vary significantly from load to load, is delivered by a company in trucks that we have no control over. The trucks might arrive either all at once or infrequently, causing anxiety for our operators and concerns for our equipment.
• The material we pump generates a chemical reaction that transforms the product. It has a very short shelf life and can severely damage our pumps (making them inoperable) if the mix is improper or if this chemical reaction (hydration of the cement) occurs while the material is in our pump.
• Our customers sometimes ask our operators to perform tasks that we consider dangerous (boom over power lines, short rig the pump, pump old concrete, etc.), which puts the operators in a precarious position.

RISK AND EXPOSURE

What you quickly surmise when looking through these items is that the concrete pumping business has more than its share of risk and exposure, yet the risk and exposure are not always understood by our customer base. If not handled properly, any of these nuances when pumping concrete can result in substantial charges and expenses to a pumping company, which in turn have a significant impact on the bottom-line performance of the company. In the concrete pumping business, if you have very few mistakes and get paid a decent amount for the work you do, you can make some money. If you have recurring problems and are very reactive to issues throughout the day, you could be scrambling to make a living.

A big key to pumping concrete successfully is about making a reasonable amount of money on each transaction and avoiding the pitfalls that can cost a company a significant sum of money. Over the next few articles, I will talk about what pumping companies can do to find ways to improve their bottom line by making incremental changes to business practices and avoiding the larger mistakes.

Pumping concrete is not an easy business. It requires discipline and attention to detail. If you want to improve your business’s performance, there are no magic bullets or homeruns you can hit, but if you make many small incremental changes and hit a lot of singles, you can have a big impact on your bottom line. The adage of “If you always do what you always did, you will always get what you always got” absolutely applies to the pumping business. If you want to advance, you must be open and willing to try new ideas. If you want to improve the value of your business, the best way is to improve your profit margin. The more money your business makes, the more money it will be worth. Hopefully, I can help supply some more food for thought here.

Sostaric can be contacted by email at joe[at]agiletq[dot]com for more information.