How sales and marketing affect your bottom line.

Last month we discussed the often overlooked budget line item of marketing and its importance to your business. This month, let’s see if we can get more “miles per gallon” out of your marketing budget. We may even be able to shrink your truck fuel bills as well.

First, a quick re-cap of how we determined the number of mail pieces required to keep customers calling: If your budget calls for 1,000 production units (billing units, billable hours, etc.) each year, and you average one production unit per service call, then you need a thousand jobs a year in order to keep one service truck busy. This would mean that you’re averaging about four jobs per day for each truck.

We estimated a need for about 45,000 customer contacts per year to keep a service truck busy. As mentioned last month, your marketing mileage may vary, depending upon many factors. Methods and mediums aren’t the topic of this column, however. We’re covering the affects of effective marketing on your bottom line.

Sales Mantra

Speaking of your bottom line, let’s introduce another factor of your marketing mix. Here’s a question to answer: Which is more important to the success of your business: sales or worked performed?

If you answered “work performed,” then go to the back of the class. A very busy company, doing boatloads of work, can go right down the toilet if its sales aren’t enough to cover its costs and earn a profit. Sales means money in the bank. If you’re a salesaphobic contractor, someone who is convinced that if it’s not broken, don’t fix it, then we need to do some cognitive therapy to get you on the right track.

Repeat the following:
    “Sales is not a four letter word. Without sales, I would have no business. The act of selling is nothing more than helping someone else understand my point of view, therefore I am a salesperson. I am a good person. Therefore, salespeople can be good people.”
After repeating these phrases a few times, go look in the mirror. Check to see if your Red Wings have turned into patent leather wing tips. Does your uniform shirt suddenly look more like a plaid jacket? Are you tempted to slick your hair back? (Never mind this one if you are follicly challenged.) Do you find that you now have a cheezy smile?

I doubt you’ll morph into that stereotypical salesperson you’ve always loathed. What I hope you discovered is that admitting that you’re in sales is not as traumatic as you might have thought. You are a salesperson. You’re a good person, therefore, salespeople can be good people. Now, relax, we’re not going to segue into selling techniques and other soft skills. This is a business column, so we’re simply establishing that sales is not an evil activity but a crucial business activity. Now, let’s explore what selling can do for your marketing efficiency.

Looking back at our four-job-per-day average, what would happen if we achieved the same sales dollars for the day, but did it with only three calls instead of four? To begin with, we’re not talking about a huge change in the average invoice on a job. If your average invoice for four jobs a day is $250, then to achieve the same sales with three jobs a day, you’re going to need about $333 per invoice, not a huge difference. Usually, just offering a few options or upgrades is all that’s necessary to make the difference.

Note: You may be wondering about the $250 average. Among my clientele I have contractors who would be in dire straits if their average invoice fell to $250 per ticket. I also have clients, who would be thrilled to average $250. I had to pick some number, so I picked $250. Do the math for your own company. Below is an example that doesn’t care about the amount of your average invoice.

In our example, doing a little more for each customer results in 25 percent fewer trips, 25 percent fewer calls to dispatch, 25 percent fewer leads to generate and, best of all, your tech can go home a little earlier in the day because there’s one less location to drive to. Some of these efficiencies translate into profits, while some simply reduce the burden on existing overhead. All because you were willing to invest in a little extra sales training.

If you’re currently running four or more calls per truck per day, it’s not likely that the phone is going to stop ringing just because you’re spending a bit more time with each client. If you’re getting enough calls to provide four opportunities per day but only have time to get to three of them, then you’re faced with adding another service tech. Other than the expenses of the tech and truck, the rest of your costs won’t vary much. But in our example, your sales would jump by a quarter of a million dollars. What would that difference be in your company? Your existing marketing ability is being leveraged with improved sales and communications ability, resulting in the addition of another service truck. Perhaps it’s time to consider an investment in sales coaching.

Defining Your Target Customer

You can further improve your marketing efficiency by targeting new customers who are similar to your best customers. The more thorough your criteria, the better you can define your target customer. Keep in mind that your customer with the highest sales may not necessarily deliver the highest profits. For example, you may not want another slum lord to add to your 90-day receivables column, even if he calls you every week.

Determine what your most profitable work is, then look through your data to see whom you have been doing that sort of work for. What are the common denominators among those customers. Is it just geography? Number of people in the household? Higher household income? Look for similarities among your customers in order to spot the trends.

Another criteria to track is quantity of line items on an invoice. Customers who have you do more line items tend to be customers who are more satisfied with your company. Assuming that you’re profitable on each line item, the more line items performed on a visit, the more profitable that trip becomes. What do these customers have in common?

Examine invoices that are significantly above your average invoice. What can you learn about these customers? Perhaps these are profitable enough that you want to find more customers like them.

Regardless of how you define your best customer, do your best to figure out how those customers found you. Was it flyers? Coupons? Direct mail? Referrals? If you spot a trend for the medium that’s delivering better customers, then use that medium more. The more you know about your best customers, the better you can target your marketing toward these kinds of customers. As your marketing efficiency increases, your sales efficiency should increase so that you’ll get even more sales per gallon.

Price Adjustments

You can also improve marketing efficiency by adjusting your pricing. You could tweak your selling prices upward a notch or two. This improves your average invoice without asking your crew to do additional communicating of value, options and additional services.

Before a price increase, be sure to calculate your average close rate over the prior three-month period. Your close rate is the number of sold jobs divided by the number of calls dispatched. For example: If you dispatch five jobs to a tech and four of them turn into sold jobs, then you have an 80 percent closing rate. This number is important because you want to monitor it after raising your selling price. If, after three months at the new price, you’re still seeing the same close rate, you can consider another price bump upwards. If you’re brave enough, you can continue this until you start experiencing push back from your customers.

Once your close rate indicates that you’re getting price resistance from your customers, revisit your “best customer” criteria to learn the traits of your new, preferred customer at your new, higher rates. Once again, you’ll tweak your marketing to reach more of the same type of customer in a neverending quest to maintain marketing efficiency.

As you can see by now, running a service business isn’t as simple as running a construction job. It’s never a finished product, always growing, always changing. If you’re in the driver’s seat, you can direct those changes, building a profitable, flourishing business.