Sales Are Off

So what’s the answer? Just don’t say, ‘It’s the economy, stupid.’

With tough economic times come tough business challenges. Declining sales is undoubtedly a common challenge facing many residential service companies. How do we diagnose and fix this in light of all that is going on in the world?

Let’s look at a case study of an actual company I recently helped with this common problem and how the staff can potentially reverse declining sales.

It all starts by reviewing the company’s financial statement. The company owner, concerned about the company’s financial performance, wanted the entire management team to work on solutions. The plumbing service department had always been a mainstay of this business for years. In November, however, sales were off 25 percent compared to November the year before.

Now a sales decline this steep is normally a pretty serious problem. So after reviewing the financials, a natural question might be, “Why are plumbing sales off 25 percent?”

A junior member of the management team and, coincidentally, the individual charged with overseeing this department, shoots back quickly and, I might add, defensively, “Haven’t you seen what is going on with the economy recently?”

Wrong answer, Tenderfoot.

It’s all too easy to rationalize poor business performance these days. Just pick up the newspaper. Government bailouts. Declining home values. Mortgage defaults. Company layoffs. Yep, if the business is down, it sure isn’t my fault. After all, everyone is down.

Rationalizing poor business performance with the economy is a very dangerous thing. What it does is remove you from any personal responsibility to improve the business. Your business health, at least in your mind, is completely dependent on the state of the economy.

As the owner or manager in the business, your mindset then gets transferred to your employees. Pretty soon the whole company is a “victim” of the economy. Soon, the company is a rudderless ship drifting on the winds of economic news.

Good luck to you, and where are the lifeboats? I want off.

Let’s get back to this case study. Was the economy at play here with this company? You bet it was. Was it the only thing going on? Not a chance.

Let’s peel back the onion on the reasons for declining sales at our example company. As we do so, I’ll share with you some of the numbers behind the numbers we found along the way.

There are four drivers of sales in the residential service business:

Service Call Counts (the number of service calls dispatched to technicians): This is typically the statistic affected the greatest by economic events. While many of our service calls are emergencies or “must haves,” a significant amount of calls are more discretionary. These do tend to slow down during nervous economic times - like now.

In our example company, call counts were off 15 percent from the prior year. That is a pretty steep drop - not too easy to fully overcome. But remember: sales were off 25 percent. What else was going on?

Conversion Rate (the percentage of service calls dispatched that are converted to money trips): This statistic is much less affected by economic turmoil than call counts. People are inviting you into their home to fix a problem. If you’re professional and responsive, you should be converting a consistent percentage of service calls dispatched - in good times or bad.

In our sample company, conversion rates were down 4 percent to a mediocre 70 percent. Why would someone still invite us into his or her home, yet the company now converts less of those opportunities than last year? I just don’t buy the “bad economy” answer here.

Average Sale: It is easy to quickly assume that customers are much more likely to repair vs. replace during tough times. This is generally true. However, it is not an absolute truth. Great techs do not see any discernable decline in average sale during tougher periods. Average techs do.

In our sample company, average sale was off $50! What is going on here? That is a huge decline.

Technician Staffing Levels/Staffing Changes (the number and quality of productive technicians who are able to individually run dispatched service calls): A forgotten statistic for many companies looking at sales performance is its staffing levels and personnel changes. They look at sales declines and dismiss it as the fault of the economy. However, when you ask a few more questions, you find out that there have been some significant changes in field staffing.

Here it was with our case study company, too. The company in question was down two techs and, wouldn’t you know it, one of them was the best producer a year ago.

The tech hired to replace this top producer was just an average tech. This now partially explains why the company’s conversion rate and average sale is down so dramatically. Calls were being run by less skilled personnel. Plus, they had one less tech available to run calls.

Being understaffed does no good. It results in lower conversion rates since techs are burning through calls. Also, dispatch puts pressure on customer service reps to schedule calls so far into the future that calls are cancelled or, worse, not even scheduled. In short, being understaffed is ugly and leads to all kinds of missed opportunities.

Under Control

Rather than blaming the economy, let’s assume for a moment that we have the ability to alter our outcome. Let’s assume that as owners and operators of small businesses, we have the flexibility to institute changes in our business that can help to overcome stiff economic headwinds.

So what should this company do? What would you do? Here is an action plan to reverse or at least dramatically slow down its rate of revenue declines.

Begin actively searching for upgrades to current staff of techs. With tough economic times brings opportunity to bring in good people. The company now knows that losing a top producer and not replacing him has more to do with its current business situation than Wall Street.
Enforce tough performance sales standards on existing technicians that will reverse their conversion rates and average sale declines. This company had trained, trained and trained on a tech sales program. Now it was time for management (especially the new manager who was blaming the economy) to get staff to actually use the sales skills that they already knew. Training day is over. It’s now time to play for real and hold the techs accountable for improved performance. That is the stick. The carrot was a cool sales contest the company had also created to reward improved performance.
Increase the selling price. There is a very real decline in sales that the company is facing with less billable hours and until that can be fully overcome, the company has no choice but to raise prices. This makes enforcing sales standards even more important.
Change the mindset of the managers and staff to one of self-determination. The old saying, “If it is to be, it is up to me” is now the mantra of the entire management team.

The company still has a service call count problem, which may take a while to fix, but for the short-term, it has an excellent plan to drive additional revenue from its current base of service calls.

When analyzing the above, what you see here is information. Beyond getting the revenue numbers on its monthly P&L, the example company had good sales metric information. This information allowed us to diagnose what was really going wrong with the company.

If we didn’t know what the call counts, average sale, conversion rate and staffing levels were and how they compare to the same period in the prior year, we would just be guessing as to the solutions we needed to focus on. In other words, we might actually believe that the business challenges were all due to the economy.

If you are having a similar business challenge and would like to discuss your situation, drop me an e-mail or give me a call. However, be warned: If I ask you why sales are off, please don’t tell me, “It’s the economy, stupid.”