Measuring Output
Production should be based on what your techs
accomplish during a service call, not how much time it took
In our little series about three indispensable elements of business, we have touched upon the importance of profits and customers. If you’re trying to speculate about the third leg of our business triangle, you might be thinking that “sales” is next on the list. Let’s revisit the fire triangle that we used to open this discussion, just to see if “sales” makes sense as the third leg.
In order to have fire, we need fuel, oxygen and an ignition source. When those three elements combine, we have fire. The size and quality of the flame depends upon qualities of the triangle elements. If fuel and oxygen are increased proportionally, the flame gets bigger. Vary the ratio of fuel and oxygen and you’ll vary the qualities of the flame. Too much fuel or oxygen and the flame fails.
I suggest that sales is more akin to the flame rather than serving as one of the legs of the triangle, since sales can be adjusted by varying the number of customers and/or the margin of profits. This requires us to identify one more leg of the triangle. I suggest that this leg is production. Simply put, production is a measure of output. A customer doesn’t become part of the equation unless he or she buys our product. If we don’t produce something to sell, the equation fails.
Occasionally, as in recent news stories of failed Ponzi schemes, creating the illusion of production is good enough, but in our case, most of us actually do something tangible that a customer can truly benefit from. Since production is fundamental to the success of your business, you must pay attention to it. If production suffers, your business suffers.
If you are still selling your production on a time-and-materials basis, please do not miss this fact: Nobody can produce time. Period. If we can’t produce time, then how can we sell it? Of all the arguments in favor of adopting a flat rate pricing system, the role of production in your business is the most fundamental.
The amount of time it takes to produce something may affect the perception of value for that item but ultimately, what a customer is looking for is an improvement in his or her life - a problem solved or a desire fulfilled. You may hear a customer talk about the new boiler or water heater he purchased, but you never hear him talk about buying three or seven hours worth of plumbing or mechanical service. Which conversation is more likely - “Hey Sally, you should see the five hours of plumbing service I bought last week,” or “Hey Sally, you should see the new water heater I bought last week”?
Time was certainly a factor in the production of that water heater installation but time is not the product; it is simply a production factor. If the sale is based upon the time it takes to do the work, then the clock limits the sales potential of the job because the one element we can’t produce is time.
If the job is sold at a flat rate, then the production efficiency, and presumably the profits, increases when the installation is completed using less time. If your customer is measuring your production based upon what you accomplish, then accomplishing twice as much in the same amount of time means that you can double production, which means higher sales and profits. Each of these factors are under your control, meaning you can affect how much you produce in a given amount of time, but time is not under your control, meaning that you cannot add hours to your day.
Once you’re charging the right price, there are other ways to enhance production. For example, you can be more selective about the customers you choose to serve. The lower your selling price, the broader your customer base, but when your customer base is too broad, you’re setting yourself up for the lost efficiency that comes with trying to do too much for too little. Learn more about your most profitable customers, find their common denominators and use that information to help you find more customers like them.
Being selective about customers can take many forms. Some contractors can improve production efficiency by simply redefining the geographic territory they serve. If you serve suburban areas, you may have a suitable customer base within a 15-mile radius of your shop. Focus your marketing efforts within your area to increase your local market share. Think of it as becoming a bigger fish in a smaller pond.
You can also optimize production capacity. If you are in the service business, focus on offering more service for each customer. If your service crews are knocking out five or six jobs a day, then it’s very likely that they are providing the bare minimum service on each job while expending valuable time behind the windshield. When your crew offers more service for each customer, you should improve customer satisfaction and higher sales.
Running to fewer jobs also results in reduced mileage on your vehicles, reduced exposure to traffic accidents and tie-ups, and all the cost reductions that go along with these efficiencies. These efficiencies are what spawned the movement to “super trucks” with their enhanced inventory levels, which enable more production per trip.
It’s very likely that you would need to manage your production capacity in other ways. If you are currently booking six or seven daily calls per professional, you will have to decide what to do with the excess calls as you start performing more service per customer. Will you raise rates to improve your productivity per professional? Will you add more professionals? Both options are viable, so adjust and observe to see which makes the most sense for your company.
By thinking in terms of a business triangle, you can better understand how each leg affects the others. Do you need more customers or do you need a higher profit margin? Perhaps fewer customers and higher productivity makes more sense. Perhaps increased productivity will require higher margins but will result in fewer customers.
In our little series about three indispensable elements of business, we have touched upon the importance of profits and customers. If you’re trying to speculate about the third leg of our business triangle, you might be thinking that “sales” is next on the list. Let’s revisit the fire triangle that we used to open this discussion, just to see if “sales” makes sense as the third leg.
In order to have fire, we need fuel, oxygen and an ignition source. When those three elements combine, we have fire. The size and quality of the flame depends upon qualities of the triangle elements. If fuel and oxygen are increased proportionally, the flame gets bigger. Vary the ratio of fuel and oxygen and you’ll vary the qualities of the flame. Too much fuel or oxygen and the flame fails.
I suggest that sales is more akin to the flame rather than serving as one of the legs of the triangle, since sales can be adjusted by varying the number of customers and/or the margin of profits. This requires us to identify one more leg of the triangle. I suggest that this leg is production. Simply put, production is a measure of output. A customer doesn’t become part of the equation unless he or she buys our product. If we don’t produce something to sell, the equation fails.
Occasionally, as in recent news stories of failed Ponzi schemes, creating the illusion of production is good enough, but in our case, most of us actually do something tangible that a customer can truly benefit from. Since production is fundamental to the success of your business, you must pay attention to it. If production suffers, your business suffers.
If you are still selling your production on a time-and-materials basis, please do not miss this fact: Nobody can produce time. Period. If we can’t produce time, then how can we sell it? Of all the arguments in favor of adopting a flat rate pricing system, the role of production in your business is the most fundamental.
The amount of time it takes to produce something may affect the perception of value for that item but ultimately, what a customer is looking for is an improvement in his or her life - a problem solved or a desire fulfilled. You may hear a customer talk about the new boiler or water heater he purchased, but you never hear him talk about buying three or seven hours worth of plumbing or mechanical service. Which conversation is more likely - “Hey Sally, you should see the five hours of plumbing service I bought last week,” or “Hey Sally, you should see the new water heater I bought last week”?
Time was certainly a factor in the production of that water heater installation but time is not the product; it is simply a production factor. If the sale is based upon the time it takes to do the work, then the clock limits the sales potential of the job because the one element we can’t produce is time.
If the job is sold at a flat rate, then the production efficiency, and presumably the profits, increases when the installation is completed using less time. If your customer is measuring your production based upon what you accomplish, then accomplishing twice as much in the same amount of time means that you can double production, which means higher sales and profits. Each of these factors are under your control, meaning you can affect how much you produce in a given amount of time, but time is not under your control, meaning that you cannot add hours to your day.
Adjusting Your Sales Flame
You can optimize your sales productivity in a variety of ways. The No. 1 most effective way to improve productivity is to charge the right price for your services. Yes, you get tired of hearing me say it, but here’s a “secret” you should know: For most contractors, the biggest production payoff occurs when they start charging the right price. It is not uncommon for my clients to report their sales doubling, or nearly so, when they simply switch from billing by the hour to billing by the job. To ignore this fact is to ignore the fact that you cannot produce time. To increase sales productivity, first charge the right price.Once you’re charging the right price, there are other ways to enhance production. For example, you can be more selective about the customers you choose to serve. The lower your selling price, the broader your customer base, but when your customer base is too broad, you’re setting yourself up for the lost efficiency that comes with trying to do too much for too little. Learn more about your most profitable customers, find their common denominators and use that information to help you find more customers like them.
Being selective about customers can take many forms. Some contractors can improve production efficiency by simply redefining the geographic territory they serve. If you serve suburban areas, you may have a suitable customer base within a 15-mile radius of your shop. Focus your marketing efforts within your area to increase your local market share. Think of it as becoming a bigger fish in a smaller pond.
You can also optimize production capacity. If you are in the service business, focus on offering more service for each customer. If your service crews are knocking out five or six jobs a day, then it’s very likely that they are providing the bare minimum service on each job while expending valuable time behind the windshield. When your crew offers more service for each customer, you should improve customer satisfaction and higher sales.
Running to fewer jobs also results in reduced mileage on your vehicles, reduced exposure to traffic accidents and tie-ups, and all the cost reductions that go along with these efficiencies. These efficiencies are what spawned the movement to “super trucks” with their enhanced inventory levels, which enable more production per trip.
Training
What would happen to your business if your employees could increase productivity by 10 percent to 15 percent simply because they’re better at what they do? How do your call takers answer the phone? Does your dispatcher know how to match service professionals to customers? Do your service professionals know how to communicate value to your customer? Are they trained to tackle the types of service that your clientele need and want? The better you train your people, the better, and more productive, your answers will be.It’s very likely that you would need to manage your production capacity in other ways. If you are currently booking six or seven daily calls per professional, you will have to decide what to do with the excess calls as you start performing more service per customer. Will you raise rates to improve your productivity per professional? Will you add more professionals? Both options are viable, so adjust and observe to see which makes the most sense for your company.
By thinking in terms of a business triangle, you can better understand how each leg affects the others. Do you need more customers or do you need a higher profit margin? Perhaps fewer customers and higher productivity makes more sense. Perhaps increased productivity will require higher margins but will result in fewer customers.
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