The Backup Wrench
Last month we discussed how a marketing program could provide pipe-wrench-like leverage for growing your contracting business. Marketing is your message and method for telling customers about your business. Without the leverage of your marketing wrench, your business will languish in obscurity.
But who uses just one pipe wrench? In the piping world, tightening a fitting usually requires a backup in order to keep the piping in place when tightening it up. A sale is the backup wrench for your marketing program. Without sales, your marketing leverage just spins in place, never accomplishing anything worthwhile for your business.
If you don’t feel comfortable with the concept of a PHC contractor focusing on sales, then you may as well stop reading right now. Sales is such a fundamental necessity for business that if you’re not willing to embrace the concept, then you may as well take down your shingle and go get a job. Sales convert your skills and hard work into fungible assets. No sale, no funds for paying the bills.
The term “sales” implies varied nuances, so let’s get just a bit more specific. Many of us tend to emphasize technique and materials over the soft skills of communication and customer satisfaction. This emphasis on technical proficiency results in an “order-taker” mentality where we simply take the order from our customer, fix what’s broken and move on to the next job.
Filling orders isn’t making sales. There’s nothing wrong with being able to fix anything short of the crack of dawn or a broken heart but an order taker, no matter how skilled the workmanship may be, just won’t generate the sales that a customer service professional can deliver.
At the other end of the scale, we’ve all heard of the ethics-challenged salesperson who uses deception to boost sales numbers. When I talk about a sales professional, this character is not in the definition. An ethical salesperson helps customers find solutions to their problems. This is the concept you should be working with as we discuss the effect of sales on your business. Defining a salesperson isn’t the purpose of this month’s column, so we won’t go any further in that direction. We’re simply exploring the ways a sales focus increases your leverage in business.
Higher Sales Reduces Marketing CostsLast month I said better marketing can reduce your overhead per job by generating more jobs, thus keeping your crews and office staff working more efficiently. Similarly, higher sales on each job effectively increases the leverage of your marketing. Think of the sales/marketing relationship as if it were a bid project. When you start a project, whether it is a repair job or new construction, one of your primary aims is to be efficient. The less time your crew spends chasing tools and parts, the more billable work they can complete while on site. The higher your efficiency, the higher your profits.
Likewise, when you spend marketing and advertising dollars to gain a customer, the more you can do for that customer and the more efficient your marketing will be. The more efficient your marketing, the better your profits.
Here’s a simple math example: If you are spending $200 per new customer and provide $1,000 worth of service for that customer, then your marketing cost is 20 percent. If you provided $1,500 worth of service for that customer, your marketing cost drops to a bit over 13 percent. That 7 percent difference translates to an extra $100 or so, over and above whatever profit margin you calculated for the job. Let’s look just a bit deeper.
Let’s say your $1,000 job includes a 25 percent profit margin, even when budgeting for the $200 marketing expense. That means your profit dollars should be $250. By offering some options and upgrades, all with the same 25 percent profit margin, this job now sells for $1,500, which generates profit dollars of $375. That profit boost is nice in its own right, but there’s another level of profit generated from the sales efficiency.
Remember, our marketing budget for a $1,000 job was $200. If that same $200 brings in a $1,500 job, then there’s a bit more profit to be picked up. The math said there was about a 7 percent difference (about $100), which brings the total profit for the job to $475. The profit on this job is now more than 30 percent.
But wait, there’s more! We’ve only been calculating the efficiency effect sales has on the marketing expense. There are other overhead expenses as well. The cost to take a call, dispatch a crew, handle the paperwork and other chores stays about the same whether it’s a $100 sale or a $1,000 sale, so there will be efficiency savings whenever you do more for a customer.
Are you beginning to see why the premier contractors focus on sales?
Better Sales = Happier CustomersWhen developing our UpFrontPrice flat-rate guide, I became a serious student of the effect of sales. I needed to know how well this sales tool worked. After all, if a tool doesn’t do its job, it’s not a very good tool, right?
One of the interesting things I learned is customers who buy more have fewer complaints after the sale. Before studying the process, I simply assumed the less a customer spent, the happier they would be, which certainly seems to make sense. What I discovered is the customer who spends the least tends to perceive less value from the service. For a variety of reasons, customers who have been given choices and options enjoy the experience better and tend to feel more satisfied with the outcome.
I could be mistaken about these impressions but a couple points are very clear: Happier customers and higher sales go hand in hand but more importantly, happier customers are more willing to give referrals. In other words, putting effort into boosting sales helps apply more leverage to growing your company.
Sales Is More FunHave you ever wondered how some contractors offer new and different products or services while most just stick with standard, commodity-type service? Perhaps you’ve coveted their innovative trucks and equipment. Or maybe you’ve heard their catchy jingles on the radio. It just seems like these contractors get all the breaks and all the attention.
Innovative ideas cost time and money to develop and produce. You can pretty much count on a handful of flops for every good idea you develop. Often, these flops are simply part of the evolutionary process of product development. Sales-focused contractors are the ones developing new programs because they can afford to do it. By maximizing every opportunity to serve, these contractors are able to generate extra sales and improved profits, which provide a buffer or cushion, allowing them to try new ideas and innovations.
A Better Cure Than Cost CuttingTypically, overhead bloats faster than it should, so when times get tough, our first response should be to lighten the overhead burden wherever possible. Even in good times, reining in overhead is good advice but there’s a limit to how deeply we can cut. Cutting one office staffer out of 10 is easy but if you only have a few, finding an expendable player gets tougher.
Sales, on the other hand, doesn’t have the same limits. There’s always room for “just a little more,” so salespeople should be the last people on your ax list. The more revenue they can bring in, the more overhead you can cover. So when trimming in tough times, be sure to leave plenty of support for sales efficiency. Cutting your sales efficiency will be like working steel pipe without a pipe wrench.
Now that you have your wrench and a backup, get out there and build that business.