• The call count or lead count you would need this year;
• The conversion/closure rate of your technicians/sales-people; and
• Maximizing the average dollars per sale.
Now we need to focus on monitoring your plan. Are you on track? Are you off track?
I emphasize call count year because you need to break down the number of calls you need to reach your revenue target by your seasonality. In the service business, it can be feast or famine. Understanding your seasonality is critical to your success. Figure your company's seasonality with the following steps.
1.Take your income statements (by department) from the past three years and add up all your sales from those three years.
2.Next, add up all your sales for January only for the past three years.
3.Divide those three years of January sales by the total sales for the past three years. This will give you a percentage of your sales that land in January.
4.Do this for each month of the year. You should come up with 100% when you add all the months together after this exercise. Now your company has a seasonality expectation, based on your historical performance. Congratulations!
5.Now take the January seasonality and multiply by the number of calls/leads you need for the year. You now have your January budget for calls. Do this for each month and you will have the basis of your company’s seasonality for the year.
For example: The number of calls the company needs to reach its sales target is 4,575. January’s seasonality is .072 or 7.2%. Multiply 4,575 by 7.2% and you get 329 calls you need for January.
Wasn’t that easy?
Now look at your actual call count for January. Did you reach your call-count goal? If not, ask yourself why. Look to your action items. Your action items are your assumptions for your plan. Identify what didn’t go as planned. What changes do you need to make to correct your current trend? Get with your team and discuss a corrective action plan for reaching your seasonal/monthly call-count goals.
Increasing the conversion rate
A business plan is setting a target with thought-out actions as your assumptions. If you missed your target, don’t worry. Dig into your plan and identify the assumptions that didn’t play out as expected. After you have identified the issues, create an action plan to overcome the miss.
What about your conversion rate — is it on track or off track? If it is off track, what do you need to do to correct this trajectory? Here are some fixes you can implement to increase your conversion rate:
1.Train your technicians and salespeople. They need to learn how to properly deliver service to your customers. At Nexstar Network, we call this training Service System.
2.Coach your team. Are you reviewing individual results with each technician or salesperson weekly? You should be.
3.Identify the abilities of your technicians and salespeople. Do you have a square peg in a round hole?
4.Develop a recruiting plan for improving your team. You should have one in place for technician and sales positions.
5. Training your technicians and salespeople to deliver all options to your customer is the focus at this stage. Are you raising the middle?
The three operational KPIs we’ve been discussing drive your revenue. Operations always come first. Revenue results are directly related to how well you perform these three operational KPIs.
Managing costs for profit
At the same time, it’s important to manage cost as well. You’ve spent so much energy delivering sales by staying focused on your operational KPIs, now it’s time to focus on keeping that revenue and turning it into net profits.
Let’s turn the focus to the top five financial indicators you have in your business that make up 80% of all your cost. Managing these five financial indicators will make or break you.
1. Labor.Here are the most common ways labor costs get out of whack:
• Wrong selling price;
• A technician takes advantage of the clock and your labor, as a percentage of sales, jumps through the roof;
• A technician discounts a job;
• Your company has idle time for technicians still on the clock;
• Dispatchers send the wrong technician to the wrong job;
• Not enough calls; and
The list is long; you can fill in the rest for labor.
2. Material.Labor and material costs are directly related to each sale. Common problems with material costs are:
• Wrong selling price;
• Side jobs;
• Inventory control; and
• Purchase order process (or lack of).
In your business plan, you would have a benchmark of what you want to reach for each of these financial indicators. It’s now April and it’s time to review your progress. Are you hitting these benchmarks? Do you know where to look?
Take a look at the figures on page 66. How is this company doing when it comes to hitting its financial indicators?
Labor budget was 24% of sales. It is currently hitting 23.9% of sales.
Material budget was 13% of sales. It is currently hitting 12% of sales.
Managing your cost as it relates to sales is the game.
If I were to pick out an opportunity for this company it would be its cost of labor actually increasing over the last year. However, it reached its budget, so I’m inclined to cheer it on. But I can be a stickler. Areas I would be addressing are the medical expense and workers’ compensation increases.
This company has everything heading in the right direction when it comes to managing two of the top five financial indicators.
The next three indicators are overhead items.
3. Salaries.This is always a debated indicator because it varies based on the amount of the owner’s salary. Within these salaries taxes, workers’ compensation insurance, retirement benefits and medical insurance also should be included. This total should be 15% of sales with the owner’s compensation. The owner is compensated because he is working in the business. A passive owner would not be compensated with a salary.
Obviously the wild card here is the owner’s compensation. Keeping the owner’s compensation in line with what the owner would have to pay to replace him/her in operational duties would keep this in check.
A cleaner way to look at owner’s compensation is to add owners pay plus net profit for the business. This should equal 20% of the sales. That would indicate this company is managed well.
4. Advertising.This is the riskiest piece of the business. No one can guarantee you that a marketing tactic will work. However, marketing is essential to getting your phone to ring. In my January column, we discussed call count as your No. 1 indicator. Your advertising vehicles drive this indicator. Here are my guidelines:
• Spend less than 4% and your business will die shortly because people die and move away;
• Spend 4% to 6% and your business will maintain the status quo;
• Spend 6% to 8% and your business will moderately grow;
• Spend 8% to 10% only if you are planning to open up in a different market area; and
• Never spend more than 10% on marketing. Every dollar you spend over 10% is profit coming out of your pocket.
5. Vehicle cost.Lease, depreciation, fuel, maintenance, licensing and taxes are all part of your vehicle cost. Keep this under 5%.
If you would like to know more about setting up your tracking systems and monitoring, give me a call. I’d be happy to talk to you. Share your results with me. I’d love to see your progress.
Finally, don’t beat yourself up if you miss a target. Get yourself realigned with a better plan and press start again. I have a warehouse full of things you should never do. How did I get that? I made mistakes. Don’t be afraid to make a mistake. Learn from your mistakes and correct them. Soon you will have a plate full of things you should do as well as a warehouse full of things not to do.