Five steps to getting your 2016 plan started
Right here, right now, where is your focus?
As the owner, president or general manager for your company, your focus should always be on the future. If you haven’t done so already, you need to get started on developing your 2016 budget. Now is the time to start working on your plan and have documented, quantifiable action steps.
What is your plan for 2016? Where do you want to be at the end of 2016? How are you going to get there? What does success look like?
If you’ve been following me this year, you know it all starts with a plan. Your plan. Follow these five steps to plan for next year.
• Step 1 — Collect operational data. These three pieces of operational data drive your revenue results: trailing 12 months of call counts by department; trailing 12 months of conversion rates by department; and trailing 12 months of average sales by department.
Let’s take a look at some sample trailing 12-month data from fictional ABC Co.: call count is 2,500; calls ran, conversion rate is 80%; and average sales are $800.
Let’s do the math: 2,500 x 80% = 2,000 x $800 = $1,600,000 in revenue.
ABC Co.’s owner, Bill Murray, is planning for 2016 and wants to reach $2 million in revenue. Let’s see how Bill can achieve his revenue goal in Step 2.
• Step 2 — Identify your measurable action steps. How is ABC Co. going to get from $1.6 million to $2 million? The answers are vast. Here are a few examples:
1. Raise the average sale by $200.
2. Improve the conversion rate to 85% and improve the average invoice to $941.17.
3. Improve the conversion rate to 90% and improve the average invoice to $888.
4. Increase call count by 625, add a technician and perform exactly to your stats from this year.
Your action steps must be measurable. If you can’t measure it, you can’t manage it.
The scenarios are endless, but that is not the point. The point is you need a plan to get to where you want to be.
• Step 3— Leadership buy-in. The best way to get your team on board with your plan is to involve your leadership team in building the company’s 2016 plan.
When the answers of how to move the business from point A to point B come from your team, you have buy-in. Remember you are working with adults here. In my experience, adults don’t like being told what to do. However, when adults are active participants in building a company’s plan, they are invested and committed to that plan.
Now you’ve got a great start in planning to build your 2016 revenue. However, revenue is just part of your plan — the easy part.
• Step 4 —Cost management. When it comes to budgeting cost, less is more. I’ve worked with contractors who spend dollars managing pennies. Don’t be that person. Instead focus on what will move the needle.
Focus on the big five expenses: direct labor, direct material/equipment, salaries, advertising and vehicle cost. These five costs make up 75% to 80% of all your expenses. When budgeting for expenses, your first priority is to make sure you bring these costs in line. After you fix these, then you can focus on the peanuts.
In order to get your costs in line, you’ll need to know the benchmarks to reach. Not all departments have the same direct-cost benchmarks. Let me say that again: Not all departments have the same direct-cost benchmarks.
The benchmarks for plumbing service are: direct labor fully burdened equals 24% and materials equals 10%. These represent your above-the-line costs and occur when a sale is made.
On the other hand, overhead costs occur regardless if you make a sale. The benchmark for these are: salaries fully burdened equals 15%, advertising equals 10% and vehicle cost equals 5%. Salaries include gross pay, taxes, workers’ compensation insurance and medical. Vehicle cost includes lease payment and depreciation (if you purchased), fuel and maintenance.
• Step 5 – Check the other areas. Do you need to redo your marketing plan? If the answer is yes, what action steps do you plan to take?
What training does your field staff need in order to kick it up a notch?
Do you have the right people in place to take you to your goal? Are they capable? Are they willing? If the answer is yes, what plans do you need to put in place to train them to reach your goal?
If the answer is no, what are your plans for replacing them? Do you know the profile for the person you are looking for? If not, where and how will you get that information?
Following these steps will give you a jump start on creating a bright future for next year. Understand this is a plan; it’s not etched in stone. Work and monitor your plan, review your results with your team and take corrective actions when you see your plan is going sideways. Do this and you will have a great year.
I want to leave you with the most important message. Always keep in mind: There is no better than here! When your “there” has become “here,” you will simply obtain another “there.”
Said differently, make sure you are profitable here, before you go there.
This article was originally titled “Where is your focus?” in the October 2015 print edition of Plumbing & Mechanical.