Management

Here is a recent article Posted on Remodeling Magazine that I wanted to share.

The Story
I see many remodeling businesses searching for the magic solution on how to generate more leads, more revenue, and higher profits. What is the solution? One remodeling company chose to focus on increasing profitability before planning to grow. Magically, when this happened, the growth came along with the targeted profit increase. 
This company has provided bath and kitchen remodels, additions, windows, roofing, siding and sunroom services in the western Pennsylvania area for 31 years and had a solid reputation. The company was profitable and the owner was earning an income, but he knew he needed to improve profitability to sustain the long-term business that he needed for his retirement. He began by establishing a more accurate financial statement in Quick Books to give him better information to assess his profitability on the range of remodeling projects, as well as provide a snapshot of overhead and expenses.

Breakdown of Profit
I worked with him to review the profit margins from the financial statement. We discovered that the larger remodeling projects were time consuming and had a minimal profit that ranged from zero to 5%. The project’s original sale looked great on paper. A $30,000 sale is exciting, but true test of success is the profit margin at the end of the project—a margin that should be set at the beginning. Dedicating a month to a large project with zero or minimal profit is not worth those 30 days.
The revenue from home improvement projects such as windows, siding, roofing and sunrooms, were more profitable and easier to accomplish, but they were not the focus of the business. The company’s employees spent the majority of their time on the large projects.

The Dilemma
The owner knew he had to make a decision about the future direction of the business and place profitability before growth. Could he survive without the revenue from the larger projects? Removing the unprofitable projects and focusing on the ideal projects, or sweet spot of the businesses target projects instead, may mean loosing revenue, but removing the projects that are causing lost time, energy and profit dollars, means more time focusing on the ideal projects and what makes the most profit. The answer may have seemed clearer in the financial statement because it provided more accurate information. If 70% of your projects have a net profit of 15% to 25%, and the other 30% revenue is at 0-5% profit, losing or dropping the unprofitable 30% will result in lost revenue or a decrease in sales. Is that a bad situation? No! Now, the personnel can be more focused, maybe overhead will lower and your business will be more productive to produce the profitable projects.

The Decision
The owner decided to narrow the company’s focus to its most profitable projects—the home improvement work. Not only were the projects more profitable, the staff was better able to create a positive experience for customers, which is another positive outcome. The team updated the pricing on these projects to increase the profit margin by 3%. With this focus on home improvements, the company’s marketing message also became clearer and it was able to target ideal clients and enhance the experience of these ideal clients.

The Future
The owner discovered that he could increase profitability without initially increasing sales. However, in the six months since the change, the company has seen an increase in both sales revenue and profit. The business now accepts smaller and more selective remodeling projects. With the increase in profit percentages and a clearer approach, the company does not waste time on sales that don’t lead to profit.

Open Your Books to Profit, continued…

I wanted to post this here on my personal blog to see if anyone had any questions they wanted to submit. Here is the link to the article

In last week’s bIog, I talked about the importance of open book management (OBM) and solicited questions from readers. I received two questions from a window replacement company that I’ve answered below.

Q: How do you recommend a business owner share with employees the urgency of a financial situation, without scaring employees or hurting morale? On the other hand, we do want them to feel secure in the future of the company.

A: To me, the purpose of open book management is threefold: I want to have accurate information to make decisions, I want to hold my employees accountable and maximize production, and I want to build a team effort that empowers employees to make decisions for the benefit of the team, business and our future. OBM, in order to be effective, isn’t about just showing numbers, it’s about involving employees to be part of the management and part of the team by empowering them to help make decisions that affect the future of the company. One reason many employees leave a business is because they don’t feel they are involved or their voices heard. They can feel insignificant.

If your business is losing money, as an employee, they would want to know why? They would also want to know what the plan is moving forward. I am sure you have a history of profitable years that can build confidence. Mapping out your plan and showing how you are dedicated to increasing profits can be your morale boost. Another way confidence booster is when an owner invests their own savings into the business to increase cash flow. It shows commitment.

Is there panic when they see a significant loss? If the situation is handled properly and you have a plan in place, then the team should be onboard and as committed as an owner. Keep the dedicated employees that thrive from OBM and replace the ones that aren’t the right fit. Build a culture of success and surround yourself with good people!

Q: We also want them to realize the importance of efficiency and the significance of every mis-ordered or lost dollar, yet at the same time we want to continue to make sure they spend “what it takes” to do a job right make our customers happy. What’s the happy medium?

A: If you have a history of financials on your business or have the financial set up to show a comparative from this year to last year, you should set some goals and benchmarks. For example, if the labor rate needs to be at 25% and material rate at 25%, which is a gross profit of 50%, then your pricing should be set accordingly. If the financial for the previous month comes in at 27% labor and 30% material, then its time to analyze it. I analyze the good times and the bad times to keep a good pulse on the scenario, but in this scenario, where do we start?

The labor and material rate is higher than expected. Is the pricing accurate to keep you at a 50% gross profit? Were there a few projects for the month that were undersold with a lower revenue number, thus making the labor and material percentage appear higher or were there numerous errors in the labor pay sheets due to lack of production managing the jobs improperly causing extra work?

Employees need to be held accountable to their benchmarks and this can only be done by reviewing the financials and maximizing the potential of OBM. The three elements to make OBM thrive are as follows for business owners- Monitor, motivate and hold them accountable.

When the company is profitable and the numbers are being managed right reward your employees with a bonus system. The goal should be “let’s do what we can to get back to the profitable days.”

Do you have questions about open book management? Submit your questions to me at tim@remodelbuddy.com.

Your client and proud homeowner would be very pleased to receive a owners manual at the projects completion. Finalize each project in a positive manner with a invitation to a post project meeting. What better way to show your appreciation to your client. There could be a few items presented in the manual at the meeting that can be very beneficial to your business.

There could be a few sections covered in this manual.

Section One could be a survey on your company with a survey sheet to be filled out by the homeowners. Page one or section one should be Instructions for filling out a survey, with a pre-paid envelop to mail it back to you or an option to fill out a form online. There are many ways to receive testimonials; written, audio and video. Use this opportunity to arrange it. What better time to make sure you get one.

Section Two of the manual can be records. Collect any paperwork associated with the job and complete records of everything installed; Complete records would include what it is, where it is, what color it is, where the client can get spare parts, repair or service years later and warranty information. A record of paint used, color and the brand. Also, copies of contracts, along with before and after pictures so that your client can show their friends.

A useful item for the manual, beneficial to todays tax credits, would be a section for any energy tax credit information.

The Third Section, should be instructions on how to refer your company. Explain your referral process. Do they fill out a form, call you, e-mail the information? What happens when you get the referral? To present your referral process as very systematic process, shows your clients that anyone referred to you, will be handled in a professional manner, and increase the chances of receiving one from them. Here are some ways to address that in writing that can be referred to regularly.

How to Refer Others- explain how you would like to receive the information

How to Spot My Ideal Customer- Explain what type of customers you are looking for.

How to Best Communicate What I Do-explain your unique core message about your business.

How My Customer Referral Process Works- When you are given a referral, when will they be contacted, what is your initial conversations goals and how you will return the results/progress to the people that gave you the referral.

Our Referral rewards Program- do you offer any special rewards for someone that offers a referral and they become a new client. What is it and how do they get it.

Be unique and turn a post project meeting into more than just getting the final payment. Make a relationship that benefits everyone. Remember, being a successful business with consistent results is about doing all the little things properly.

There have been many times in sales meetings a sales person will say, “teach me how to close.” He will say, “I just couldn’t overcome that objection and I keep hearing the same one over and over.” Talking strategy over on how to handle that nagging objection and working through a solution is always a good idea. (BUT) Did you ever think about the possibility of overcoming it, before it even arises? That, is the true solution.

No one likes to be sold. Everyone likes to buy. In the remodeling and home improvement industry it may be more important than ever to understand that when a customer becomes a client and says,”yes, you’re hired,” it is an emotional decision. When the decision is made, your prospect will make an emotional decision based from them knowing, liking and trusting you.

A sales process that educates and is unique is ultimately the best path towards reaching your prospect on an emotional level and answering questions before they arise. When more effort to educate before the questions come up,  before the objections have time to dwell in their minds, the less effort and time will be spent in the end trying to convince them you are right for the job. Trying to convince people in the end about something they are unsure of will erode that like and trust and more than likely the opportunity for you.

Marketing materials should educate. The sales process starts before they even contact you. The principles we discuss and the processes we follow at Remodel Buddy coaching and MasterBuilder Roundtables are based on getting the client to Know you, Like you, Trust you and ultimately buy and refer you. All of your communications should allow your prospects to really experience your expertise. The most successful remodeling businesses that increase their conversion rate, increase their profits from earning more of the right jobs and eliminate time chasing leads. It is the ones that understand a sales process that educates and is unique is successful. Here is a case study of a remodeling company that increased their conversion rate, decreased leads and at the year end had more sales and revenue, plus higher profits.

We were one individual part of a national company that I was a partner with, but in our local branch we were responsible for our own profit center. The partners in the company visited each office/showroom from across the nation each month to review financials and to be hands on.

We were always told, when partners visited, that we had a very good working environment. A great team of people that seem to be all focused on the “better good, big picture.” I called it building a “Culture for Success.” Building a culture of success is an integral part of creating a working environment that is productive. It doesn’t mean if your team is productive that they will always be productive. After all, success is not an event, it is a body of work that is maintained over a long period of time. To have sustained success, a culture needs to be developed. Building a culture of success is a body of work, not a single event.

Employees usually leave the company they were previously with for various reasons, but probably the biggest reason they leave is a feeling of spinning their wheels. Employees want to be valued, utilized wisely and have their ideas heard and implemented on occasion, or more often. Not only will the employees be appreciative, they will be more productive and have a better attitude. A better attitude is infectious and can lead to employee retention, while keeping a fresh outlook on your company.

Without good information, you can’t make good decisions.

Managing your time wisely to gather information on products, systems or accounts by holding meetings that are pre-scheduled and have an itinerary that you stick to is a great way to develop employees funneling of information to the business owner or executive.

Have the meetings on time, be organized and interactive with employees. Request input and acknowledge good input by using and implementing.

1. empowering your employees to be proactive

2. be the “man in the middle”

3. team meetings that are interactive

4. be organized and last but not least

5. hold everyone in your organization accountable.