Wolseley PRO Pipeline Blog
By Greg Weatherdon, Small Business Expert
Comments like, “I’m too busy” or “I can’t handle any more work”, or “we’re swamped”, can be a blessing or a curse for business owner. When I hear these I’m always of two minds.
My first thoughts are, that it’s wonderful problem. Lots of owners wish they had that kind of problem! My second thought is a little more cynical. What problems do you have in your business that is causing you to be too busy?
Granted for seasonal businesses this is more the norm, as they must generate a year’s revenue in 4 to 8 months and then throttle down for the balance of the year. But most businesses run all year long and for many, there’s no let up on the stress. To me this is a danger signal.
Undercharging
In these situations, one of the first things I ask the overworked owner is, what percentage of orders are they “NOT” getting? If they answer that they win every job or contract they bid on, it’s usually a sign that they’re not charging enough.
Let me explain. Somewhere between never getting an order and winning every sale, is a sweet spot that allows you to balance your revenue and maximize your profits. This sweet spot is usually around 80%. This means you win 80% of the contracts or get 80% of the sales you go after.
So, are you making money?
It’s an easy question and most people answer, “of course we are!” To them I say prove it, and that’s when the conversation ends. Far too many owners go through their standard quote process, then hand it to the customer and if lucky enough, get the order. Perfect scenario, right? Well that’s only a maybe.
With order in hand the focus then shifts to ordering parts, scheduling people and install time. Once the job is completed and the customer pays, the cycle starts all over again. But there’s one more crucial step that needs to happen, but rarely does: taking a step back to review the project.
Project review
The final step is to review the overall job with a series a simple questions in order to improve our quoting process and profitability. Here are the questions:
- Were there any overlooked install challenges?
- Was the job completed in the allotted time?
- Did you miss or forget to order something?
- Was the actual price of the parts the same as estimated?
- Was there a call back? If so, why?
- Did you include travel time and costs?
- Did you include an actual profit calculation?
- How much profit did you actually make?
This final step is usually ignored as we run off to the next quote or install. But this step is where reality sets in. You need to take the time to actually look at what happened and what the job actually cost. It is the only way you’re going to be able to find out if you really made money instead of just assuming you did.
Revenue without profit is pointless
Doing a post mortem on your major projects is mandatory. It allows you to test your assumptions and to identify problems or oversights. This in turn gives you concrete information to improve your estimates and your profits, because revenue without profit is pointless.
Unprofitable or money-losing work is a waste of your time. You might as well stay home because it’ll cost you less. You know there’s always someone willing to beat your price and in a race to the bottom, no one wins. The upside of walking away from the low/no profit jobs is that it’ll keep the competition so busy not making money, that’ll probably push them closer to extinction.
Although price is important to every customer, it’s only one of many factors that go into their decision making. Trust, reliability, reputation also play into the final decision. Let’s be honest, the customer who only considers price, may not be a customer you want. There is a good chance they’ll never be satisfied.
Focusing on profitable sales may mean not winning every job, but the upside is that it may give you a little more breathing room, less stress and will probably put more money in your pocket.
Greg Weatherdon is a small business expert and author of Get More LIFE Out of Your Business. He also produces The Small Business Minute Podcast that available on all major platforms including iTunes, Google Play and Spotify.
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