What Has Changed In YOUR Company Since The Recession?
If you are a contractor, your world turned upside down back in 2008 and 2009. The housing bubble burst, new construction dried up, unemployment went to 10%, and consumers stopped spending money. Unless you sold your business for millions of dollars before this happen, your company has been affected. Now being affected, and making deliberate changes in your business, are two different things. It’s kind of like when I purchased an iPhone. I told my daughter not to confuse the fact that I owned an iPhone with the fact that I knew how to use it. They were two completely different things.
Most everyone has heard the definition of insanity. Insanity is doing the same thing over and over again while expecting different results. Internal change doesn’t just happen; real change requires a conscience effort. Contractors that have continued business as usual over the past years are probably not reading this article…because they are out of business. When the kinds of changes that took place in 2008 and 2009 occurred, major internal changes were required for the company to survive. Some call it the “new normal”
We are going to do a quick review of several areas of your business that should have changed. Let’s review the list and see what’s taken place in your company.
Pricing – Wise contractors reduced their workforce and cut overhead in an effort to remain profitable. Making the hard decision to cut employees and to reduce overhead costs are very necessary moves, however the question is “What changes took place in your pricing?” Many company owners simply reduced pricing in the hope of selling more jobs. Wrong move! Step one is to sit down and go through the detailed process of determining what you must charge per hour, in each department, in order to cover your changed costs of doing business, while generating a reasonable profit.
Question: Have you recalculated your hourly rate, in each department, within the past year?
Flat Rate Pricing – Let’s assume you did recalculate your hourly rate for the service department. The resulting math said you needed to charge $123/hour to cover cost while generating a reasonable profit. Did you move to a flat rate pricing system, so that you could charge the needed $123/hour? If not, you were probably still fearful of the system and were convinced it simply “would not work where I live.” So what did you do? Perhaps you raised your rate to $95.00/hour on time and material and simply hoped everything would work out fine.
Question: When the pressure was on did you switch to flat rate pricing or were you fearful to make the change?
Departmentalizing the Company – Less than 5% of contractors, in all trades, across the country break their companies down by department all the way through the P/L. The result of not departmentalizing is obvious. One department begins to subsidize another department and no one knows it until it’s too late. Now is the time to begin breaking your company down by department. Contractors that have made dramatic, planned, changes in their company should be congratulated. You have made a profit in spite of the circumstances around you. However, making an overall profit is not you ultimate goal. The ultimate goal is to be 100% sure you are making money in every department.
Question: Do you “know” you are making money in each and every department? If not, it’s time to create month-by-month, department-by-department cashflow budgets, which includes tracking the real data each month.
Maintenance Agreements – Maintenance agreements are literally the foundation stone for profitable growth in the 21st century. Maintenance agreements lock customers into your company. Maintenance agreement customers nearly always have your company do their additional repairs. When it comes time to replacement their equipment they will nearly always make you the contractor of choice. Additionally, there are typically 90 slow days a year. Those slow days must be filled with profitable maintenance agreement work.
Question: How many maintenance agreements do you have in place and what is you plan to increase that number?
Customer Service Training – If you were not already aware of the need to provide outstanding customer service before the recent recession, you should be 100% aware of it now. Grandy & Associates works with a number of companies whose service rates are well over $300 per hour on flat rate pricing. These companies are not gouging the customer. It costs them $300+ per hour to cover costs and make a reasonable profit. Each of those companies continually invests large amounts of time and money into customer service training. A great tech with poor customer service skills seldom impresses the customer. An average tech, skill wise, with great customer service skills, will always impress the customers, leaving them with the mind set of calling that company again next time service is needed. An outstanding customer service program, that routinely exceeds the customer’s expectations, will cause the customer to call over and over again while creating referrals.
Question: How much have you invested in customer service training over the past two years? How much are you going to invest in the future?
Now I am fully aware it takes a lot more than the above five things to run a profitable business. However, if you can get these five areas under control you will be profitable now and you will have laid the foundation for profitable growth in the future.
If you are serious about learning the “business side” of the business you might want to consider a one-on-one Company Overview to create a profitable Financial Business Plan.
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Posted In: ACCA Now, Management
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