What About Your Profit?
authors Dave Yoho | March 13, 2019
Last year was a great year for home improvement companies. Or was it? Sales and revenues increased—most net-profit margins did not. The amount of profit increased. The percentage did not. The risks associated with expanded revenue and insufficient net profit are manifold.
Despite your company’s success this year, you may be missing the methods used by the most profitable/successful companies in your industry.
Examine the examples depicted above.
In many similar examples, the conclusion drawn might be that the home improvement industry would seem to have had its head in the sand. A major hiccup could derail much of the growth and progress of this giant industry. The owners of home improvement companies are entrepreneurs who invest time, energy and capital. They bring new products to market often facing vast competition, over-burdensome government regulations, constant hiring and training of new personnel, and rising administrative costs.
If they are lucky, they get sufficient contracts to offset their overhead, complete the work, deal with uncooperative weather, and overcome mistakes that might otherwise put the business in peril. Despite propaganda to the contrary, some of the best run companies do not make the net profit to which they are entitled versus the investment in time, energy and risks involved.
Let’s be clear: Gross profit is an accounting term describing the difference between direct costs and selling price. Next is deducting the cost of marketing, sales and administrative expenses. What’s left is net profit—the amount earned before paying taxes (pre-tax net).
A 10 percent pre-tax profit should be a minimum for specialty home improvement companies (siding, windows, bath-refitting, etc.) Exceptional companies often earn 15 percent or more. A remodeling company’s goal should be no less than 5 percent pre-tax net. Better run remodelers exceed this. Improper pricing, unwise hiring methods and outdated sales compensation are often at fault.
In 2019, Your Profitability Could Improve If You Hire the Right People—and Keep Them.
Recruiting, hiring, training and keeping personnel is a key profitability issue. The cost of advertising and phone interviewing is expensive and is seldom identified as a separate item on an operating statement. In the case of salespeople, add in costly time spent training. Then, examine the number of leads issued to the new hire.
Efficient recruiting starts with defining what you want the hired party to do, then creating an ad or job posting to gain inquiries. Next, it involves using a script to perform telephone interviews. The job of a recruiter is like that of a salesperson. There has to be a system clearly defined and used to create an effective telephone interview. By effectively asking questions, a recruiter defines the skills of the applicant. The goal is to then get them to want an interview.
Successful recruiters conserve time and money (which transmits to bottom-line profits). They use an electronically generated profile*, which creates a more effective interview and helps determine, A) Can the applicant do the job? B) Will they do the job? C) Do they fit the organization and the business model?
These instruments enable a recruiter to challenge someone during an interview, i.e., “Convince us you are the right person for this position.” Unfortunately, the less you know about professional interviewing, the higher the chances are you will experience mis-hires and high turnover. We’ve been using profiles for over 40 years and have found that with proper use they save time, improve the amount of information from the applicant and reduce turnover. (*We will email you a completed profile without charge. Send an email to firstname.lastname@example.org with subject “profile” and refer to this article and publication date.)
Ten years ago, industry statistics indicated that only about 50 percent of scheduled candidates showed up for interviews. Current surveys indicate the number of candidates who now show up is 30 percent or less. Companies who recruit and interview effectively use methods, which include scripting for both telephone and in-person interviews. And many of these companies average 70 percent showing up for interviews. Decide today to improve your hiring skills and then prepare to upgrade your management skills.
To Improve Profitability in 2019, Manage Your Salespeople (Whatever You Call Them) Properly
Modern selling is not fast-talking, being liked or outthinking your customers. It is a science enabling owners, manager and representatives to create a cooperative environment, acting in consort to fulfill both the wants and the needs of the customer.
Great managers understand their sales reps and their customers. Their role is to hire and train salespeople to make presentations. Not to prejudge or qualify prospects based on their own values, but to make great presentations regardless of what they think about the quality of the lead.
A sound sales methodology is designed to convince virtually everyone when executed correctly. Great sales managers understand that their role is to train salespeople to execute each step of the presentation with precision 100 percent of the time.
No one should ignore the opportunity to re- contact leads, who did not receive a presentation or were presented and not sold.
Revisiting a prospect is not about cutting your price or offering a lesser product at a reduced price. Carefully scripted, it can provide a revisit. In addition, a rehash program supports your sales department. It helps management train, retain and redirect salespeople while increasing their sales.
An unsold lead has the same value (costs) as when it was issued, yet it produced no revenue. Someone will sell it someday—why not you, instead of your competitor? With proper planning and execution, revisited leads can represent 7 percent to 10 percent of your gross revenue in 2019.
Follow up on a consistent basis with email, text messages, direct mail or personal visits with prospects who have expressed an interest yet remain unsold. This includes past customers. Be sure to check Do Not Call regulations for your market. There are usually time-restrictive, re-contact provisions, even when the customer contacted your company. The more successful companies rehash every lead and follow up on every sale for additional business and referrals. They often find that salespeople unintentionally mishandled the contact, the presentation and/or the price. Following up is a great customer-satisfaction tool.
The true cost of lead issuance is created by dividing the number of leads issued by the fully loaded marketing costs. These costs have escalated to obscene levels. Many large companies saw this as a nonproblem and simply raised prices. The outcome of which was a cycle of increased operating costs—that, in turn, created higher selling prices without increasing net profit.
Management’s plan for 2019 should include methods for taking their organization from good to great in sales management. Start out by examining your metrics. QR
Dave Yoho Associates is the oldest (since 1962), largest and most successful consulting company representing the remodeling and home improvement industry. The company has a staff of field representatives and account executives who consult for large and small retailers, manufacturers and service providers. In the spring of 2019, they will be holding two educational seminars in Orlando, Florida, designed to improve your profitability immediately. To learn more, visit hipsummit.com.