Yoho: How to Address Critical Issues Facing Your Company in 2022 and 2023

by Kyle Clapham

You run a specialized home improvement business selling products and services to homeowners. Or perhaps your company makes and sells products that are marketed through home improvement companies. In either case, the following key issues are for you and your business.

Examine the many ways inflation has and will affect your ability to run a profitable or more profitable business. Also, I offer 18 recommendations to aid you in your plan.

How Does the Federal Funds Rate Affect Your Business?

The U.S. inflation rate has risen at the fastest pace in 40 years. To combat inflation, the Federal Reserve is raising the rate it charges. Current and planned adjustments to the Federal Funds rate affects a variety of business issues: credit card rates, home-improvement loans, and home equity lines of credit.

In fact, increased rates make it more expensive for consumers to borrow money now and in future months. Right now, there is still a sizeable amount of cash in most financial institutions. That is about to change. The economy is in a state of change. Buyers’ habits are changing. Is your company prepared?

If your customer has an ARM (adjustable-rate mortgage), the amount of their mortgage payment will increase. The home equity loan that has become a popular method of financing or acquiring cash for payment is predicted to rise to over 6 percent prior to Dec. 31 and is predicted to increase again in early 2023.

How Does This Affect Your Sales Model?

Consider how these additional costs affect the consumer’s decision to “buy now.” Also, consider the status of the loans that are already approved and are sitting in your backlog as well as the need to update or revamp your sales model.

Mortgage rates, which at the beginning of 2022 were at an average of 2.8 percent, are now over 5 percent with further increases projected in the third and fourth quarter of this year. As such, property improvements in place become a better option for the average homeowner. Have you prepared your salespeople for this paradigm shift?

The good news? Most home improvement products represent the best “bang for the buck” in this economy. Can your company teach (educate your customers) regarding the benefits of financing and purchasing at your “guaranteed now” price?

The indefinite buyer can be reassured with explanations regarding financial options provided that fit their specific situation. Work with your financing source to provide the necessary information to accommodate “customer satisfaction selling” and review and update your in-home presentation. Preparedness is the prescription.

Evaluate the ROI for Your Sales and Marketing Program

The cost of a lead is further increased (or reduced) by the efficiency and sales ability of the person to whom it is issued. The proper way to measure the efficiency of your sales force and individual reps is to divide the number of leads issued into the “net” retained sales volume acquired in the same period in which the leads were issued. Next, multiply the number of leads issued by the cost per lead issued. Now you will have a more accurate picture of your ROI.

Some sales representatives are more efficient than others, and the leads they receive rarely meet the quality of what they expect. To continue issuing more leads irrespective of ROI results in a decrease in efficiency and revenue while also increasing your marketing costs. The overall impact is a reduction in net pre-tax profit.

Identify the Dollars and Percentages That Are Your Total Marketing Costs

For many companies, the answer is based on information in their most recent profit-and-loss statement, which may have been created by an accountant based on generally accepted accounting principles. Since the value of a marketing plan is measured by the revenue produced from the leads acquired, it is important to first examine how your company is allocating marketing costs and then calculate your anticipated ROI.

For example, XYZ Company sold $400,000 (net sales volume) for the month. Net volume is gross sales minus cancellations and credit rejects. During that month XYZ spent $60,000 on marketing. However, in that same period, they completed installations of $480,000.

Using typical accounting procedures, the $60,000 marketing costs when measured against the $480,000 installed business (revenue) indicates marketing costs of 12.5 percent. However, if the $60,000 was evaluated against their net sales for the month ($400,000), then their marketing costs equal 15 percent.

The above is not intended to criticize accountants or their procedures. The average home improvement company needs more internal and accurate data (analytics) to perform in this arena. At $60,000 per month the XYZ Company is spending over $720,000 per year and doesn’t have a grasp on the true total marketing costs or ROI until year-end statements are prepared.

The incontrovertible truth is that marketing costs have been rising at an alarming rate and, if you intend to improve your profitability, you need to consider revisions to your marketing strategy and budgeting methods. Here are 18 suggestions for your company to consider. Each one will open the door for other efficiencies that are needed in this current economy.

18 Suggested Revisions to Marketing and Budgeting Methods

  • Be proactive. Become more proactive and less reactive to marketing expenditures.
  • Reporting. Create an internal monthly operating statement that presents a clearer picture of sales and marketing costs versus net sales for the month.
  • Monitor cash flow. Utilize accrual method accounting and create a simple, weekly cash-flow analysis.
  • Reduce backlog. Create a plan/solution(s) for reducing the backlog while maintaining profitability and customer satisfaction.
  • Dedicated recruiting. Create the position of recruiter for install, sales and marketing, a unique position requiring specific talents/skills. Create perks for retention of W-2 and 1099 personnel.
  • Measure sales efficiencies. Measure the efficiencies of your sales personnel on their net sales volume versus leads issued (costs versus new sales). Also, measure presentations versus leads.
  • Manage by personality type. Utilize the DISC Analysis Profile for training, coaching, mentoring and retention for sales and marketing personnel. Utilize the Sales Aptitude Appraisal for coaching and ongoing guidance. Create performance goals for sales personnel and sales management.
  • Make an inflation plan. Examine then preach/teach the effects and necessities created by inflation.
  • The total offer. Reinforce, retrain the “total offer concept” for your sales methodology.
  • Budget in dollars. Create a budget using dollars instead of percentages and require that marketing expenses stay within the budget of leads needed versus dollars available.
  • Focus on rehash. Upgrade the manner in which leads are rehashed including revisits on scripts, selling procedures, etc.
  • Tap past customers. Utilize “warm call” telemarketing to past customers with the goal of soliciting new business and referrals.
  • Refocus on shows and events. Increase efficiency for participating in shows and events, which produce low-cost leads if managed correctly.
  • Customer satisfaction strategy (part 1). Develop customer satisfaction scripts to address issued leads that received no presentation and “single party” leads that weren’t sold.
  • Customer satisfaction strategy (part 2). Create customer satisfaction re-solicitation scripts for “presentations/no sale” and cancellations; however, avoid immediately offering a lower price. There are many other options.
  • Require add-on business. Reduce the number of leads issued to your sales reps and require that they sell a percentage of their business from self-generated leads, add-ons, and change orders to maintain top commissions.
  • Boost ride-along activity. Increase the amount of ride-alongs for your sales reps, both in-person and virtually.
  • Create lead-efficiency bonuses. Review and revise your sales incentives and create lead-efficiency bonuses. Consider other retention and personal growth perks.

You are a part of an industry that was created by imagination, creativity and ingenuity. Now, you are being challenged to face a changing economy. With wise management and a positive attitude, you will be prepared to meet this challenge. QR

Dave Yoho Associates is the oldest (since 1962), largest and most successful consulting company representing the remodeling and home improvement industries. They are credited with the introduction of Step Selling, Post-Negative Suggestion, The Total-Offer Concept and Right- Versus Left-Brain Selling. Join them and more than 15 of the industry’s most successful owners, managers and marketing experts at the 2022 Growth Mastery Summit, Sept. 20-22 in Northern Virginia. You can contact Dave directly by calling 703.591.2490 or sending an email to dave@daveyoho.com.

Related Posts

Leave a Comment

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More