12 Gifts for Christmas from VITAL MGMT
In today’s Coffee…
12 Winning Business Tips
627 words, total reading time about 3 minutes
For seven years, we have provided coffee after coffee espousing how you can Jolt your business by taking fairly simple actions. All have been aimed at improving profit, cash, effectiveness and productivity in your business. Companies after company have reported improvements and over 15 dozen readers continue to tune in each week and for that we are most appreciative. We like to think we have improved our clients bottom lines by at least $35M over the past 7 years. As we approach the 12 days of Christmas, we thought it might be a good thing to review some of the bigger impact items: Here’s 12 to ponder and act on. 1. Review every proposal going out the door for MIX and Margin compliance. Every company needs a bid checker. Winning formula: 60% pre-labor costed margin (TLM) and consistently over 33% Labor Mix. 2. Make sure you get at least 7% deal tax (covering misc. consumable parts and services). Most companies miss this, and don’t even recoup the cost of bulk parts being used. 3. Should I forego lower margin business? We do have a tendency to chase every rabbit. But raising prices does not stress your install resources. Lots of low margin business can. 4. Won’t I lose business by raising prices? In a combined 22 years of doing this (Steve & Paul) we have seen little evidence of this, if you are providing high value to your clients. They need you to win to support them in yers to come. 5. You need to generate twice the gross margin dollars (COGS being only materials cost) than you have payroll. If you have a $500K annual payroll you need $1M in Gross Margin Dollars (Equip, Parts, Labor Revenue minus Equip and Parts costs). 6. What should my labor margin be? Great CI companies make 50% to 60% on labor. They get 4 to 5 times their wage rate for average billing and they have high utilization (hours billed per 40-hour work week for techs) often 24 to 28 hours a week per tech every week. Not factoring out any hours. Reduce office time, find alternate delivery options, techs drive from home, bill for travel, etc. Bid jobs properly. 7. How can I tell if I am going to grow? If you keep your backlog by month going forward, the current month and next 3 months, tell the story. If the current month is over 90% of your past 6 average and your 90day backlog is over 80% of the past two quarters then you have good momentum in the business. 8. What leading indicators should give me most concern? Low margin is the worst you cannot survive if margins are shrinking. But knowing what proposal activity is doing and how the past 4-6 months new contracts are trending is the early warning system in the business. 9. How important is cash discipline in the business? You have the luxury of an amazing business model where clients pay ahead of work and product being delivered. Make sure your terms are right. Do not leave more than 5% on the table for final. Get most of it collected early. Have a disciplined Request For Payment process in place. Tie it to dates, not arbitrary events. Collect, collect, collect. 10. How much money should I keep in the business? Bill Gates, early on, said one-year payroll; for most of you that’s a lot. But cash accumulation is your best safety net. Most CI companies have way too little equity in their companies. Set a plan to get net cash to where you need to be inside 2-3 years. And, do it. 11. Have a Profit MATH plan. We have long advocated 20% as a solid goal. It takes a minimum of 60% Gross Margin; 30% Compensation and 10% Operating Expenses. Many have achieved this. Some with higher Margin. Have a plan of action to get your company there. It will tell you what you need to improve and what your need to reduce. 12. Understand growth strategies in your business; some are internal others are externally influence. Do not leave it to hope. Identify the best ones for you and Make It Happen. We have identified 8 Growth strategies. Click here to get them. Wishing you the very best of Holidays and praying for your safety and prosperity during these turbulent times.