We could write this from a high-level philosophical view: take care of your customers in a way that makes them raving fans; while creating an environment where employees can grow, enjoy their work and build a sense of pride in the company and community. But we are guys of steps, procedures, to-do lists and metrics. Here’s a bit more objective and measurable list of ten tenets for becoming a truly fantastic company.
Revenue Growth. Target 15% annual growth. This is a manageable rate for doubling in size every 5 years.
Profit. Don’t get satisfied at 10%. A good CI company should be at 15% after the owner/operator pays themselves 4-5% of Sales.
Cash. Bill Gates’ goal was to keep enough cash to cover one year of payroll cost, which is about 100 days of sales in most CI companies.
Gross Margin. Profit & cash start here. The goal should be an unburdened pre-labor GM of 60% or more. We call this your “Top-Line Gross Margin”.
Productivity. The accepted benchmark is $200,000 annual revenues per employee (RPE). At 60% GM, that’s $120,000 annual GP per employee (GPE). Technicians should average $10,000+/month in labor revenues (LRPT).
Compensation. The #1 most important expense to manage. Total payroll should be 50% or less of top-line GM. This produces a GPP ratio (gross profit per payroll dollar) of 2.0 or higher.
Equity. Retain enough profit to keep 50% of annual sales in the company.
Count Right. These benchmarks are moot if you do not conform to generally accepted accounting principles that align revenues with costs, maintain an inventory asset, and recognize client pre-payments as a liability.
Measure Right. Learn to measure the things that have the biggest impact on items 1-7. Then, measure & review regularly.
Invest. Build your company around people and process that allow you to scale and become what you aspire to be.
We have yet to meet the company that can check all of these boxes, but that shouldn’t keep you for working in this direction. Best wishes for profit, growth and prosperity. Excellence takes lots of directed energy.
Keep It Vital,
Paul & Steve
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