You Can Complain, Make Excuses, & Hope. But… What Are You Going to DO?
In this issue ....
Getting beyond excuses
552 words, a 3 minute read.
We have a client who complains about how things are going, every time we talk with them. “We’re not doing enough business.” The complaints are followed by the reasons, things are less than great: COVID, jobs moving slowly, supply chain challenges. You might recognize these as “excuses”.
We ask, “What’s gonna happen going forward?” And instead of describing specific actions to deal with the issues, the response is to “hope that when this COVID thing settles down the job sites will get moving and we’ll have the goods we need to do our work.”
The problem with this, of course, is that hope is not a strategy (sorry for the cliché). If things continue as they have – for another 30, or 60, or 180 days – do you finally run out of hope? Then what?
Plan - Act - Review
Strategy starts with identifying goals. Here’s three we believe every integrator should have for the year ahead…
Will your production revenues be higher or lower than last year? Does your sales pipeline and production backlog suggest one or the other? By how much?
These questions should quickly lead you to a revenue goal for the year. Divide by 12 & you’ve got a progress goal to measure against each month.
Monitor this the first of every month to make sure you have adequate near-term backlog.
2) Top-Line Gross Margin (TLGM)
What portion of your anticipated revenue will come from equipment & materials? These should represent 60-70% of your revenue total, with the remainder being labor (30-40%). Now…
Multiply the equipment/materials portion times your anticipated GM on these goods, typically 40-50%. 70% of sales at a 40% GM would give you 28 points of TLGM. Add the labor portion (30% of sales) and now you’ve got your TLGM target, in this case 58%. In dollars, this is how much will remain for all your other bills, after you’ve paid for COGS. Make sure every proposal going out the door conforms to this standard.
Your biggest operating cost is your people. Ideally, what you pay them will come in at about half the GP dollars just calculated above. So, with a 58% TLGM, the compensation target would be 29% of revenues. This number includes all gross earnings, a reasonable salary for the operating owner(s), payroll taxes, benefits, and any subcontractors you use to help with programming & installation.
Note that if your TLGM was 66% (we see it all the time with companies that charge enough for labor), your comp budget would go up to 33%, or even 36%, leaving you with 30+ points to pay your other bills and claim a healthy double-digit profit. Continuously manage the difference between TLGM and Payroll, it’s your success ticket.
The calcs suggested above should take you maybe 10 minutes. Now you have goals for the most important #’s in your business. This allows you to Act in a way consistent with those goals (“plan your work, work your plan”). And at the end of every month, you can Review what was actually achieved in the month, with the plan you’ve created.
Next thing you know, you’ll be past hope, and managing to the outcome you’d planned.