Discover How Understanding His Numbers Brought Joe Another $275,000 In Profits.
Recently I met with Joe who owns an HVAC company. He has spent a lot of time and effort over the past few years to increase profits and has grown his top-line revenue from $500,000/year to $3,000,000/year. His question to me was: It seems to be harder to meet all of the monthly expenses now that my sales are higher than they used to be. Why is this? (I love this question!)
I started asking Joe some of the questions. After just a few minutes it became obvious that he was great at tracking top-line sales/revenue but he wasn’t comfortable with the numbers beyond that one important KPI.
We pulled prior years’ financial statements and calculated gross profits % and net profits % by quarter for the prior 3 years. Joe began to see these things:
- As his sales grew, his payroll increased at a higher % than his growth %,
- Job materials also increased in % which affects overall gross profit %
What Surprised Joe After Digging Into The Numbers
During our next few coaching calls, Joe decided to dig into these numbers. He was surprised to find that it was taking more hours to get an average job done now than it did 3 years ago. He needed to figure out why. Was it due to inefficiencies, lack of training, customer issues, or something else? Joe also realized that he really didn’t have a good handle on the cost per hour for everyone on his team. This was an area that needed more work.
Then, he took a look at the cost of his job materials. In the early years, Joe did all of the ordering for each job. Now, he has an operations manager who does this task. Joe looked at the ordering for several jobs from each quarter and discovered some over-ordering on some of the jobs and under-ordering on others. This combination was resulting in unused materials which were not being utilized for some jobs and in other jobs, multiple runs to the supply house with crews standing around waiting for the product to be delivered to the job site.
Joe also decided to look into the pricing for the most common job materials. He has been using 2-3 vendors for all of his job materials. Can he find some savings without compromising quality?
After spending a few weeks working on these issues, Joe came to the conclusion that there were many inefficiencies within his production team.
He identified that to increase profits he needed to work on the following areas:
- Have a better description of this target customer and make sure everyone in the company understands this completely,
- Strengthen the policies and procedures within the company so the production team can be more efficient,
- Invest in additional training for his team so they can get the jobs done quicker and with greater accuracy which will result in fewer “callbacks”,
- Develop a better communication system for the whole team so each person on the team knows and understands the status of each job and can give the customer a better experience,
- Reduce the number of non-billable hours for each employee
- Develop a referral program for his top customers
These changes were estimated to add an additional $275,000/year to his bottom-line profit. He was so excited to get started on implementing these changes! Joe committed to tracking his numbers each month so he can stay on top of them and keep this new-found profit from evaporating over time.
A ‘Know Your Numbers’ Checklist You Can Use Today.
- What is your year-to-date gross revenue?
- Do you know how much revenue your company generated this month or week?
- What is your year-to-date bottom-line profit?
- What is your gross profit %?
- What is your net profit %?
- Do you know exactly how much each employee costs you by the hour?
- What is your monthly break-even point?
- What is the mix of jobs that it takes each month/week/day to meet your sales goal?
- How much profit are you making on each job?
- How much cash do you have in the bank?
- How much of your cash is tied up in receivables?
- How many calls do you need to generate each month?
- How many jobs need to be closed from these calls?
- How much money do you need to put away to pay your income tax for this year?
- Are your accounts payable current? How much is greater than 30 days?
- How much money do you need each month to live comfortably in your personal life?
This list could go on and on as you think about the various numbers that you need to know in your business.
The next step after digging into these numbers? Is knowing what they mean and what decisions need to be made to ensure fewer expenses and more profits for your business.
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