My last article outlined a strategy for determining which of your many accounts has significant potential and probability for business growth. One of the most effective ways to determine business potential is to use KPI’s to compare a prospective account with others.
For example, let’s say you have several accounts that are primarily focused on the residential HVAC service and replacement market. You know that a full-time professional residential HVAC replacement sales person can sell between $1-$1.5M annually. You also know that in your market the average contractor’s cost for equipment is 20% of the retail sale with related materials and supplies adding another 10%. Given these data, you can quickly determine your revenue potential for equipment, materials and supplies at $300-$450,000 for each full-time sales person.
Another way to get information from the annual sales per sales person KPI is to find out what the contractor’s average revenue per sale each job is. If a sales person sold $1.2M and her average is $6,000 per job, something an owner might share with you, then she sold 200 jobs. Typically, again depending on your market, half of the jobs sold are complete systems and the balance split between heating and air conditioning changeouts. In this example, that would total 150 furnaces and 150 air conditioners (or some mix of heat pumps). You now have another indicator of potential.
Let’s take another KPI and use it to crosscheck these examples. A two-man installation crew can install, depending on the market, $600,000 up to $1.2M annually. Given a mix of one and two-day jobs and assuming 180 total jobs at $6,000 average per job equals about $1.1M. This supports the other assumptions and you are now ready to begin asking the right questions.
There are many useful KPI’s for the residential service department. To begin with, the target gross profit margin is 60-65%. Should a contractor still be on time and materials billing you would find that his margin is far less than that. With this information in mind you could initiate a conversation with a thought-provoking question… “Joe, as you know a profitable service department is at the foundation of every successful business. I understand you are still on time and materials with your residential customers. Would you be interested in hearing how well the flat rate based companies are doing?”
If Joe has his reasons for being on time and materials and says he’s not interested, then it’s time to move on to another conversation. If he asks for more information then you’ve opened a door with possibilities for providing something of value that can be exchanged for a business commitment.
Let’s follow this example to the next step. He might say he is interested in changing to flat rate but his techs have resisted it and he believes that his long-time customers would react negatively. Joe’s concerns represent your opportunity. Assuming you have the resources for convincing the technicians and Joe that flat rate will be successful with very little collateral losses then you are now positioned to ask for some business commitment in exchange for your support.
This all begins with you knowing what the KPI’s for optimal performance are and finding out where your contractor is falling short. Remember, as one of many suppliers that all contractors can choose from, the one who helps him make the most money will likely earn his business.