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Blow Away Your Breakeven

Originally published: 01.01.20 by Kerry Webb


Three keys to leverage your financials to grow your business faster and healthier.

 

I coach and consult with quite a few contractors, and I really enjoy working with you. Over the past decade, there are three things that really stand out to me about many residential service contractors.

1. You are genuine, authentic, “salt of the earth” people.

2. You are smart, determined, and driven — just the kind of people I enjoy.

3. You don’t pay enough attention to the numbers that drive your business.

Why did I make that last statement?

Think back to when you were first learning to drive a truck or car. Can you remember looking at all the gauges, seeing the knobs on the console, and also trying to remember the correct order for shifting gears? Maybe it was a little overwhelming at first.

My dad was a military man and he did things by the book. For example, I had to learn to drive using a manual transmission. My father told me that if I could drive a truck with a manual transmission, then I could drive just about any vehicle on the planet; from a tractor to a bus, to a steamroller.

In fact, one summer I worked for


the Texas Department of Transportation and drove a steamroller every day of the week. It was a hot job, but I loved the feeling of being in control of such a powerful machine.

About a week into the summer, the brakes went out on the steamroller. State budgets were tight in the 70s, and they would not spend any money to fix the brakes. I had to learn to downshift just right so that I could stop the steamroller without denting or crimping the asphalt. It was a good lesson for me to learn — to improvise, to make things work, rather than complain about the fact that my steamroller had no brakes.

What does this story have to do with knowing your numbers?

Well, some contractors make excuses about why they don’t track their numbers more carefully. I hear things like, “my software is not that good” or “I just don’t have the time” or “I have my hands full working with my team” and on and on. The truth is, we all have the same number of hours. It’s a matter of how we use the time we have.

Many owners have not experienced how powerful it is to know your numbers, and how you can leverage the numbers to grow your business faster and healthier. But, I’m here to help. Here are three simple keys to blow away your breakeven.

Find Out Your Monthly Breakeven

Your breakeven is the amount of revenue you need to acquire each month to pay your bills, but you still have not made a profit.

To start, you add up the costs of all your parts and materials: equipment purchases, field labor, permits, subcontractors, etc. Then you subtract this amount from your monthly revenues to get your cost of goods sold (COGS). If you’re using QuickBooks, you can automatically print your cost of goods sold on a monthly, weekly or daily basis as your bookkeeper inputs your expenses and revenues. QuickBooks will also provide your gross margin/profit BEFORE you apply overhead costs.

To get your breakeven, you then add your regular monthly expenses to your cost of goods sold. Overhead expenses include all salaries for employees, managers and owners, in addition to all operating expenses. This will give you an average breakeven for the month. Remember, you don’t make a profit if you just break even.

Plan to Make a Profit Every Month

Achieve a profit even in the first quarter of the year? YES!

Every business owner needs to plan to make a profit every quarter. Some owners blame the weather or their technicians or their customers for not making a profit. Now, I could have blamed the steamroller’s lack of brakes for not stopping in time, but would that have helped me keep my job? I don’t think so. I had to improvise and overcome.

You must plan for three key items to have a sustainable business.

  1. Service Debt. This includes any loans or debts that exist. The cost of credit can be huge. You want to get rid of debts by using a strategic plan. This requires you to add debt service to your monthly operating costs. You can have money in the bank but have a business that is “technically broke”, if your balance sheet shows that you have more liabilities than assets. Get rid of debt as fast as possible. But remember, you still need cash flow.
  2. Reinvest. You need CASH FLOW! One of the biggest challenges in the first quarter of the year is having the cash flow to meet payroll, and also pay for parts and materials if revenues are not as strong as you need. Are you putting cash into a savings account for your slower times and/or capital investments?
  3. Save or Take. You want to have money in savings. You want to have money for marketing. You want to have money for capital improvements. You need money for retirement … we will not be young and healthy forever.

These are all major reasons for you to have two or three savings accounts. Each month, plan to deposit a moderate amount into each savings account. Build this into your operational expenses. By adding savings to your breakeven, you will begin to accrue profits as part of meeting your breakeven. You will have money left for yourself … now that’s a cool idea!

NOTE: Meeting your breakeven will leave you BROKE!

Meeting your TRUE breakeven will give you a sustainable business and provide you with the profits to live the kind of life you desire. Don’t you deserve to take your family on a nice vacation every year? Don’t you deserve to have funds to purchase your family’s needs?

Yes, of course you do!

Create a Reason to Beat Your Breakeven

Do your technicians care if you meet or beat your breakeven?

Honestly, your technicians probably don’t think about your breakeven too much. It’s not that they don’t care, they simply have other priorities on their mind. It’s not their job to know your breakeven. It’s your job.

You can easily design a plan, however, to get your technicians to beat your breakeven. It involves multiplying the number of service calls per technician, times a realistic average service call amount. Then you need to add a realistic amount of installations, set leads and made sales that each technician is responsible for.

The following example shows why your team isn’t motivated to reach your goals.

Bill will probably run 40 calls in May. Last May, he ran 38 calls, so 40 is a realistic number. His average ticket should be at least $280 or higher, so Bill should produce at least $11,200 in service revenues. Bill will also run 35 maintenance calls, and his average ticket should be $175 or higher = $6,125. So, Bill’s total service revenues should total $17,325, or more, for May.

Is this all? NO — Bill must also produce replacement leads. If he runs 75 calls in May, he should create enough leads to produce seven or eight install sales. The average for replacement sales in HVACR is one replacement sale for every 10 calls.

Now, if your average install were only $6,500, then this adds an additional $45,500 (7 X $6,500). So, Bill’s total goal for May is $62,825 ($17,325 service + $45,000 from sales leads).

Why will Bill care? Does he get a commission on leads that close? Does he get paid more if he turns over three leads or if he turns over 10 leads? In many cases, Bill is paid an hourly wage. If he doesn’t get paid much more, Bill won’t care about providing more leads. This is not Bill’s fault. His owner has not designed a good reason to make Bill care about setting leads.

Something to Aim For and Care About

Let’s say Bill earns 2 percent on leads he turns over to a comfort advisor after they sell. Once Bill hits his $62,825 goal for May, his commission then becomes 3.5 percent of all sales above his monthly production goal.

Can you afford to increase his commission by 1.5 percent? Yes, because he’s covered your costs for both cost of goods sold and for overhead. Your profit on Bill’s future service and sales for the month of May is radically higher.

Bonus Plus

What if your team achieves your company’s goal for the month? Then, Bill’s commission goes to 4.5 percent because he hit his personal goal. He now deserves an additional percentage of future sales for May, because he was a key team player in achieving your company goal.

Now if another technician named Ted works for you, and Ted did not achieve his personal goal, then his commissions do not increase at all. Each technician must do his or her share of the work to benefit from the team bonus.

Many companies who have implemented this tactic have seen their team meet their monthly true breakeven before the 15th of the month numerous times each year. Their technicians are driven by their goal program. They take pride in meeting their goals and taking home checks for hitting personal bonus and team bonus.

 




About Kerry Webb

Dr. Kerry Webb is a consultant and trainer with Service Excellence Training. Kerry helps business owners, managers, technicians and sales reach their full potential. For additional information, visit servextra.com. You may contact Kerry by writing to support@servextra.com Attention: Kerry.




Articles by Kerry Webb

Blow Away Your Breakeven

Three keys to leverage your financials to grow your business faster and healthier.
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