3 Easy Ways to Improve Your Bottom Line
Originally published: 05.01.10 by Ruth King
Businesses can improve profitability in many ways. Some require making substantial investments, such as buying new equipment to add services or expanding marketing efforts. There are inexpensive ways to improve profitability as well.
Here are three of them:
1. Increase average sales price.
What would happen if you increased revenues oneach service by just $10 per ticket? The technician is already there. Most of that $10 would fall to he bottom line. If you generate 1,000 service tickets per year, you could generate almost $10,000 more in profit. How do you do this? Start with your service technicians. They are your eyes and ears in the field. It is their responsibility to do what is good for the customer, which means observing what is going on in the customer’s environment. They need to be trained to look for things that will increase the customer’s comfort and prevent the customer from paying for unexpected repairs in the future.Obviously, the technician shouldn’t change parts that are still good or charge the customer for things they don’t need. The technician’s job is to educate the customer and reveal what could cause potential problems.One of the most commonly missed sales opportunities is when a customer pays only a diagnostic charge. In most cases, the technician is the problem. Either thec ustomer didn’t trust the technician, or the technician didn’t do a thorough diagnostic of the system. For example, if a breaker has tripped, find out why the breaker tripped. Fix the disease rather than the symptom. Write everything down. Technicians will find dirty systems, out-of-balance blower wheels, worn bearings, leaks, etc. Bring these to the attention of the customer and quote the repair on the service ticket. Many times the customer will say yes. That’s additional work on the same service ticket. If the customer says no, then you have potential work to do in slower times of the year. A copy of this ticket goes into your tickler file. What would happen if you added $100 or more to each equipment proposal? Offering options can do this. Asking the right questions while in the home generates potential zoning and IAQ sales. If you don’t discuss these options, the customer will never know about them. And, you’ve lost the opportunity to educate her and make a sale —either now or at a later date.
2. Control inventory.
Inventory is a bet. Yet, I still see contractors wasting their hard-earned money on inventory bets, even after 20-plus years in this industry. It amazes me how many thousands of dollars are wasted in broken and damaged parts as well as inventorythat was bought but never used. Go into your warehouse and look around. Look in all of your trucks. How many old, damaged, or otherwise unusable parts do you see? Suppliers can’t use obsolete inventory. You might sell some of it on eBay, donate it to a technical school, or lower your profits by writing it off. I see chaos in warehouses every day. Technicians and installers have the run of the warehouse. They choose the parts they need for a job. They have a shopping cart with no cap on spending. They can fill it to their heart’s content. Do not give your employees run of the warehouse. It’s like giving them a blank check. They don’t even think twice about taking the materials and tools they “might need.” They don’t have to pay the bill — and after all, you’re the owner and can afford it! Use these procedures:
• Make sure the warehouse is locked up when warehouse operators are not handling inventory.
• Use materials checklists for all jobs.
• Have warehouse operators pull inventory for the scheduled jobs and place the materials in a staging area.
• Have crews load their trucks from the staging area, with the lead tech signing off on what inventory was loaded on the truck.
• Any inventory that is not used at theend of the day needs to be returned to the warehouse. It takes a little time to reset procedures.You will encounter resistance from field labor who are used to having free reign. They’ll say, “Don’t you trust us?” The answer is no. Tell them, “You might take a part with all of the intentions of writing it down, but be rushed and forget.”
3. Increase labor productivity.
You have only about 2,000 hours for each employee. If you can bill 2,000 hours to customers for each field employee, you have that employee’s maximumproduction excluding overtime. However, even with overtime, the field employee often bills the company more than he bills your customers. In March I wrote about ways to increase field productivity. Here are ways to increase office productivity:
• Separate people. If two people aresitting close to each other, they talk.And, the talk usually isn’t about work.This decreases your productivity.
• Offer bonuses based on the bottomline profit of your company. The office personnel will put pressure onthose employees who are not pullingtheir weight because their nonproductivitywill affect bonuses.
• Ask your office personnel how toeliminate $100 per month in expense. They often have easy-to-implementideas that can improve your bottom line. Even if you don’t’ have a lot of cash to invest in your business right now, you can still improve profitability. Increasing average sales prices (even slightly), controlling inventory, and improving labor productivity often lead to increases in your bottom line.
Ruth King has over 25 years of experiencein the hvacr industry and has workedwith contractors, distributors, andmanufacturers to help grow their companiesand to become more profitable. She ispresident of HVAC Channel TV and holds aClass ll (unrestricted) contractors license inGeorgia. Ruth has authored two books:The Ugly Truth about Small Business andThe Ugly Truth about Managing People.Contact Ruth at www.hvacchannel.com or770-729-0258.