Rocket Profits — Where Do You Want to Go?
Originally published: 01.01.19 by Ruth King
If you’re like me, you don’t want your business to “crash and burn” like the early rocket experiments. Scientists eventually got it right. They learned from their mistakes and now rockets quickly get to their destinations … most of the time.
If they are destroyed, scientists figure out what happened and make sure that it doesn’t happen again. The same is true for your profits. Analyze them and determine what happened and learn from those mistakes so you don’t do them again.
Over the next several months, I’ll show you how you cn rocket your profits using easy to implement processes that help you start, course correct and reach your destination.
Where Do You Want to Go?
The Rocket Profits first step is answering the question, “Where do you want to go?” and the corollary, “Why?”
For example, John F. Kennedy, in his speech to congress on May 25, 1961, asked for funding for the first moon shot.
He proposed that the US “should commit itself to landing a man on the moon and returning him safely to earth by the end of the decade.” It was an out-of-the-box, almost science fiction goal — microprocessors had not been invented yet.
Now the corollary, Why?
On September 12, 1962, John F. Kennedy followed up his Congressional Speech with a speech in Houston. He said, “We choose to go to the moon. We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone and one which we intend to win and the others, too.”
Set a Baseline
Now the why, behind the why: The United States was in the cold war with the Russians and he wanted to rally the country around an audacious goal, the “Moon Shot,” which, today, has come to mean any goal that is 10X rather than 10 percent.
How does this relate to our businesses? Answer these questions:
- Where do you want to take your business? Why?
- What can you 10X? Can you exponentially increase the number of maintenance customers each year? Can you 10X the number of customers you profitably serve?
Here are eight baseline questions to answer to set a baseline for 2019 and beyond goals.
1. Productivity — For every dollar you take in the door, how much do you spend on payroll and payroll taxes? This ratio includes all payroll — field, office and owners. Don’t include any benefits in this calculation. Payroll taxes are FICA, Medicare and unemployment. This percentage can be departmentalized and it should be under 40 percent. For new construction this ratio should be under 20 percent. The lower the better.
2. Net profit per hour — For each billable hour how much profit do you generate? Determine 2018 total billable or revenue producing hours. Do not include holidays, vacation, meeting, training or unapplied hours. Then take your net operating profit and divide it by your billable hours.
This is your 2018 net profit per hour. If you don’t like the number, your first rocket goal is to increase it to a net profit per hour you’re comfortable with.
3. Overhead cost per hour — for each billable hour, how much overhead cost is there? To determine this number, take your department or company overhead and divide by billable, or revenue producing hours that you calculated for net profit per hour.
Overhead cost per hour should be under $40/hr for service, under $30/hr for replacement and under $20/hr for new construction.
4. What is your average service ticket revenue and average job revenue?
5. What is your maintenance plan enrollment percentage? For every opportunity you have to talk to a customer about your maintenance program, how many enroll? The national average is 30 percent for residential maintenance. For commercial maintenance, the national average is enrolling 1 new maintenance plan for every two surveys you perform.
6. What is your maintenance plan renewal rate? This should be higher than 90 percent for both residential and commercial maintenance clients.
7. What is your replacement sales closing ratio — for maintenance customers and non-maintenance customers? Your maintenance customer closing ratio should be 80 percent or higher. Your non-maintenance closing percentage should be higher than 40 percent.
8. Job cost a minimum of 20 jobs chosen at random. What was the net profit per hour for each of these jobs? You need to know that all of your jobs are profitable.
Once you know the answers to each of these questions, you can decide what the goals for 2019 should be, why you want to achieve them and whether you want to take a “moon shot.”
Make sure your employees are on board with the goals. Tell them “what’s in it for them” so they help you achieve the goals.