Turn Your First Quarter Losses into First Quarter Profits
Originally published: 02.01.17 by Ruth King
If you’re like most contractors, the first quarter is terrible from a profit perspective. You pray for a cold winter to stay busy. Yet, by February or March, there is miniscule work coming in the door and profits tank.
Then you pray for a hot summer to make up for the losses you had in January through March.
This happens year after year, so you start to expect a loss in the first quarter. Then the losses become a self-fulfilling prophecy.
What if first quarter was profitable — or at least break even? Imagine the year you could have! You can do it. Take itfrom Dr. Tom East, a former contractor. Here is his story:
“One day, while working on the roof of a Wal-Mart, I could see the parking lot full of cars and people. Occasionally, I’d peek over the roof and see elderly people pushing their carts and carrying their purchases across a wet and icy parking lot. I decided, when the holidays came around that year, I’d have three or four of my employees go to Wal-Mart, park our trucks where people could see the name on the trucks and have them help the elderly and women with small children to their cars to unload their purchases.
“I spoke with the Wal-Mart store manager to gain permission to do this for his customers, and because the local Wal-Mart was on contract for service with us, she had no issue. This turned into an annual event. We’d wear our uniforms and have a conversation with the person about our company (we practiced what we should say and not say — and let the store manager know what we’d say to their customers). We gained several hundred service calls from that event, and service drives sales of agreements and equipment!”
The holidays may have already come and gone, but it’s not too late to salvage your first quarter. Here are five more ways to improve first quarter.
Maintenance Program Growth
Once you have 3,000 or more residential maintenance agreements, you usually have enough work to be productive all year. Your first quarter is, at least, break even.
Remember, you can do heating maintenances in January through March and, in most areas of the country, you can still do cooling season checks in September and sometimes October. It’s the end of season check rather than a pre-season check.
Manufacturers recommend a heating check and a cooling check once per year. They don’t say that it has to be done before a season starts. It’s like going to the dentist. You go twice per year but not at any specific time.
From a commercial perspective, calculate maintenance hours rather than numbers, since some contracts can have 20 systems and others only one.
Once you reach 3,000 to 4,000 hours, you usually have enough work to be productive year round. If you haven’t reached 3,000 yet, as you grow you will see more work and less down time.
Have a First Quarter Contest
Determine what your “usual revenue” is in first quarter. Establish a goal, which is your break even revenue number for the first quarter. Assuming the company exceeds that number, even by a small amount, establish a monetary prize that all employees receive.
Know How Low You Can Go
If you want a break-even job, your net profit per hour is zero. I don’t suggest going that low. You might want a net profit per hour of $25 instead of a potentially normal $100 to $200 per hour.
Calculate your pricing based on your lower net profit per hour. Make sure that when you win jobs, you do them in the estimated hours. This is critical when the net profit per hour is so low.
Marketing Does Work in Q1
Just talk to your maintenance agreement clients and your customers. They trust you and will pay attention. Offer them a reason to purchase now, rather than in the hot summer months. If they’are not a maintenance client, offer them a winter “tune up.”
At a minimum, save 1 percent of every dollar that comes in the door. This is advice I’ve given for a long time. Although this doesn’t affect your bottom line, money in the bank gives you peace of mind and pleasant dreams.
If cash flow gets tight, you have the ability to survive.