The 3 million dollar road Part 3: Beyond your first million
In the last issue of Canadian Contractor Magazine we took a look at how important cash flow is for a $300,000 business growing to $1 million. The following is the third in a four-part series that will take you on the road to a $3-million business.
December 16, 2011 by Mike Draper
Now that you have reached $1millon in annual sales, it’s time to set your sights on higher revenue and higher profits. Reaching for $2 Million in annual revenue is the next big step. It is an exciting step and one that has you stepping away from the day-to-day, on-site renovation work.
In order to have reached the $1,000,000 level you probably had to hire a site supervisor or lead carpenters to manage the on-site activities. The timing of the hiring is a function of job size. If your average job is under $25,000, you probably had to take this step around $600,000 in revenue. If your average job is over $150,000, you could probably hold off until you reach $1 million or so.
But who is tracking job costs, selecting and hiring the trades, ordering material and taking full responsibility for a job? Typically it is you, the business owner. This is the natural place for the responsibility and there is usually not enough profit at $1,000,000 to hire a dedicated project manager. To reach $2 million though, you will have to hire a project manager. With a lower job average, you will likely need to hire a project manager before you reach $1 million in sales and certainly by $1.5 million regardless of job average.
The Project Manager
Hiring a project manager is a big step and a big commitment. Paying someone a project manager’s salary, which is now overhead, can be a daunting undertaking. In the early stages, while you are moving through the $1million level, the project manager’s salary would be eating up all of the profit. This is where most contractors who remain at $1 million fail to make the leap and end up stagnating. They fail to make the commitment to hiring a project manager due to the expense.
However, without making the commitment to a project manager, there is simply not enough time in the week to deliver $1 million worth of renovations, do the marketing, meet with new prospective homeowners, write up quotations, and manage your existing projects. If you are already working 10 or more hours a day, how do you think you can bring even more business in? It is impossible. Your model needs to change in order to grow. That change is to hire a project manager. It is really the only way to reach $2 million in sales.
Be free to market and sell
The other critical reason for the project manager is to free up your time for the marketing and sales work that is needed to support a $2 million business. Sales and estimating is almost a full-time job now. If your average renovation project is $50,000, then you will need 40 projects a year. If your close rate is 20 per cent (one in five), then you would need to quote 200 jobs per year. See the last issue of Canadian Contractor’s Contractor University article for a review of the average dollar sale, conversion rate and related topics.
The math on sales
At 200 quotes per year you need to be doing approximately four quotes per week, every week of the year. Most contractors find that they need to visit a prospect’s home at least three times before a homeowner will award them a $50,000-plus project. Often even more visits are required. Let’s use the three visits as the example. At four quotes a week and minimum three visits per quote, you are looking at 12 propspect visits per week.
Can you make three sales calls per day and write up a quotation a day while you are still managing projects? Absolutely not.
Now that you agree that you have to make the commitment to hire a project manager, how do you cover the cost of one when you are still at $1 million in sales? Cash flow becomes the key issue. As we mentioned in Part 2 of this series, you have to plan your cash flow needs and how much, if any, you need to borrow in the short term to cover the cost of the project manager.
Hire from within
The best approach is to hire and promote from within. You can transition personnel to positions of increased responsibility as revenue increases.
Now that the project manager is on board and is looking after your jobs, managing your trades and sub-trades, tracking your job costs, etc. you can focus on driving more sales into your company. As mentioned at the beginning of this article, this is a very exciting time. Your business starts to run almost on autopilot and you are freed from the day-to-day grind that comes from the job sites. You get to focus on growing your business instead of doing the work. You get to go out and meet homeowners to describe how your renovation system will deliver their renovation dream. You have time to focus on the strategic things that your business needs to continue to grow.
Being a business owner
At this point you are no longer a renovator. You are a business owner, free of the day-to-day, hands-on work. Since your company is now operating with a more systemized process, you are able to take some time off and feel comfortable that your projects are still moving along as planned. The project manager now has your projects under control.
Automating your sales
All may sound rosy, but there are still some other critical pieces that your business needs to make sure that you can support $2 million in sales. In order to keep track of all of your prospects, stage of proposals and when to follow up with homeowners, you need to have an automated marketing/CRM (Customer Relationship Management) system. Proper use of an automated system will enable you to track where you are in your sales cycle with a homeowner, when to follow-up and when you were in last contact with a homeowner. It does take some time and effort to set the system up and keep it up-to-date, but the benefits in increased conversion rates will greatly offset the effort.
Most contractors I know use a book and try to keep track of all prospects, quotes and follow-up activities manually. But I’ve seen too many times where follow-up falls through the cracks and doesn’t happen. That is a waste of your marketing dollars and the time you spent visiting a homeowner, measuring up the renovation and understanding the client’s needs. If you fail to submit a quotation in a timely manner you will be communicating to the prospect that you are either too busy to service them or you are too disorganized to do a good job. A week or two goes by and you beat yourself up for not having delivered a quote. Sometimes you are too embarrassed, so you drop the prospect. Those visits you made are now wasted and your reputation has been tarnished. Remember, the least expensive way to grow your business is to improve your conversion rate so that you make more sales from the leads that you already have.
(If you would like to find out more about the automated marketing system we use, email me at firstname.lastname@example.org.)
Not all homeowners are ready to renovate when you first talk to them. They might be getting some idea of costs so that they can save or go to the bank to get a loan. The beauty of the automated system is that you can have the system stay in contact with them via email over a long period of time and then remind you when it is time to make contact with the homeowner. (see sidebar for an example of how the automated system works.)
Get admin help
Finally, if you haven’t already, you will need to hire at least one full-time equivalent for administration and bookkeeping. This is a lot of administrative work that has to be down at this level, and it is virtually impossible for the contractor to do it all themselves and still focus on the rest of the business. With data entry for new sales leads, typing up quotes, scope of work writing, and letters that need to be written, you will have no problem filling the schedule of a full-time administrative person.
When you combine the efficiency of hiring a project manager and the power of an automated sales follow-up system, your business will continue to grow up to $2 million and will be on its way to $3 million and beyond. In the next issue we will discuss how to continue to scale your business to give you the life that you had dreamed about when you started your business. To choose to work or not to work whenever you want—that is the sign of a successful business owner. CC
Renovantage Inc. is a first-of-its-kind home renovation group of contractors specializing in everything from room renovations to complete additions. Renovantage takes the risk and worry out of home improvement by giving contractors the business tools, systems and services they need to operate efficiently and reach the next level of growth.
How your automated CRM system wins clients
An automated Customer Relationship Management system (CRM) is critical to keeping track of your leads. Here is how they work:
You meet with a homeowner in September, expecting that they will want to do the kitchen renovation in the fall so that it is ready for Christmas. However, they tell you that they won’t have the money saved up until the spring. They are very serious about starting the project in April, but that is seven months away. They suggest you follow up with them in March so that they can finalize the scope of work and firm up the finishes.
Here’s a typical scenario. You leave the meeting making a note in your book to follow-up in March and put it out of your mind. April or May rolls around next year and you realize that you forgot to follow-up in March. You call the client and they inform you that they have selected another contractor because they never heard back from you. They thought you weren’t interested.
With the automated system, you would have entered their contact information, including email address, and notes into the system. You would have entered a reminder task for you to follow-up early
March. In the meantime, you have the system send them some relevant email content such as How to Choose a Contractor or Pre-Planning Checklist. Send them content which is designed to educate the homeowner on the attributes of what your company offers. You will also stay top-of-mind with the homeowner.
The reminder task pops up in March and you make the call to the prospect. They will be thankful for the relevant information you have sent them over the last six months. It is almost like no time had passed and you now have not only a motivated, happy client, but an educated one.
Next, you sign a contract and you do the renovation. Along the way they tell you that two years from now they want to finish the basement. Since you did such great work in the kitchen, the basement is yours to lose. You make some notes in your CRM system, start another automated follow-up sequence to stay in contact every three months, and set a reminder task to call them two years from now.
That is the power of the automated CRM follow-up sales system. Most successful contractors we work with get 50 per cent or more of their work from previous clients and referrals. An automated system for regular communications and timely follow-up is essential. —MD