Dec 2016 How a critical number for your business can help
It is important when running a business to be able to know at any time how well your business is progressing toward your goals. Some owners may say, “if I am getting lots of enquiries or doing lots of quotes things are going well”. Others will say “if we are booked up 3 months in advance, we are going well”. But wouldn’t it be great if you had a number that could tell you more accurately if your business is on track to hit your specific goals. So let’s discuss what a critical number is and how it could help you.
In business we could achieve the results we want, if we had a critical number to focus on. So what do I mean exactly?
Example: A landscape contractor wanted to grow his sales by 50% over a 12 month period. He had been quoting 10 jobs a month and winning 20% or 2 jobs a month. So based on those numbers if he wanted to increase his sales by 50% he would have to quote 15 jobs a month and win 3. So quoting 15 jobs each month is his critical number (or the essential number he needs to hit to achieve his goal).
That all makes sense and is just a simple mathematical equation. Quoting more jobs makes perfect sense and should result in an increase in sales providing the conversion rate stays at 20% or goes higher. But here is another approach to the example above.
Alternative Approach: We tracked where the 10 jobs were coming from each month and found they were coming from the landscaper’s website, Google Adwords, local paper, 1 builder, 2 designers and past client referrals. We also found that the quotes from the builder and 2 designers were worth on average $42,000 per quote and 30% were being won each month compared with the combined quotes from (website, Google Adwords, local paper) being an average $20,000 per quote with only 20% won.
Also, the quotes from client referrals were split into 2 categories. The referrals from jobs initally sent by the builder and designers were a much higher average spend.
So it was obvious that, it made more sense to quote more jobs from the builder and 2 designers. In other words; he could quote less jobs, win more at a higher value (average $42,000). And eventually, he wouldn’t have to quote 15 of the smaller jobs each month to increase sales by 50%.
So he spoke with his 3 alliances (the builder and 2 designers) expressing his interest in quoting and winning more landscape projects they provided. He also mentioned he had the team to ensure he could increase his output. The 3 alliances agreed to oblige and provide more jobs for him to quote.
What this meant is that the landscaper could envision that within 12 months, he could be quoting just 5 of the $42,000 jobs a month and if he continued to win 30% he could increase sales by 50%. That would mean he could quote a lot less, win a greater percentage and do larger projects. So the landscaper had 1 critical number each month – Quote 5 jobs from the builder and designers.
So what would happen to the 10 jobs at ($20,000) he was quoting? They would continue for some time until the transition could happen and the larger more profitable jobs became his target market and main source of income.
Recently in an established horticulturist business, we worked out that in order to be able to hire a new team (i.e. a qualified horticulturalist and a 1st or 2nd year apprentice), pay their wages, pay for materials, tools and vehicle costs, the business would need 31 new clients to cover costs. The average annual billing per clients was $3600 per year, so that mean’t that a target of 3 new clients per month was set and became an achievable critical number.
As you can see, when a business owner or manager has a critical number to achieve each week or month, sales growth and profit growth will become defined and much easier to achieve.
My challenge to you is to set a critical number for your business (in any area – marketing, social media, quoting, tracking profit per job, no of maintenance clients) that could help you achieve a twelve month goal.