Surviving a Slow Down
If the economy has affected your business, you need to take positive action and get help from Contractor 20/20
On every list serve I subscribe to there has been talk and even panic about the current economic conditions. I know that most of the country is still doing just fine.. But there are some cities and towns that are now in real trouble.
Here is my view … based on having helped clients survive much worse over the past 30 years. Contractor 20/20 has helped many contractors weather the ups and downs and can help you if your business is experiencing a drop off in business.
SURVIVING A SLOWDOWN
Aggressively market your prior customers first.
All the evidence shows that even in a slow down your prior customer base will give you the best return on your advertising investment.
The big problem during a slowdown is that while sales drop … overhead does not.
A very successful, smart client of mine Troy Neerings from Salt Lake once told me
Overhead is like a big black bear in that back yard … If you do not feed it.. It eats you
As we look at the steps to surviving a slowdown or even prospering during a slowdown lets consider some basics.
Get on top of your game
The key to high gross profits is proper pricing, staffing, and sales training.
Simply if you are not priced to have labor at 25% of gross for service and 15% of gross for installs you are going to have a hard time hitting big gross profit numbers. With few exceptions if you are overstaffed so that your billed hours are below 50% on demand calls and 75% on installs the same is true. If your average ticket is below 2x your hourly rate you desperately need sales training or you might be targeting the wrong kind of consumers.
The key to high net profits is overhead cost control and proper promotion.
Either you need to cut your overhead to be in balance with your sales or PUMP UP your sales to be in balance with your overhead.
Simply once you cut your overhead to the max for your service department divide your overhead by .4 that will give you your sales goal. (.33 for your install dept) Take your sales goal minus your actual sales that will give you your sales shortage.. Take your sales shortage times your new customer cost.. That will give you your additional advertising budget,,, that your additional advertising budget divide by your sales goal .. That gives you the price increase needed to fund the advertising.
For example.. if your overhead id $500,0000 divided by .4 += $1,250,000.00 minus your actual sales of $1,000,000.00 equals a sales shortage of $250,000 times your historical new customer cost of 20% equals a $50,000 additional promotional advertising divvied by total sales goal equals a 4% price increase to fund the additional ad budget.
You need to consider testing if liquidating your unsold time will also work for you. Let’s look at the numbers, let’s say you have $10,000 in what economists would call excess capacity that $10,000 has already cost you $2500 in labor and $4000 in overhead.. that’s like having $6500 tied up in $10,000 worth of day old bread is it worth spending $2000 in promotion to get rid of it ? . For every dollar you spend you save $3.25 in un- recouped labor and overhead. It all depends on what your actual new customer cost will be under current market conditions.
There are market force limitations.. unless you are priced and marketed to churn customers in a large city then your never want more that 40% of your customer base to think you are overpriced due to the PR problems that high priced image causes.. If my closing rates were less that 75% for service I would always get additional sales training BEFORE I increased my prices unless I am set up to churn customers.
For the additional advertising I would use proven direct mail or direct response radio and TV. Now in the long run image adverting is a big help to make promotional adverting work better. Simply people are more likely to buy from and pay more to a company they have heard of and admire..
But that takes time and long term investment. During a downturn immediate promotion response is more important to cash flow. Cash is king..
What if the promotional advertising does not work?
Then look for companies in worse shape than you are in and acquire their phone number and customer lists and producers. You can offer a company that is tanking 10% of the sales from their customer list for 3 years.. For the company owner that is going under that 10% is better than nothing.
Get rid of your techs with low average tickets and hire the top techs from the competitors who don’t have enough work or are going under.
If all else fails.
Make a cut list of your key people.. Decide at what level of sales you need to cut them.. Scale back your operations to serve the remaining existing customers.. Meet with your lawyer and work out a payment plan with creditors BEFORE, BEFORE, BEFORE.. You get behind on personal and business IRS bills.
1) Get on top of your game.
2) Market prior customers aggressively
3) Try to promote your way out of the slow-down
4) Try to acquire other company’s customer lists and their top sellers
5) Make the hard choices BEFORE you get behind with the IRS.
Now lets be real here.. These suggestions are simplifications and there are exceptions to every rule I stated here. Also if you do not know how to satisfy and retain your customers every effort to survive is a total waste of time.
I know that most of the country is still doing just fine.. But there are some cities are in real trouble
I lived through consulting and guiding companies that had to deal with the demise of a IBM company town namely, Binghamton ,NY, a with a 10% drop in population, the second highest taxes and utility bills in the nation and a 40% drop in home value.. This is not my first time at this circus.. Dealing with a serious downturn is no picnic.. It is time for grown-ups and a steady hand.
What I hate the most about it the trouble it causes as wives lose confidence in the husbands and how family dreams have to be put on hold. Suddenly everyone is an expert and you sense that all the folks who never had the guts to open their own company especially some of your friends, relatives and bankers who have always been jealous of you have a morbid joy watching you suffer. The amount of pressure this puts on family can be unbearable tear it apart and make you sick.
In my personal experience nothing works better to bless you, help you keep a sound mind and make good choices than earnest regular prayer.
Keep money trouble in proper perspective
Take it from a guy that buried one brother at 39, another at 47 and my best friends at 52…Few things are more important than the blessing of the good health of yourself and your family. Counting your blessing and helping other in worse condition than you are is good medicine in tough times.
Everything I went over here is covered in more detail on my website. For all your questions please contact my office or complete our online request form and I will get back to very shortly. Contractor 20/20 has solutions to all your marketing and advertising needs so don’t wait call today.