If you’re relying on your monthly and annual financial statements to tell you how your business is doing…you’re on the right track. But you need to start managing the day-to-day operations now. Let’s look at the five most important things to get right in your financial statement:
- Materials. Your material cost should be a fixed percentage of your sales. This benchmark will vary based on your service type, but, for example, a plumbing company should have a benchmark of materials as 10 percent of sales. If this doesn’t ring true, you need to look into why. Do you expense your material rather than adding it to your inventory on your balance sheet? Do you have a process in place for your technicians to verify what materials they are using? Getting the answers to these questions can help you get a hold of your material percentage.
- Labor. For plumbing, the labor benchmark is 24 percent of sales. Are your technicians performing well enough? A system, such as the Nexstar Service System, can help your existing team bring in more sales for your dollar. Sometimes, you have to be willing to lose people to bring on a better-performing team.
- Overhead salary. This benchmark is 15 percent of sales. The biggest thing to look at here is efficiency inside your office: Do you have a structure? Is everyone aware of what each job entails and who owns the work? You might find that in this area you’ll also need to make some cuts, but if necessary the difficult thing must be done.
- Advertising. More money spent on advertising does not always mean more calls booked. Often, what businesses need to work on is getting a better conversion rate on those calls. Some customer service processes may need to be improved, such as the CSR or technician’s handling of customers. These interactions matter, and performing well will bring you more profit.
- Vehicle cost. The benchmark for vehicle cost is 4 percent of sales. Don’t forget to include the depreciation of your vehicles in the vehicle expense—sometimes, repairs can cost more than simply bringing in a new vehicle! Also, be sure you have a process for tracking things such as fuel, even if your technicians have fuel cards.