This Business Building Tool Brought to you by
 Grandy & Associates
 
January 2010     


 
A Message from Grandy & Associates
 
When service is down, raise your rates!
By Tom Grandy    
 
Yes, the title of the article is correct.  When service sales are down it’s time to raise your hourly rate, not because you want to – but because you have to!   If you ponder on that statement for a moment, you probably think it makes about as much sense as leaning into a left hook.  However, when sales and profits are down, there are only three basic ways to fix the situation. 
 
First, you can increase sales, therefore spreading your cost of doing business over more hours.   This change will cause your cost of doing business, per billed hour, to go down.  That’s a great theory, but the foundational problem was low sales to begin with so that may not be the answer.
 
Option two is to decrease costs, which again will result in a lower cost per hour and more profit.  Cutting overhead can, and should, be done in today’s economy but you can only cut so much overhead and still stay in business. 
 
That leaves option three, which is to increase your hourly rates.  On the surface that doesn’t make sense either ... until you stop to think about it.
 
The company has pretty much the same fixed overhead as before, which are those costs that do not change very much based on the volume of work you do.  Rent, utilities, insurance, marketing, office supplies, salaries, etc. are all fixed costs, and they stay pretty much the same.  Now if the company had three service techs, and you currently only have enough work for two techs, guess what?  The fixed overhead is about the same but you have 33% fewer hours to spread it over.  What just happened?  Right, your cost per hour billed went up…significantly.

Let’s use an example.  Company A started with three service techs, each billing out about 1,000 hours a year.  Now, let’s say our total fixed overhead was $180,000 for the year in the service department.  That means the fixed overhead cost of our hourly rate is $60/hour ($180,000/3,000 hours).   Now our volume drops so we only have enough work for two service techs. What happens to our pricing?  Well the fixed overhead did not change much -- it’s still $180,000. But now we only have 2,000 billed hours to carry the overhead.  My new cost of fixed overhead per hour now jumps to $90/hour ($180,000/2000 billed hours).  My “cost” per hour just jumped from $60/hour to $90/hour which is a $30/hour increase in MY costs. 

When things slow down in service, the tendency is to lower your cost-per-hour to the customer. After all, times are tough, right?  Well, that may give our customers that warm, fuzzy feeling, but back at the office a bad situation just got worse.  When times are slow, the reality is that most service companies actually need to increase their hourly rate to the customer.   Yes, I hear you.  “Tom, if I raise my time and material rate I will lose more business and be in worst shape than we’re already in.” 

Take a deep breath and give the situation a bit of thought.  Your hourly rate must go up to stay in business, but it’s nearly impossible to increase your rate $30 per hour when you are charging the customer by the hour.  What’s the answer?  The answer is flat-rate pricing.  The beauty of flat-rate pricing is that you can raise your internal hourly rate by $30/hour and your customers will not even notice the difference.  With flat-rate pricing, the customer only sees the total cost of the repair, not the hourly rate.  A job that took 1.5 hours now increased by $45.  Now that seems like a lot of money, from your perspective, but look at it from the customer perspective.  
 
First of all, the customer has, in all likelihood, not had the exact same repair done before.  Even if they did have the same repair done three years ago, what do you think the probability is of their remembering what the cost was after all those years? However, if you did a job of any kind three years ago, and you charge by time and material, I can almost promise you the customer will have some vague idea that the hourly rate went up a lot (in our case, $30 per hour).   The beauty of flat-rate is that you can change with the times.  If you have rerun your costs of doing business and find you need to increase your hourly rate by $30/hour, you simply have your flat rate books reprinted with the new pricing and your techs never skip a beat.  Again, the customer has no frame of reference on flat-rate pricing, which isn't always the case with time and material pricing.  I can nearly promise you the customer will notice if you have significantly raised your hourly rate.
 
So when times are tough, run the numbers and find out what you need to be charging under the current conditions to cover costs while generating a reasonable profit.  If you need to increase your rates, increase them.   If you don’t, you are on the path of going out of business.  The longer you wait to raise your rates, the quicker you will shut the doors! 
 
In the current economy it’s important to recalculate your hourly rate at least quarterly.  Once you find out you need to raise your rates, don't be afraid to raise them. However, if you are on time and material billing, and you raise your rates, be ready for some serious flack from your customer base.  If you simply reprint your flat rate books with the new pricing, the probability is very high your customers will not even notice a change has taken place. 

Change is difficult.  It is the wise contractor that takes a realistic look at their costs of doing business and makes the necessary changes, when they need to be made.

If you want to set pricing, by department, but aren’t sure how to do it you might want to consider attending one of our three-day “Basic Business Boot Camps”.  Check the schedule of dates and locations on our website at www.GrandyAssociates.com . 

 
Thanks,

 
Tom Grandy
Grandy & Associates
 
 
 

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Take stock in the past, but get ready for the future

 By: Bill Kinnard
 
2009 was a tough year. It was an interesting year. It was a challenging year. It was a learning year. It was a growing year.
As 2009 closed, some of you were happy about it, others are relieved, and still others were grateful for the year and are looking forward to 2010. Regardless of where you fall in how you feel about the end of 2009, you need to look at the last year and use your experiences to plan for 2010.
 
I know, at this time of year you read article after article that's reminiscent. That’s not what I’m talking about here. I’m suggesting that you look back at 2009 and, if you didn’t make significant changes to your company throughout the last year, you are surely feeling the pinch of the down economy. "Business as usual" no longer cuts it. You need to make changes in the way you market, or your company will continue to suffer. You may also be thinking that you can’t afford to make changes to your company. The fact is, you can’t afford not to make changes. If your sales were down or you were just holding your own, you already know that what you’re doing now isn’t cutting it. Your market is different today, and it’s not going to return to the “same old market” that you were accustomed to. You need to do something different in order to grow your business and increase your company profits.
 
If your company grew over the last year, you likely made significant changes to take advantage of your changing market. Congratulations! But, don’t rest on your success. Keep looking at what you're doing and find ways to improve what you're currently doing.
 
What Should I look at?
There are a number of things that you can look at to find ways to grow your business. Let’s take a look at a few.
 
1. Are you priced right?
This one seems like a no-brainer, and we’ve talked about it many times. But, it still remains the single greatest reason why companies fail. Your rate needs to be set at a level that covers the cost of running your business. Don’t worry what the guy across town is doing. In most cases, he is not your competition – you are. You’re fighting against yourself.  If you go to market and your focus is on what you’re charging and how it compares to the competition, then you are forcing your customers to focus on nothing but price. When it comes to what the customer is buying, they will purchase when the value exceeds the price. If they are focusing on price, you don’t have enough value in your offering. Find out what you need to charge to cover your costs of dong business and then charge it. Increase the value in what you are providing to your customers, train your techs on how to properly deliver this value and then track their performance to make sure they are delivering. 

 

2. How is your maintenance agreement program doing?
If you still haven't put a maintenance agreement program in place, you are missing the boat. A properly designed maintenance agreement program is the foundation for growth for years to come. Companies that have focused on growing their maintenance agreement program over the last several years saw the benefits this last year in a big way. Those companies that had a good solid foundation of maintenance agreements in place are not being affected nearly as much as those without. Their service departments are keeping busy and since they are in the customers’ homes on a regular basis, the retrofit business is holding strong.

 

 

 

3. Don’t skimp on the training!
A year ago, I wrote an article on the heavy cost of skimping on training for your company. Regardless of how long your techs have been with you, they need to sharpen their skills. Your training program also needs to encompass more than just technical skills training. It should also include training on properly using your upfront pricing manual, presenting the price to the customer, educating and informing the customer on your maintenance agreement program, selling add-ons, customer service training, and how to generate qualified sales leads for your sales team. If you’re pulling back on training today, you’re loosing far more than you are saving. If you can’t find programs to cover these topics, then you need to create them yourself.

 

4. Do you have up-front pricing?
If you have not yet changed over to up-front pricing, you are once again forcing your customers to focus on price. Especially in today’s market, your customers are already wondering how much repairs are gong to cost them. Using up-front pricing eliminates this concern on the part of the customer and puts them more at ease.

 

5. Focus on non-billable time.
When cash flow tightens, many company owners start to look for ways to cut costs. The thermostats are turned down in the office, employees have to use pencils until they can no longer be sharpened. I used to work with someone who would balance paperclips in the office to avoid having to buy more. Many times, more detrimental costs are cut. The advertising is reduced or cancelled all together, or the value offerings we have are eliminated. The single greatest expense you have is non-billable time. If you can reduce non billable time by only 20 minutes per day per man, that will equate to roughly $10,000 or more per person. Focus on doing everything you can to reduce non-billable time. 
 
Now is the time to review the last year. If something didn’t work, change it. If you are not growing, then your company is suffering. Don’t delay. Put a plan in place to change the direction of your company. Review each of the areas listed above to see how you shake out. If you’re weak, get input from your employees, customers and mentors to help you improve. Not doing anything is not an option. If you don’t change anything, your 2010 will be another really tough year. Can you afford that?
 
If you need help with this process, consider attending the Basic Business Boot Camp. There are camps scheduled across the country over the next several months. You will cover each of the areas above and will help you to make some hard decisions about your company. To learn more about the Basic Business Boot Camp, visit our website at www.GrandyAssociates.com/BBB.



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What percentage of callbacks should a service technician have?   
By Tom Grandy
 

We have been reviewing several of the 24 KPIs (Key Performance Indicators) for your service techs.  Callbacks are always a serious issue.  A callback is any time a tech has to return to the job a second time for whatever reason, which is expensive.  Not only is the tech going back a second time (and usually without any additional earned income), but the time spent on the callback could have been spent earning additional income.  Let’s assume your tech makes $18 per hour, or about $20 with company taxes.  Let’s also assume your company bills out at $100/hour.  That means every hour spent on call backs costs the company $120. 

The question is: “What percentage of callbacks is really acceptable?”  On the average, 2 to 2.5% of all spare parts produced fail.  That is not being critical; it’s simply a result of mass production.  So what does that tell us?  That any callback percentage for an individual tech that is significantly over 2.5% is not a failure problem due to parts. It an installation problem! 

Because of the cost of callbacks, most companies measure them in some form.  The problem lies in the fact that the total number of callbacks for the month is not a good number.  The tech could have been sent back on his/her own callback, or the callback could have been originally generated by another service tech and/or another department.  Callbacks must be filtered to be fair to the tech.

This month’s KPI is another key number to track.  The category below is Labor Leverage, under which you will find Callback Percentage.  The  Key Performance Indicator report below shows the callback percentage for each tech…..AFTER callbacks generated by others have been filtered out. 

Now let’s glance at the KPI Report (from a real ProfitMaxx user) below and see how our techs are doing:

  
You will notice only Shawn is hitting the KPI of 2.75% or less.  Look at Rob.  His percentage is 10.29%.  That means one out of every 10 calls for the past month resulted in a callback.  That is terrible.  I don’t know about you, but if Rob was my service tech I would immediately review every callback he has had for the past several months to pin-point the problem area.  Once the problem is isolated, the company would then be wise to send Rob for additional training in his weak areas.  When Rob gets trained, guess what will happen to the service department’s productivity and profitability?  They will both go up!

It’s amazing what happens when you set specific goals (KPI’s) for your techs and then measure their performance against them.  Things that used to be a problem suddenly get taken care of!  Now, if you really want to watch productivity and profitability skyrocket tie performance into a bonus program like ProfitMaxx does!

Attend a FREE Webinar to learn more about ProfitMaxx
If you would like more information on the ProfitMaxx software give us a call at 1-800-432-7963 and/or sign up to attend a FREE 45-minute webinar.  If you want to check out ProfitMaxx on your own then simply click the following link that will provide lots of information on ProfitMaxx, including a previously recorded webinar.  The link is www.GrandyAssociates.com/ProfitMaxx .



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Don't Go Back: The Influencer Communication Style
By Bill Kinnard
 
 

During the last two months, we have been talking about the different behavioral styles of your employees and how they impact the success of your company. Anyone can make money when things are going well – sometimes in spite of themselves. To be successful, you need let go of those employees that are a drain on the creative energy and productivity of your team. You need to have employees who make a real contribution to your company. Keep in mind that when that next potential candidate walks into your door for an interview, chances are, they will be adapting to be the person they think you want them to be.

This month we will take a closer look at another of the four behavioral styles - the influencer. You need to know this communication style and how your employees with this style will interact with their coworkers and your customers. Remember, everyone has a combination of all four styles, but one or possibly two will be dominant. These dominant traits will dictate how the person will interact with others. As a review, the four styles are: 

D – Dominance – How you deal with problems and challenges
I – Influencer – How you deal with people and contacts
S – Steadiness - How you deal with Pace and Consistency
C – Compliance – How you deal with Rules and Procedures set by others
 
It is important to remember that one style is not better than another. There is no good or bad – there just is. It’s also difficult for some styles to understand why others don’t think the same way they do. For example, a person who is a high D may not understand why everyone else in the world doesn’t see things the way they do. Everyone should view the world the way they do and if they don’t, their missing something. Remember, there is no right or wrong, there just is.
 
Again, this month we’ll take a closer look at the Influencer communication style. Here are some of the traits of the High I.
 
The Need to Interact

The High I has an inherent need to interact with others. They love to talk and they do it often. They have a tendency to talk smoothly, and are comfortable doing so at a moment's notice. They love to be the life of the party and enjoy having fun with others. They will verbally try to promote a team effort and will consistently try to convince you of their point of view. I, personally, am a high I. When I got out of school 25 years ago, my first job was in research and development for a manufacturer that built ice cube machines.  Part of my job was to build an ice cuber from a set of drawings, then test its performance which consisted of putting this machine in a climate-controlled room and letting it run. Every 12 minutes,  it dumped out a batch of ice that I had to catch, measure, and then run a number of calculations to determine the machine's performance. Then I’d sit and wait for another batch of ice. Ten hours per day, six days per week, all by myself. I lasted a total of three months. After that, I left for a job that had a lot more people interaction.
 
Need to be liked

Fundamentally, the High I wants to be liked and usually likes others. They prefer not to be alone. They like to be around other people. They tend to be very trusting of other people and sometimes will do so too quickly. In fact, since they do place so much trust in others, they may sometimes be taken advantage of by others.
 
Social rejection is the fear of the High I. I am a firm believer in "Praise in public and chastise in private," but this is especially true for the high I. These employees are incredibly optimistic and will build on the good in other people and will always see the positive side of any negative situation. The glass is always half full for these people.
 
Need Involvement

You can expect the high I to be involved in just about anything and everything. At their best, they will promote trust and confidence and feel that they can persuade people to the kind of behavior they want. The downside of this involvement is that they may take on too much.
 
There is a lot of value in having a High I on your team.  A well-blended team needs to have a mixture of all four styles. Too many of one style is not a good thing and will only end up in disharmony, which is why some companies get into trouble with their typical hiring practices. The owner simply hires people just like themselves and as a result, ends up with a team that will not function as smoothly as it should.

Here is some of what the High I brings to the table:
 
Optimism & Enthusiasm – The High I is very much a people-person and has the ability to motivate and get the team excited. When the going gets tough, the optimism and enthusiasm of these employees will keep the team together.
 
Creative Problem Solvers – High I’s have a very creative mind and, if you allow them, will be ingenious in their ability to come up with new, creative ideas and solutions to problems. Take advantage of this strength.
 
Motivates Others Toward A Goal – Leadership is the ability to move people toward a common goal. Although all four styles can do this, the High I motivates people through positive interaction and persuasion. They cause others to want to work together as a team. They have a positive sense of humor and add fun to the team and the task. When teams have fun, productivity increases. 

Negotiates Conflict – Coworkers who have this as their primary style are natural mediators. They don’t like conflict and can persuade both sides of a disagreement to come together. Part of this is due to their ability to focus on the bright side of any issue. When you tie this into sales within your company, remember that people buy from people they like. If your sales team consists of people with this style, they can negotiate disagreements between those husband/wife teams and make them feel good about buying from you.
 
It’s all about communication

If there is a presentation to be made, an argument to be won, someone who needs to be persuaded to do something that is good for all, send in the High I. They will be able to paint an optimistic picture of the possibilities and have a greater chance of achieving the desired results, not to mention the fact that they will enjoy the opportunity and will be energized by it. Just make sure they have the facts needed to make the presentation. They are a tremendous asset to your company. Although this will not be the primary trait that you want for every position in your company, all employees should have some level of this trait. Remember that every person in your company is in sales and the High I is a great sales person. 
  
When communicating with the High I, you will need to be clear without dwelling on the details. They are not great detail people. Make sure that you are friendly and not short. You will want to get to the action items on your list. Ask them for their opinion and let them contribute. You will want to work with these workers when it comes to time management. Since they can take on too much, they can get overloaded. Here are a few other things to keep in mind when working with High I’s:

Help them in setting realistic goals. Develop a friendship and make time for interaction each day. Train them on behavioral styles to increase their effectiveness in dealing with other people. Don’t micromanage them – allow them the freedom of movement. Set clear objectives for them in writing for things you need them to accomplish. Look for opportunities for them to use their verbal skills. 

When you look at your customer base and coworkers, can you identify the High I’s? Are you a High I? Once you understand how to deal with a High I style, you will find it much easier to get things done and provide happier, more satisfied customers.
 
Next month, we’ll take a look at the High S – Steadiness communication style. In the meantime, spend some time getting to know how the High I person thinks. The success of your company depends on it.
 
If you want more information regarding behavioral communication styles, and the assessments that you can use to determine where your current employees and staff fall, contact me at 877-202-8891 or visit  the Hiring Solutions Informational page on our Website.



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Same Program, New Name, More Features
You're going to love it! 

 

A note from Tom GrandyThe “Service Contractors Business Presentation of the Month” has a new name and new look.  The new name is the “Small Business University Monthly Audio Series.”  The program has been redesigned as part of our totally new website, which will be launched later this month. The new program will be promoted to small businesses across the country and has lots of additional features including, but not limited to:

FREE 5-minutes audio summaries. (Try it before you buy it.)Short written summaries on each program. (Find out what the program is about before listening.)Filter by category, author or both! (Easily find the subject or author of interest.)Presenter information pops right up.  (You can call, e-mail or view their website with a simple click.)Each month a new program, called the Featured Program, is posted to the site. (Fresh ideas to increase your profitability each month.)Purchase an individual physical CD and/or download any of the past 180+ presentations. (Buy one program or become a monthly subscriber and have FREE access to all 180+ programs.)Download the program to your personal computer. (Once downloaded you can make a CD and/or load onto your iPod or MP3 player.)Simply listen online. (Click the button and listen – it’s that simple!)  Sign up as a monthly subscriber and save big time. (You'll have access to all 180+ past presentations for one low monthly fee of only $24.95/month)

Be sure to listen to the January 2010 program by Dave Ramsey, highlighted below! Try it .. you’ll like it!

--------------------------------------------------------------------------

NEW! From the Small Business University Monthly Audio Series

EntreLeadership defined
By Dave Ramsey
Short Description of the Presentation: 
Dave Ramsey has affected the lives of millions of Americans in the area of budgeting and moving individuals and couples towards becoming debt free.  Dave also teaches business owners how to run profitable organizations.  This presentation is the opening session of a seven (7) day program entitled EntreLeadership.  There is a wealth of information in this presentation. 

Key Points:

Leadership is one thing and entrepreneurship is another.  Both have strong qualities but the best organizations are lead by individuals that are EntreLeaders.  An EntreLeader is one who leads a cause to grow and prosper.

How the Dave Ramsey organization was foundedThe problem, how to mentor layers of managementLeadership definedEntrepreneurship definedEntreLeadership definedLeadership basics:
    a) Organizations are never limited by their opportunity, they are limited by their leader
    b) Your enterprise will never outgrow you
    c) If the leader is not growing the organization is not growing
    d) The team will mirror its leader, good or bad
    e) Growth requires systems
    f) Must have power but seldom use it
    g) If the leader messes up it affects everyone’s life
    h) Positional Power vs. Persuasive  Power
    i) Must have passion
    j) Take responsibility and expect opposition

The Small Business University Audio Series features a new trade focused audio presentation every month. These programs are designed to provide the trades contractor relevant information that can help their business immediately.  Get more information on this program or sign up for a monthly subscription today! 

 
 
 
 
 
 
 
 
 
 
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