Seasonality can be a false indicator of prosperity
The same old story? It should be!
While heating and air companies have the largest seasonal swings in the service business category, seasonality exists in all trades. There are times of the year that business is booming, employees are at capacity, call volume is at its peak and companies might even turn away low priority work for more profitable jobs.ositioning your business for optimum success means managing the business the same regardless of season. There are seasonality swings in nearly every business. Accountants have volume increases around tax time, UPS moves more packages around the holidays and air conditioning companies experience a dramatic rise in business during the 13 critical weeks of summer.
Successful businesses focus on building and implementing solid processes. They become tracking machines: managing scorecards and financials, maximizing every call and sales opportunity, exceeding customer’s expectations, ensuring that employees are highly accountable, and paying attention to every detail of the business. It is the same old story that smart operators relentlessly repeat day after day. Does your company execute the same way when it’s busy? Make no mistake, the details matter!
It’s all about the revenue. Or is it?
We’ve heard it said a number of different ways: what gets measured and watched gets results. In the service business salespeople and technicians have Key Performance Indicators or scorecards to measure their performance.
There are generally four to six KPIs that most companies monitor very closely, especially in the slow season — areas such as conversion rate, average sale, hours sold, service (or maintenance) agreements sold, leads generated and overall revenue. The temptation, during peak season, is to “trim down” what you monitor. Managers might find themselves gravitating to just the revenue. After all, dollars are what you put on the deposit slip, right? While that may be the case, revenue runs the risk of becoming the “shiny object” in the busy time while other more important KPIs fall by the wayside.
Never forget conversion rate
Whether we’re talking about a service call or a sales opportunity, conversion rate is the single most important long-term KPI to monitor. When measuring the lifetime value of a customer, conversion rate wins, hands down, over all other KPIs.
Conversion rate is not just about the here and now. It is about setting up success for next year as well. Don’t fall victim to Ricky Rockstar who generates amazing revenue during peak season only to learn that his conversion rate on service calls has dropped from an impressive 90 percent to 70 percent and he’s blowing through calls to get the revenue.
A 20 percent drop in conversion rate equals marketing dollars wasted to get those calls and those customers will never call your company again; meaning no money next year from this customer for your company. Conversion rate rules when you take the long view on business success. Smart operators don’t forget this when the company is slammed with calls.
You are in business to take care of your customers’ HVAC, electrical or plumbing problems. You likely already know how powerful service agreements are to your business. Service agreements offer powerful ways to:
- Build relationships with customers;
- Create customer loyalty and customers for life;
- Provide growth in the organization — service agreement customers buy more and more often;
- Stabilize work flow;
- Create future sales opportunities; and
- Drive down marketing costs — if a company grows service agreement customers, it doesn’t have to spend marketing dollars to get new customers.
When is the greatest opportunity for a service business to sell service agreements? It’s when you are the busiest. Unfortunately, many companies miss the mark on this one. What used to be incredibly important during the slower times, takes a back seat to generating service and replacement revenue in the peak season. A company can have both as long as there is consistent focus on creating customers for life. Ensure everyone in the organization is maximizing service agreement opportunities year round.
Call center performance
How many inbound service calls in your business turned into booked calls? Performance management is essential in every service business. After all, the employees answering the phones are ultimately in charge of the marketing budget.
When a company understands the cost of every inbound service call, call conversion (inbound call turns into a service call) is monitored closely. Even if you’re not a marketing maven, the math is pretty simple. For example: If a company’s overall marketing cost to acquire a new customer is $100 every time a customer calls and does not book a call, $100 is wasted. Multiply that times the company’s average invoice and the results are startling. Let’s use the 13 critical weeks of summer in HVAC as an example. Imagine a company’s average invoice for service is $500:
- 5 calls per week lost (not booked) x 13 weeks = 65 calls
- 65 calls at a cost of $100 each = $6,500
- 65 calls x technician conversion rate of 90% = 58.5 calls
- 58.5 calls x average sale of $500 = $29,250
- Total opportunities missed $6,500 + $29,250 = $35,750
And that’s just missed service revenue. Imagine when replacement opportunity is added to the equation! Take a few minutes and calculate your company’s numbers using your peak season time frame, customer acquisition cost, technician conversion rate and average sale. When you know your numbers, the company is much more likely to manage the call-booking rate regardless of the season.
Bonus tip: The best way to improve your call center performance is to make sure you have proper staffing in your service and installation departments. When you are offering customer appointments two or three days out when it is 90-plus degrees out, even the best customer service representatives will miss opportunities.
Margins and profit percentages
Don’t fall victim to just the gross margin dollars generated during peak season. As revenue goes up and down, Cost of Goods Sold also fluctuates. When it comes to managing the gross profit in the business, be sure to manage the COGS as a percentage of revenue too. We may think we are performing at a high level when revenues and gross-margin dollar’s climb. The percentages could tell a different story. For example:
Revenue and gross margin
Labor $35,000 35% of revenue
Material $15,000 15% of revenue
Total COGS $50,000 50% COGS
Gross Profit $50,000 50% gross margin
Peak season gross margin erosion
Labor $50,000 38% of revenue
Material $30,000 23% of revenue
Total COGS $80,000 61% COGS
Gross Profit $50,000 38% gross margin
If a company is simply watching the gross-profit dollars of $50,000, the company runs the risk of missing the 12 percent decline in gross margin or missing the $15,600 in gross-profit dollars. Know the gross margin percentage expectations by trade, watch the percentages like a hawk when revenue is accelerating during peak season and the profit dollars will follow. Take your eye off the percentages and you may find you did a lot of extra work for free.
Is running your business in peak seasons the same old story? It should be. Don’t let the details get lost in a flurry of business. Don’t be blinded by revenue growth. Peak times are important to maximize in order to create a profitable business today and success next year. Put your business in the best position for success by managing your resources and seasons wisely. Be sure your company’s story remains the same this peak season.