Hello, and welcome to the Small Business University audio presentation of the month. This monthly CD web series represents yet another step in accomplishing Grandy and Associates’ vision of teaching small business owners how to run profitable companies. Each month, a different national speaker or business owner shares dozens of cost-reducing, profit-increasing ideas to help you become a more profitable company.
Have you ever wondered why the company down the street seems to be so profitable? They have new trucks, the owner goes on vacation regularly, and worse of all, he just purchased a new condo at the beach. What are they doing that you’re not? Well, that’s a good question. Tom Grandy is about to share with you 15 things that all successful companies have in common.
By the time you finish this presentation, you’ll not only know what the guy down the street is doing, you may just begin to do some things that will allow you to not only buy that condo, but perhaps to get the boat that goes with it as well. Tom Grandy is founder and president of Grandy and Associates. Grandy and Associates has been providing business training to the trades industry since 1987.
Tom has worked as a general manager of a trades company, been regional director of the Dial One franchise, and just happens to be the founder of the Small Business University Audio Series. Now, sit back and relax while Tom shares all kinds of things that will help your company grow and prosper. Did you ever wonder what goes on behind the doors of ABC Company down the street or across town? They’ve been in business about the same length of time you have, and you know you work at least as many hours as their owner does, but they seem to be more profitable.
Their trucks are newer. They add one or two more each year. They just finished a new addition on their building, and everywhere you turn, you hear about them.
They’re on the TV, in the newspaper, on the radio. Their yard sign seems to be in every neighborhood, and worst of all, your customers, and sometimes even your employees, are talking about them. The real frustration, however, is that the owner drives a newer car than you do, takes a vacation twice a year, and just moved into a new house on the golf course.
What are they doing that you’re not? Today we’re going to find out. Today we’re going to look at 15 things all successful companies have in common, but before we do that, let’s look at a couple of facts. According to the Social Security Administration, of all Americans that reach the retirement age of 65, 96% earn less than $26,000 a year.
That’s right. According to the Social Security Administration, of all Americans that reach the retirement age of 65, 96% earn less than $26,000 a year. Their records also show that 85% of all Americans have less than $250 put aside for retirement at age 65.
In fact, most men are worth more at the age of 18 than at retirement, after working over 40 years. So what is a successful company, and why do we want to be associated with it? My definition of a successful company is one that does three things. First, it meets and hopefully exceeds the customer’s expectations.
Secondly, it covers all the real costs of doing business, which includes paying the owner a regular and a reasonable salary while properly funding the company retirement plan. Thirdly, after exceeding the customer’s expectations and covering all the real costs of doing business, the company generates a 3 to 7% pre-taxed profit. Before we look at what makes a company successful, I’m going to assume one thing.
I’m going to assume your company owns and uses a computer. If you don’t own one yet, buy one soon. Why? If you did nothing but buy a computer and put your customer base on it, it would pay for itself within a few months.
Your customer base is your most valuable asset, and without a computer, you will have no effective way to generate mailing labels to place on newsletters, mailings, flyers, etc. The computer also is needed to allow you to do internal accounting. I’m not saying do away with your accountant, but every company needs to have a rough idea of how they stand from a cash flow standpoint without having to wait for an accountant’s report days or weeks down the road.
The computer is also indispensable for creating form letters for proposals, mailings, thank you letters, etc. You write the letter once and simply change the names as needed. Again, I’m assuming you have a computer or at least will be buying one very soon.
The 15 things we’ll be looking at will be in the areas of finances, marketing, customer base, continuing education, and customer service. As we discuss each item in each area, take some mental notes, or some written ones would be even better, on changes you’d like to make within your company. The first thing that all successful companies have in common deals with knowing what their labor rates must be in each department to cover their real cost of doing business while still generating a 3 to 7 percent pre-taxed profit.
Accurate hourly rates are the basic building blocks for profitability. The number one problem of most companies today is their failure to recalculate profitable hourly rates for each department on a regular basis. Let me repeat that.
The number one problem of most companies today is their failure to recalculate profitable hourly rates for each department on a regular basis. When most companies started, they worked out of their house or their garage and they charged basically what everybody else in town charged, or maybe a little bit less. Since the company had little or no overhead costs, gross profit was good, or at least more than what the owner was making for someone else.
As the years passed by, the company grew, adding overhead costs like new building, insurances, marketing costs, more vehicles, etc., but the hourly rate stayed basically the same, the net result of which was increased sales and decreased profits. You’re not the same company you were last year, and you’re not the same company you will be six months from now. Every change affects profitability.
Your choice is whether to pass the cost on to the customer in the form of a higher hourly rate or to absorb the cost, therefore lowering profitability. Accurate hourly rates need to be recalculated for each department at least once a year and hopefully on a quarterly basis. When you do recalculate rates, be sure you’re using the real costs of doing business, not simply accounting figures.
Your real cost of doing business should include all overhead costs, the cost of non-billable time, the full amount of all loan payments, principal and interest, and equipment replacement dollars. Once you determine what the real cost of doing business is, subtract the gross profits you make on the sale of materials and or equipment and divide the remaining costs by your billable labor hours. This process will produce your break-even rate.
That rate then needs to be divided by the reciprocal of your desired profit to come up with your needed hourly rate. The reciprocal is simply taking 100 percent and subtracting your desired profit from it. If, for instance, you wanted to earn a 10 percent net profit, then divide your break-even rate by the reciprocal, which is .9. Every successful company recalculates their hourly rates for each department at least once a year.
The second thing every successful company has in common is that it develops a month by month, department by department, cash flow budget each year, and they track the results monthly. Developing a cash flow budget will do several things for you. It will force you to look at what it costs to run the company while providing accountability for everyone involved in the process.
It also helps the company plan its growth by showing the owner what’s making money and what is not. Creating a budget and tracking the results will also provide information upon which to make good economic decisions. And lastly, it will be the basis for tracking profitability within the company.
Every successful company not only develops a budget, but tracks its results against the budget on a monthly basis. The third thing all successful companies have in common is that they have a business plan in place. It has often been said, if you don’t know where you’re going, any road will get you there.
The problem is that you’ll never know if you’ve arrived or not. A business plan sets the direction of your company. That is, it will tell you where you’re going.
Secondly, it will spell out how you’re going to get there along with the costs of meeting the goals. It will spell out the cost of labor and equipment while projecting your cash flow needs on a month-by-month basis. It will also spell out what your required funding needs will be.
A written business plan is an excellent document to take to your banker if funding is required. There are five sections to a business plan. The first section is called the executive summary and covers the history of the company, general market conditions, the status of competition, and the company’s goals.
The second section is called the financial plan. The financial plan covers the company from a financial standpoint and shows current financial statements. This section also presents a capital expenditure forecast showing what equipment will be needed and when it’s to be purchased.
The financial section also includes a month-by-month cash flow budget for the coming two years with overall cash flow projections for the next five years. The third section of the business plan is called the marketing section. In this section, you will detail the company’s marketing plan including things like radio, TV, yellow pages, and direct mail with the associated costs of each.
The timing is also spelled out in terms of what type of marketing will take place and when. The marketing plan will also project expected results and will detail who will do what and when. The cost of the marketing plan will be part of your overall cash flow budget.
The fourth section of the business plan is called production needs. This section explains what labor needs will be and forecasts materials needed including required inventory. The final section is called the organizational plan.
This section shows an organizational chart of the company and summarizes what training will take place both for office and technical personnel. Preparing a good business plan and updating it each year is one of the best ways to keep a company on track. A formal business plan is also a great way to build relationships with your banker.
Make it a point to go over your plan with your banker at least once a year. The fourth thing that every successful company has in common is that it puts together a detailed marketing plan for the next 12 to 18 months. We touched on this a bit under the business plan but I want to go into a little more detail.
It’s a known fact that a potential customer needs to see or hear about a product or service at least five times before it’s purchased and many experts say it needs to be as many as nine times. The only way this can be accomplished is to develop a detailed marketing plan. The plan should be developed for an 18 month period with revisions made every six months.
A good marketing plan will involve several media from yellow pages to yard signs. The objective of a marketing plan is not necessarily to sell the customer on your product per se but to keep your name in front of them so that when the time to buy does come your name comes to mind. A good marketing plan will have several things going on at the same time so it will be necessary to set up a schedule of what will happen when.
Do not be discouraged if you don’t see any immediate results since a good marketing plan requires at least six to eight months before any measurable results can be seen. You will however know when it begins to take effect because you’ll begin to notice that calls are coming in seemingly from nowhere and the slow times you used to have are beginning to lessen and will eventually disappear. The real proof is when the rest of your industry is slow you continue to work.
Set up a lead tracking sheet with the person who answers your phone and instruct them to ask the customer how they heard about your company. Two things will happen. One is that you will begin to notice that certain specific things are working.
If you do a lot of service work you will probably get a number of people saying they saw you in the yellow pages. If you do a lot of installation work you’ll begin to notice a lot of referrals from happy customers. Tracking in this way will tell you what’s working and what is not.
The second thing you will notice is that more and more calls are coming in and the people cannot tell you why they happened to call. They may say we saw your billboard when in fact you have not had a billboard in use for over 12 months. That is when you know your marketing plan is working.
Remember consistency is important. When the customer is ready to buy it’s who they remember that counts. They may only need to purchase your product or service every year or two years.
So it’s who they remember that’s important. Several marketing promotions that catch their attention over a period of time is much more effective than one very classy ad in the local newspaper. So unless you’re a large company and can afford a full-time marketing person get an outside person or firm to design and print your literature and to do the physical mailings for you.
They’re better equipped and in the long run it will cost you less than doing it yourself. The fifth thing that all successful companies have in common is that they have certain basic marketing tools in place. The first tool is called a brag book which is used during presentations to the customer.
This three ring binder will contain referral lists of past customers with their comments along with copies of your insurance certificates. You may ask yourself why should our customers look at our insurance certificate? It’s because they now know that you have one and will probably ask the next bidder if they’re insured. The brag book also contains pictures and lots of them.
Pictures of past jobs, pictures of your employees, pictures of the shop or the building, pictures of your fab area or the training room. A picture really is worth a thousand words and in this way you don’t have to do all the talking. Also include a list of trade associations you’re members of and show your licenses from the city, the county or the state to show that you are a quote qualified contractor.
And of course have lots of product literature. I once worked for a company and the sales manager told me something that I’ll never forget. He told me that when making presentations do three things and do them in this order.
Number one, sell yourself. Number one, sell yourself. Tell the customer about your background, your experience, the length of time with the company or in the industry.
Secondly, sell the company which is what you’re doing with the brag book. He then said if you will do the first two things well, the product or the service will sell itself. Remember, most customers buy a product or a service based on their relationship with the person they’re talking to, not on the quality of the product or the service itself.
Let me repeat that because it’s very important. Remember, most customers buy a product or a service based on their relationship with the person they’re talking to, not on the quality of the product or the service itself. Another basic marketing tool is what I call the pre-sell letter.
This letter is used when you have an appointment to meet with a potential customer and the meeting is at least three days away. If this is the case, send the potential customer a pre-sell letter which covers several things. First, it thanks them for their call and then it confirms the day and the time of the appointment.
The next portion of the letter gives a short history of the company with comments on the quality of work that you do and how employees are factory trained or state certified. Also, list business or trade associations you’re members of and most importantly, enclose a referral list of past customers that have had similar type of work done. Give the name, address, and phone number of the referrals and encourage your potential customer to contact them prior to meeting with you.
I promise you that if you will send out a pre-sell letter before meeting with a customer, the job will be 70% sold before you even meet with them. The next basic marketing tool is a company brochure. This tells all about your company and should be included with every pre-sell letter you send out as well as every proposal you give.
It is also effectively used as a direct mail piece and is a great handout at trade shows or fairs. They’re not expensive and can often be paid for in part, if not totally, with co-op dollars. We’ll talk about the use of co-op dollars a little bit later.
I know a company brochure sounds basic, but ask yourself, which one of my competitors uses them? The answer is most don’t. So guess who looks like the professional? You do. The last basic marketing tool we’re going to talk about is the company newsletter.
A current or potential customer will not buy something from you if they don’t know you sell it. A newsletter is a great tool. Within the newsletter, you’ll have a section on what’s happening within the company, tips on what the customer can do to minimize needed service, a summary of your products and services, and a special section featuring key employees.
The idea is to make the customer feel like part of the company and to tell them about new products and services. Enclose coupons. Customers love them.
A newsletter should go out at least twice a year as part of your overall marketing plan. The sixth thing that all successful companies have in common is that they make full use of co-op dollars. Typically, most contractors use co-op dollars from their major supplier for yellow pages, newspaper ads, and or radio and TV.
Did you also know that co-op dollars can be used for company brochures and newsletters? Often you can get several non-competing suppliers to co-sponsor brochures and or newsletters, which will cover most, if not all, your cost of developing it and mailing it out. Before you can effectively use co-op dollars, you need to know where your business is coming from. There are basically two types of work, service, which includes emergency repair, and installation, which includes retrofit, new construction, etc.
Service work comes from two sources, your current customer base and new customers. Your current customers will normally call you anyway, assuming you stay in front of them with direct mail pieces. But where do new customers go to find a company for emergency repairs? They go to the yellow pages.
If you do a lot of service work, invest a significant portion of your co-op dollars into yellow page advertising. Remember, however, yellow page people are normally paid on a 100% commission basis based on your increase from the previous year. They will always suggest bigger and more colorful ads, so use wisdom.
If you do mostly installation work, ask yourself, where does this work come from? Normally it comes from repeat customers and referral work. If you’re heavy into installation, invest most of your co-op dollars into direct mail, which includes company brochures, newsletters, door hangers, flyers, or even yard signs. Co-op dollars can be of tremendous value to you if you use them properly.
The seventh thing that all successful companies have in common is networking with other contractors and or trades. This is a relatively new concept within the trades industry, but a very powerful one. First, let’s look at networking with other contractors within our trade.
Several trade associations are using this concept already, but it can be done just as effectively without the covering of an association. The concept is simple. Contact two, three, four, maybe five other companies that are within your trade but are not in direct competition with you.
These can be companies in different areas of your state or across the country. This small group of company owners then meets together two, three, maybe four times a year to discuss problems and or successes they have had over the past months. They will look at topics like receivables, job costing, or how to market to the customer.
Normally they will meet at the site of one of the contract members and then rotating sites each time they meet. Think about the last convention you attended. As good as the seminars were, I’ll bet you got your greatest benefit from talking with other contractors over dinner or maybe before a session.
Networking with other companies within your trade can be a very powerful tool, yielding tremendous benefits to your company. Now, taking the concept a step farther, network with other trades in your own marketplace. Setting up small, mixed trade groups will allow you to market each other’s products and services by recommending each other to the customer.
This can be done by handing out each other’s company brochures or coupons or other things of that nature and even doing direct mail together, therefore cutting the cost for each company. If your customer likes and trusts you, and they do, they wouldn’t be doing work with you, then they will also tend to trust your recommendations.