We are busy on a day-to-day basis, and seldom does anyone call us to make sure we are keeping good track of our company’s financial position. Therefore, it becomes imperative upon us to make it a regular function to maintain our firm’s key financial indicators. In the big corporate world, they refer to these numbers as KPI’s — Key Performance Indicators. Personally, I just like to think of them as the important pieces of financial information that allow me to track our progress.
The most important starting point is to make sure that you are receiving timely monthly financial statements. Our industry is too dynamic and too much can happen in a month or two to wait for twice yearly, or even quarterly financial statements. When I receive our monthly statements, my first step is to compare all of the numbers to the budget we have prepared. During that process, I make note of any amounts that vary substantially from those budgeted numbers. Then, working with our financial person, we review those variations. The purpose here is to determine if the differential is just a one-time unusual occurrence or if it is an indication of a trend that needs immediate attention.
In addition to the actual financial statements, I have other calculations I make which provide me with our company’s KPIs. The first of these — and one that I consider extremely important — is a sales-per-man calculation. I use this to give a rough indication of our installation efficiency. We keep track weekly of the equivalent men that we have working. This is merely the total hours worked divided by the available hours for the week, which gives us the equivalent number of men who worked during that week. We total these numbers and obtain an average number of men who worked during a month. We then divide our total installation sales (new construction plus replacement) by the average number of men. This gives us the sales-per-man for the month. We take it one step further and divide by the available days in the month to obtain the sales-per-man-per-day for the month. This is important information that tells us whether or not we are overstaffed in the installation department. I’ll be happy to send a copy of the form we use and others if you email me at the address to the left.
We also obtain a monthly compilation of job costs on all of our jobs. For our purposes, we divide them into new construction as well as a separate calculation for each of our replacement salesmen. This allows us to see easily on one page the gross and net profit being obtained by each salesman for each sale. This can result in conversations about the need to raise prices because our margins are too low, or even occasionally, to a recommendation that “your margins are very, very good, you can possibly lower your price occasionally if that’s what it takes to get a job.”
For our service department, we carefully track the number of service calls performed each month. We use that information compared to the total service-department sales to determine the average sales dollars per service call. This allows us to track the effect of price increases, which we deem absolutely necessary. Additionally, in the service department, because we provide a spiff to service technicians for selling maintenance agreements, as well as provide customer referrals which result in sales, we keep monthly records on how well they are doing in accomplishing those tasks.
The important thing to remember is not to get so lost in the day-to-day issues that you forget to utilize the tools you have available to ensure your company’s continuing financial success.
Publication date: 2/4/2013