Eliminating Bottlenecks in Your Business

Bottlenecks can affect every remodeling and home improvement business, so it’s critical for you to be aware of them, understand what causes them, and how to eliminate them before it’s too late. The types of congestion and constraints that come from bottlenecks can hinder the smooth flow of work, cost you lost time and revenue, decrease customer satisfaction, and possibly cause you to lose out on future business.

Here I’ll discuss examples of and solutions for bottlenecks for each of your business’s four functioning parts: 

1. Marketing
2. Sales
3. Admin/operations
4. Installation and production

I’m sure some of these examples will resonate with you as you think about your business. 

Marketing

The biggest marketing bottleneck is a lack of leads. When I hear a company complain about not having enough leads to keep its sales team busy, I have two main concerns: their marketing portfolio may not be diversified enough and there may be an imbalance in the percentage spent on passive marketing versus proactive marketing. 

Passive marketing includes digital, SEO, pay-per-click, lead aggregators, and social media. Proactive marketing involves such things as canvassing, events, direct mail, TV and radio ads, database nurturing, and repeat and referral programs. 

If there are too few leads, companies need to reevaluate their marketing spend and their process for tracking results on a daily, weekly, and monthly basis. A good formula for figuring out your marketing budget comes from industry vet, Tim Musch, who spent 15 years as a remodeler and is now the director of business development for Paradigm Vendo.

Musch assembled a control group of 1,247 home improvement and remodeling companies of all sizes, and in a year's time that group got a combined 3.027 million leads and did $4.1 billion in sales. 

The data revealed annual average sales of $3.3 million per company, and an average marketing budget of $446,000 or 13.5% of revenue. Many companies I work with spend much less than 13.5%, but there are some that spend more. Most companies that spend 15-17% don't have a lead problem, while those spending 5-8% likely do. The fact that you’re not spending enough can be a real bottleneck. 

I understand that many companies can't afford to spend 15% of their revenue on marketing—but your customers can, so you need to change the paradigm. Raise your prices and have your customers pay for the marketing. 

I very seldom see situations where companies are spending too much on marketing. To figure out how much you should be spending, try reverse engineering your marketing. 

Here’s a good formula to use if you know your numbers:

So, say you want $3.3 million in annual sales, and your average sale is $17,600, you’ll need to make 188 sales. If you close at 29%, you’ll need to demo 649 jobs to sell 188 projects. If your demo rate is 92%, you’ll need to book 706 appointments. If your set rate for all the leads entered into your database is 76%, then you will need to book 929 appointments. And if your average cost to run a lead is $358, then your marketing budget should be about $332,000. Divide $332,000 by $3.3 million, and you’ll find that around 10% of your revenue should be spent on marketing.

I recommend plugging your numbers into this formula to see if your marketing spend is correct.

Sales

What are some signs that your processes are creating a sales bottleneck? Do you recognize any of these situations in your company?

• You can’t set appointments within 48 hours because you don't have enough sales reps. You’re not running a structured appointment schedule (such as 10 a.m., 2 p.m., 6 p.m.).
• You're giving your sales reps more than two appointments per day.
• You’re not requiring your sales reps to be available for at least 11 time slots per week.
• You're not running weekday evening or weekend appointments.
• Your sales reps aren’t resulting the appointments the same day they run them, so you’re failing to capture critical data.
• You're allowing sales reps to own the leads indefinitely.
• You’re not enforcing acceptable standards of performance, such as a minimum close rate.
• You’re allowing poor performers to linger and failing to recruit sales reps on an ongoing basis (and keeping them on ice until they're ready and you’re ready).

So, what’s the solution?

You need to determine whether or not you have enough sales capacity. The formula: 

For example, say a company is targeting that average $3.3 million in annual sales we’ve talked about. If they have five sales reps who each run two appointments per day, 22 days per month—so 44 appointments per rep, per month—they should be running 220 appointments per month. With an average sale of $15,000, their annual revenue should be $3.3 million. Sounds great—but only in the very unlikely event that they close every single sale.

If the company has a close rate of 30%, that means they have $990,000 in theoretical sales capacity. But that’s theoretical because that amount is almost never sold when accounting for days off, sales meetings, follow-up appointments, and the like. 

I suggest building a degree of safety into your plan and targeting 70% as a realistic percentage to use. So, in this example, 70% of the 44 possible appointments per month, per rep will net 31 actual appointments. Therefore, the company in this scenario doesn’t have enough capacity to reach its $3.3 million goal and needs to add two more sales reps.

Admin and Operations

Administration and operations is the glue that holds everything together, and if you don't run your business by certain key performance indicators, you can quickly create a bottleneck.

Key targets I recommend: 

• Days to measure: No more than four days from when the job is sold to when the tech measure is completed. 
• Days to order: No more than seven days from when the job is sold to when the order is submitted to the manufacturer.
• Days to completion: No more than 35 days from when the job is sold to when it’s completed.

Does this scenario sound familiar to you? A sales rep sells a job and turns the paperwork in a day or two later. Then a couple days after that someone processes and reviews it. After that, it takes another few days to connect with the homeowner to schedule the measure. And now it’s six, seven, maybe 10 days after the sale. I understand that some issues are out of your control (a homeowner’s association, for example, or a financing delay), but being aware of the timing can help you manage these outliers and adjust the timeline accordingly. 

Another measurement is first-time through. What percentage of your jobs get completed the first time through? I don't care if it's a two-hour installation, a two-day installation, or a two-week installation. Are you getting it done the first time? Do you have to send someone back for follow up work? A good target is completing 95% of your jobs the first time through. 

And, importantly, consider the size of your admin and operations staffing—do you have enough people in the department to process the work and avoid bottlenecks?

Installation and Production

While sales creates revenue opportunities, it’s installation and production that makes the opportunities a reality. Here are a few things to consider in order to avoid bottlenecks:

What is your revenue per-crew per-day? Many companies don’t track data to this level, but you should. 

What are your weekly work-installed goals? Many companies have annual and monthly goals, but few have weekly goals. Again, tracking data to this degree measures the work being done and helps you adjust accordingly before bottlenecks happen.  

What is your manpower situation? Can you achieve your weekly, monthly, and yearly revenue goals? Knowing how much your crews can produce on average per month helps you determine the number of crews you need. 

Remember, everything is a factor of time. If you can't get the work completed in a timely manner, it’s not revenue! And that big bucket of work you have in the pipeline—it doesn't do you any good if you can’t convert it to revenue. 

I hope there aren't bottlenecks in your business that you're unaware of. They can be a killer, and by the time you uncover them it may be too late. So take a high-level view of what the key targets are in your pipeline that are critical to maximizing the efficiency of your business and also maximizing your customer experience and satisfaction.