Many remodelers today get so busy that they start to use the “Farmers’ Almanac” method of forecasting business: They look back at what their companies sold last year and project slightly higher sales.
This is an outdated and ineffective method. The economy, technology, and pricing can change in an instant. Assuming the future will be like the past is dangerous.
Evaluating your existing pipeline of potential projects is a better place to start. It’s especially useful if you have numerical probabilities associated with each project stage. To that end, CRM systems often have a sales stage during which you can assign a probability to the job. Some contractors track their probability of sale if the customer is willing to meet at their office. Others use different indicators. But however you define it, every project should have a dollar amount and a probability assigned to it to allow revenue predictions for the next six or more months. Keep the numbers realistic, not optimistic. Even projects that are sold don’t have 100% probability. Measuring the occurrence of each of these sales stages and relating them back to those that sold are highly useful numbers to track in any business.
Close Ratio is Overrated
Avoid assigning a generic close ratio to the number of incoming leads. Close ratio can be a useful predictor only if it is segmented by lead source. Referrals and repeat clients will always have higher close ratios; internet inquiries will be lower. It can be useful to look at close ratio by salesperson or project type, but remember to segment the leads by their sources in the analysis.
One of the best and least monitored numbers to track is new conversations with prospects that fit your target market. An inquiry is one thing; a conversation with a prospect that meets specific criteria is another. Some people call these qualified leads.
This is a very dangerous practice that can cost businesses as much as 40% of their total revenue.
But be careful. This year especially, I’ve seen many companies over-qualifying leads, and therefore reducing the number of meetings in order to obtain a higher close ratio. This is a very dangerous practice that can cost businesses as much as 40% of their total revenue. Create specific criteria and stick with them.
Measure the Number of Referrals
Lately, I’m hearing salespeople and business owners say they are too busy to think about prospecting. But some of those same people have been missing their sales targets or complaining about difficult customers. I asked them if they were reaching out to past clients, meeting the neighbors, or obtaining referrals. They explained that there were so many incoming leads, they didn’t have time for that. I asked them how they expected the leads to change and suddenly give them better sales results if they kept chasing after the same poor quality prospects.
The time to get referrals and do a little neighborhood networking is while you’re out meeting with customers and prospects. It shouldn’t take more time, just more focus and intention. Measuring the number of referrals received, resulting business, and repeat customers is a great practice.
Of course, the most important number of all is profit. Know your profit by job type, project manager, estimator, and salesperson. Some salespeople sell jobs at lower margins to get the commission. Others are simply intimidated by the large dollar amounts involved and always seem to sell jobs at the lowest price possible.
I’ve also encountered the opposite: salespeople who try to oversell and lose jobs because they exceed the client’s ability to pay. I’m not a proponent of overcharging, but you deserve a fair profit and your customer should be happy that you will be around to warrant their project someday. Track the right sales numbers to ensure your entire workforce is utilized efficiently and, as a result, to turn more profits.