Your business begins with sales and marketing. Without clients and business, you do not have a business. This makes measuring sales and marketing success one of your business's most important and critical functions.
How many of us have been surprised after a busy spell to find that work isn't flowing in? With the average bid project taking one to two months to come to fruition and the average design/build project taking three to six months, builders can't afford not to pay attention to the key indicators for sales and marketing.
Marketing is defined as "to expose for sale." Are you exposing your business for sale enough? How do you know? It's marketing's responsibility to generate leads and sales' responsibility to close business. For what should you be looking? To which metrics should you pay attention? What do they tell you about the future?
At Plaskoff Construction, we know we can turn a certain percentage of raw leads into true prospects and that a certain number of prospects will turn into business. We also know it takes an average of three months for a lead to turn into a construction project, so we know that if we meet our lead goal for a particular month, three months later we likely will be busy. This is called a leading indicator because the result of the metric is led by a measurement. In contrast, if we fail to meet our lead goal for a month, we can expect and plan for slow months of construction three months later. Prospects (whom we define as any prospective client to whom we will present a bid) are a one-month leading indicator, so we track them as a critical metric as well.
If we are meeting our monthly lead goal and turning enough of those leads into prospects (because the turning of leads into prospects measures not only the quality of a sales staff but the quality of the leads), we know that Marketing is bringing us enough quality opportunities.
We also track backlog of sales volume. We track sales backlog of design/build versus bid. We know that a certain dollar percentage of business will close, and this tells us how much opportunity we have for the future in dollars. It also tells us that the ratio of design/build work to bid work is where we want it. If it's not, we can change it by focusing on one segment or another.
So how do we develop the marketing metrics goals? We know that our average job size historically and optimally needs to be about $200,000. We know that our sales goal for the year is to sell $8 million in dollar volume, so we need 40 jobs.
How do we get those 40 jobs? How many proposals will we need to present (prospects)? How many leads will be needed to generate those prospects?
Looking at past performance can provide you with the data you need to answer these questions. Averaging about five years of performance is an excellent way to benchmark these numbers. If your business is relatively new, you might want to start with industry standards until you develop historical data.
At Plaskoff Construction, based on averaging five years of back data, we know that at the appropriate price about one-third of our proposals become projects. Therefore, we need to present to three times as many prospects as the projects we need, or 120 prospects per year to get our 40 jobs averaging $200,000 and totaling $8 million.
What about our ratio of raw leads to prospects? We also know that only one-third of the raw leads with whom we speak become prospects, so we know we need to generate three times as many leads as prospects we need. Our metric is 30 leads per month. We add 10% to be safe and shoot for 33 leads per month. With a critical metric, it's always better to shoot for 10% more and meet the goal than to shoot for the goal and fall short.
With our monthly metric for marketing lead generation at 33, we monitor weekly. If we fall short, we know that three months later we could have an issue with work flow. We set up our scorecard to reflect our plan and forecast based on how many days we are into our month and how many leads or prospects we have generated. We track our ratio of bids (or prospects) to gets so we can make sure the tool we are using for figuring our metrics is meeting or exceeding our plan.
Average job size can affect everything, so we track average lead size to determine if the opportunities at which we are looking will result in the size of the jobs we need. We do this by tracking total volume of opportunity and number of opportunities.
The bottom line is: "How much work has Sales actually closed?" We track this in dollars and shoot for a higher monthly close than expected so we won't fall short of our goal. This is a tough measurement because with large projects you often could close much more in a month or much less in a month, so you need to keep a three-month running average if that's the case in your company (see chart).
Actual sales, leads, prospects, potential volume, average lead size and bid to get are all sales and marketing metrics. They're intertwined. Marketing generates the leads, but sales must disqualify or convert the leads. Sometimes it's hard to determine whether there is a quality-of-lead problem or a quality-of-Sales problem.
For example, if your salespeople are doing a great job of disqualifying, your bid-to-get ratio will rise (you will get more of what you present because you are presenting to only the prospects who are strong). You might view your bid-to-get ratio's rising as a sign that your prices are too low, and this is logical, but not if Sales is doing a great job of disqualifying. It might be simply that Sales is making sure you are presenting to only the "best" prospects. You might, however, decide to raise your prices, which can cause you to lose prospects and require you to generate more leads.
Study the numbers, ask yourself why you might be missing or exceeding your targets, and adjust.If you are short on leads one month, you might want to do a marketing blast so you can catch up in the following months. Raise the goal for the next two months to make up for it. If you have a mixture of design/build jobs, which take a long time to close, and bid jobs, which do not, and you forecast a weak month three months ahead, go after bid work you can close quickly or after smaller projects you know you can close quickly.
Maybe you confront sales about the lack of closings for the month and are told, "We can close the business, but estimating can't provide us with our estimates fast enough!" I'll discuss that in my next column.
Matt Plaskoff owns Plaskoff Construction, a remodeling and custom home building firm in Tarzana, Calif.