I’ve often said (and believed) that asking the right question will lead you to the right answer. In a recent presentation, Kraig Kramers, a dynamic speaker and author of the book CEO Tools, asked two questions that sparked heated discussions and many commitments from our clients. In light of the current recession, I think these questions have become critical to the survival of many remodeling companies. I suggest you give them some serious thought and time.
The first question: “What causes sales in your organization?” Kramers wasn’t looking for obvious and general answers, such as “getting leads,” marketing, phone calls, or good sales techniques. Nor did he assume that everyone in the room would have the same answer.
Many different answers could be correct, but instead of scattering your energy, pick the best and most specific answer for you. It might be: facilitating designs so that they convert into sales more quickly and smoothly. Or: each salesperson making the right number of outbound phone calls each day. Or: having the right people doing the selling, and giving them all good training.
Again, focus your attention on one very good answer to this question. This will deliver the greatest impact on your sales volume.
The second question asked by Kramers: “When do I pull the trigger?” This question has continued to swirl around in my head, and here’s why:
I have always urged our clients to develop a realistically optimistic budget for the coming year. Kramers calls this the RBR (“realistic but reasonable”) budget, and he takes it further by recommending a second budget: the BAG (“big, audacious goal”) budget.
By planning with these two budgets, you create a range and motivate staff to do more, rather than possibly settling for less. If you hit in that range, you will be happy. If you achieve the BAG, everyone will receive some very positive and defined incentives.
Besides the RBR and the BAG, and because of the very uncertain economy in which we are operating, we are recommending that our clients create a third budget as well for 2009: the “cut and slash” budget.
Pulling the Trigger
Base this budget on a volume that is 30% less than your RBR. Inevitably, and unfortunately, it means a serious cut in personnel, so you might want to develop this budget in private and keep it in your desk drawer. Some of the tougher decisions I’ve known remodelers to make include: moving the office back home, selling two vehicles, cutting one designer and the office assistant, cutting all salaries by 10%, cutting the owner’s salary by 30%.
How do you know when to pull a trigger? By accompanying your “cut and slash” budget with specific metrics. Here are some of the metrics that I’ve known remodelers to use:
- Budgeted vs. actual backlog (sold volume, not yet built)
- Target vs. actual dollar volume of estimates
- Target vs. actual lead volume
- Target vs. actual sales volume
- Target vs. actual dollar volume in design
You can apply these metrics to any time period (year-to-date, per month, etc.) to predict slowdowns in volume and production.
I hope you won’t need to pull a trigger in the months to come. But it has been my perception that one of the biggest mistakes a remodeler can make in a downturn is waiting too long to cut. And that delay can be terminal. By establishing clear numbers, you will eliminate indecision as yet another threat to your business.
—Linda Case is founder of Remodelers Advantage, in Laurel, Md., a company providing business solutions through a network of experts and peers. 301.490.5260; email@example.com; www.remodelersadvantage.com.