Early in my remodeling career I worked in my family's custom cabinets company. Inspired by frameless cabinets introduced from Europe, we changed our construction methods and hardware. As a result, more enclosed cabinet space became usable. This was a significant benefit, especially for clients with limited kitchen storage space, and I cast about for ways to communicate it. My claim that our drawer banks had “lots more” storage space than other cabinets didn't connect with most people. So I measured the additional usable cubic inches so I could express “lots more” in more concrete terms: If cabinet A could hold 5,000 marbles, our cabinet with the same exterior size could store 8,126 marbles — 62.5% more! Clients could now “see” the additional storage space we offered.
Like those marbles, metrics make things visible. They bring clarity to what was previously fuzzy or vague. Want more effective marketing? Higher conversion rates? Lower non-billable sales hours? The path to improvement runs directly through the land of metrics. What can you measure about your marketing? Your sales process? Your expenditure of sales time? As you quantify what you're doing now, you begin to see options for improvement and create tools for evaluating the effectiveness of changes.
Not all metrics are created equal. Just because something is measurable doesn't mean it matters. Who would bother tracking the shoe size or eye color of their carpenters? Companies serving the upscale niche must identify what is worth measuring, develop efficient methods of measurement, and then consistently use the data to make operational improvements.
USING DATA Most likely you already track some performance indicators such as gross margin percentage and the monthly sales level needed to meet your profit goals. You track field staff time by category, and you probably know how long it takes to install 30 feet of base trim. Quite possibly you know your lead conversion rate for last year. How can you use and apply the data you gather?
Sometimes metrics are active management tools, other times they are simply report cards. What's the difference? Metrics that work best as management tools are predictive rather than descriptive. Predictive metrics give a picture of what is likely to happen, thus allowing you to make changes to affect the projected outcome. Descriptive metrics, on the other hand, report what has already happened, when there is no longer an opportunity to affect the outcome. Predictive metrics are sometimes called leading indicators, while descriptive metrics are called lagging indicators. Examples of predictive metrics include current number of open sales files, value of projects currently in design, and production backlog days. Descriptive metrics include financial statements, historical conversion rates, and sales hours per contract.
In a recent meeting with a client, we reviewed outstanding projects in design as listed in their open sales files report. The total dollar value in design was encouraging, but our status review of each project and its projected contract date revealed a looming shortfall of projects actually ready to sign that month. We made the decision to re-prioritize staff time and focus efforts on the three projects most likely to be closed quickly. Brainstorming around the table led to a list of schedule changes each person could make, and by month's end all three contracts were signed. The company used the power of a predictive metric — the open sales files report — to make changes that resulted in a healthier contracts signed report.
In future columns we'll discuss how to use specific metrics in the key areas of any remodeling business.
Richard Steven is president of Fulcra Consulting, which advises remodeling companies on management plans; www.fulcraconsulting.com.