Key performance indicators (KPIs) can be some of the best tools a contactor uses to manage an HVAC business. To effectively create and deploy them, you should understand what they are, how they work, and the pitfalls to avoid.
KPIs are Situational
Do not be intimidated by the terminology or overthink it. They are exactly what the name implies. There are many metrics for a business. Those affecting performance are simply, performance indicators. Not all performance indicators are created equal. Not all are useful. What works in some businesses may not work well for others. Nevertheless, every business owner can identify a few key performance indicators (KPIs) that detect if a business is on track for the goals important to the owners.
The goals are important. They will differ for companies in residential versus commercial and service/replacement versus new construction. They will differ for small companies trying to grow versus larger companies trying to maximize profitability.
KPIs are those metrics that determine your ability to reach business goals.
KPIs also vary by department and position. The KPIs used for the overall company are not necessarily the same ones used for the service department. However, it is important that the service department KPIs support the overall company. In other words, the KPIs need to be internally consistent and not at odds with each other.
KPIs may be financial in nature, or operational, sales, or marketing related. They can be forward-looking, which are leading indicators of performance. Or, they can be backward-looking, which help explain why the results were attained. Personally, I prefer to stress the forward-looking KPIs. As long as they are within a desired range, the ship is sailing on course. When they fall out of a desired range, that’s an immediate sign that trouble could the on the way and reason to start digging to find out why the KPI is off.
Must be Relevant
Obviously, it must be a “key” performance indicator. With today’s field service management (FSM) software it is possible to track a host of things that were impossible or impractical to measure in the old days. Just because you can measure it, does not mean it is useful information. You can measure miles traveled by your service vehicles, but does that really mean anything?
Ask yourself, what are the things that determine my ability to reach my business goals? Some of these should be obvious. Are you generating more cash than you are using? Why cash and not EBITDA? The answer is, you can accrue revenue without getting paid. While you can factor some receivables for cash at a discount, as a rule you will find it hard to use receivables to pay the bills. Cash, on the other hand, is very fungible. Cash is king.
Your ability to get and keep customers should also be fundamental. What is the “key” performance indicator here? Residential service and replacement companies might consider the size of their service agreement base since ever service agreement represents a future replacement. Is it growing? They might also look at average service ticket, average installation price, and of course, gross profit.
On the sales and marketing side, you might measure leads generated from marketing, lead conversion into sales or service calls, sales close rates, and so on. If you close rates start dropping, you are clearly headed for trouble. Why are the dropping? The salespeople will latch on to the last lost sale or simply, blame price, but is that the real reason? It could be anything from a salesperson’s closing techniques to the salesperson suggesting he can save the customer a couple of thousand dollars if he does the installation himself, over the weekend as a side job. And what is close rates suddenly jump? Does that mean you are closing more effectively? Or, does it mean that you are underpricing? Or, are you getting less leads over the transom so that more of your sales calls are with high-close-rate service agreement customers?
Keep KPIs Simple
Keep your KPIs simple, easy to understand, and relatively few in number. Avoid the temptation to generate all kinds of meaningless, complex data using your FSM software.
The SMART acronym for goals applies to KPIs. They should be Simple, Measurable, Achievable, Relevant, and Time-bound. To measure relevance, ask what happens to the company if the KPI falls outside of the range? Unless the impact to the company is significant the KPI is insignificant.
Finally, do not strive for immediate perfection. Great is the enemy of good enough. Perfection is the enemy of getting started. Just start. Then, improve over time.
For more information on KPIs, attend a complementary Service Nation Alliance “Success Day” where KPIs are discussed along with other business concepts. To learn more, visit the Service Roundtable at www.ServiceRoundtable.com or call 877.262.3341 and ask for a schedule of Success Days.