The Importance of the KPI
When a contractor owner views the territory manager as a business partner who consistently demonstrates his value in a consul-tative role, then he is much more likely
to expect the reward of additional business on an ongoing basis instead of chasing orders one at a time. There is no better way to start this kind of relationship than by understanding where the contractor is doing well and where he needs help. Much like a scorecard, the KPI, or Key Performance Indicator, is a simple and effective way to begin this process.
Many industry sources publish KPIs, and numerous contractors fine-tune them to fit their business. The following are guidelines of revenue and profit-related KPIs that wholesalers can share with their contractors engaged in residential, light commercial service, add-on and replacement work. The savvy territory manager will be persistent in gathering the needed information to calculate each of these for all of his target contractors.
✔ Revenue per Employee of $12,000per month
This simple ratio includes all employees including part-time, outsourced and non-paid family divided into total annual sales. If the KPI is below this figure, there may be poor sales performance, too many employees, inefficient processes and more.
What you can do to help your contractors:
• Bring them ideas on how to increase selling prices and closing rates or new products to sell.
• Learn how the best contractors function by reading trade journals and books. Bring ideas on improving productivity to the owner/principal. For example, if you believe that the “employee head count” is too high for the amount of sales, bringing a third-party article on the subject is a soft, nonthreatening way to make your point.
✔ Net Profit Before Tax of 10 percent or more
We frequently hear that more than 90 percent of all contractors net less than 2 percent profit. At that rate, the owner would arguably be better off working for someone else. A 10 percent net profit before taxes is a minimum, and reaching that first goal should become a launching point for even greater results.
What you can do to help your contractors:
• Find out if they get monthly financials. This may be a sensitive topic, so use good judgment when broaching the subject. Some are embarrassed to admit they don’t get them or they don’t know how to read them. Perhaps your credit manager will help you by evaluating the data and coaching you first. This is a scorecard that provides information on critical areas of focus as well as the data needed to create appropriate selling prices.
• Ask how they price jobs. Some use a “factor” that has no known origin. Others use a method that produced profitability when they were smaller with lower overhead and no sales cost. Those who do residential new construction and residential replacement and commercial work might use the same method across the board. Arguably, the best method is to calculate the desired gross profit per day or by the hour to price jobs.
✔ Labor as a Percentage of Revenue Under 10 percent
This will, of course, vary by region given the differences in equipment and installation needs. This ratio may be less in Seattle where furnaces are installed in garages and higher in Philadelphia where furnaces get jammed into crowded basements with narrow stairs.
What you can do to help your contractors:
• Provide regular training classes for installers. Keep them current on new, labor-saving products and code requirement changes.
• A labor hour, referred to as a “man hour,” includes all the installer time dedicated to the job. If a part is missing or incorrectly sized, and the job slows down, then it adds to job cost. Often, this is the result of poor communication between the salesperson and installers. If there is no a formal checklist of things installers must have to plan and install a job, then help the contractor create one.
The best performing contractors tend to take the company KPIs and measure, manage and reward individual coworkers for performance against their individual KPIs. Some managers publicly post the KPI goals and each individual’s performance against that goal. The motivated person will want to get to the top of the list and, when they do, stay there.
In business-to-business selling, which wholesaling is, the goal is to establish a long-term relationship because the best-value supplier is critically important. This kind of relationship may take a long time to develop, and when it does, it may take a lot of continuing effort to sustain it. It’s worth the effort. You’ll make more sales and money and have more fun.
Tom Piscitelli is the founder of T.R.U.S.T.® Training and Consulting. Contact Tom at 425/985-4534, [email protected] or visit www.sellingtrust.com.