Qualified Remodeler Magazine

JAN 2019

Qualified Remodeler helps independent remodeling firms to survive, become more professional and more profitable by providing must-have business information, namely best business practices, new product information and timely design ideas.

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Founded in 1962, Dave Yoho Associates is the oldest, largest and most successful consulting company representing the remod- eling and home improvement in- dustry. The company has a staff of field representatives and account executives who consult for large and small retailers, manufacturers and service providers. For more information visit daveyoho.com or email admin@daveyoho.com. of $500 or more take a "so what" attitude because they raised prices and business has been so good, they made money. This is despite the fact that earnings did not equal the degree of risk that goes with higher revenues with a lessened percentage of profit. Examine This Actual Example A company has an issued lead cost of $400 (not uncommon) and issues a salesperson an average of seven leads per week. Do the arithmetic. That's $2,800 for those seven leads. In a month, that's $11,200. That's over $134,000 annually. Now ex- amine, how much profitable business that sales- person provides for the company. Example: $400 X 7 = $2,800, $11,200 per month, over $134,000 annually When leads are abundant, issues such as "pre- sentation rate" for the company and the individual salesperson, plus the "close rate" (the number of contr acts received measured against the num- ber of leads issued) are overlooked or accepted as revenue increases. In short, actual higher prices are used to offset poor or weak marketing performance. For the sake of evaluating a salesperson who sold $1 million dollars (revenue), the $134,000 sales cost equals 13.4 percent—and that sales- person is paid 10 percent commission. That's 23.4 percent. Despite the $1 million in revenue, the salesperson is overpaid. This example is not uncommon. The problem lies in the planning of the sales program, plus the accurate evaluation of sales performance. Actually, this example means the salesperson earned 10 per- cent and at the very least, probably should have been paid closer to 8 percent. Are You Utilizing Efficient Measuring Devices? Today, lead costs are obscene even when revenue return is high. In addition, the cost of hiring, train- ing and maintaining personnel for small business is also dramatically rising. What is your salesperson's close rate versus leads issued? Actually, in sales organizations a 28 percent (net) close rate (aƁer rescission and credit turndowns) against leads issued is consid- ered average. While this is considered equitable in many companies, remember 72 percent of leads issued are not sold. And even if a company has some above-average salespeople who close 40 to 45 per- cent, that leaves 55 percent unsold leads. How do you handle follow-up or second visits? Hopefully this is done not to simply reduce the price, but attempt to close a contract, which might have been mishandled—remember this represents 55 to 72 percent of the leads in this example. [For more examples check out our blog, daveyoho.com/ wordpress.php.] Are There Negatives or Cautions in the Rising Economy? This country's most recent rising economy coupled with an increase in consumer confidence and dis- posable income creates a two-edged sword. The glow of increased revenue clouds the judgement and reduces the caution necessary in issues such as lack of staffing, mis-hires, and/or mismanaged sales and marketing personnel. In our most recent survey on hiring sales personnel, we have seen numerous case studies of otherwise successful companies, which create this concern. Here is a case study: A successful company that sells roofing, windows and re-bath products in a Midwestern market with annual revenues in excess of $10 million. They employ nine salespeople, plus a sales manager. They are considered a successful business with high revenues and above-average profitability. Their owner was astonished with the outcome of the audit for hiring, training, managing and turn- over (for 12 months). Here is a portion of the actual data from that audit. Costs for the First 60 Days (A & B) of Sales Training A. Basic recruiting costs: postings, phone inter- views, in-person interview, including manage- ment's time, - Over the course of one year: the average is $917 for each new sales hire B. Training, (managers, trainers, time), plus two- weeks-in-training salary or advance for trainee - An average of $912 per trainee, total cost at 60 days C. Total cost of leads issued 60 days (50 business days) at $470 each = $23,500 - Net good business sold was $131,300 plus commission at 10 percent = $13,130) Total costs including A, B & C = $38,459 versus $13,130 These costs represent 29.3 percent of revenue at 60 days In 60 days, the salesperson's effort was support- ed by $23,500 lead costs. So the question remains: What are you doing to arrest the high cost of mar- keting in your business? QUALIFIEDREMODELER.COM QR JANUARY 2019 45

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