We’ve been having many conversations with landscaping and home improvement business owners over the last few months. One of the most common questions we’re hearing these days is how to reach YoY growth without recruiting new employees.
In the current economy, it may seem that winning more jobs does not compute with a shrinking labour force. But what if instead of focusing on the hiring gap first, you worked on improving your business chassis?
Understanding Your Business Chassis
Your business chassis is made up of the 6 components that directly impact your business’ growth, all of which are within your control:
- Number of Incoming Leads
- Conversion Rate on Leads
- Average Sale
- Average Gross Margin
- Average Frequency of Purchase
- Average Lifetime of Customer
In the above graph, the 6 components in grey are your controllables, while the orange values are the results.
Fine tuning your business chassis can provide a lot of opportunity to pay people more, invest in training and team development, and increase your capacity. In order to do so, however, you need to raise your prices accordingly and focus on the higher margin sale.
There’s usually a lot of push back when we mention this idea. Here are a number of the most common concerns we hear:
- I will lose my customer base
- My customers will expect more
- I don’t want to gouge my customers
- I want to serve a variety of customers
- My pricing is on par with my competitors
The real question, however, is whether these concerns are based on logic and data or emotions and hearsay? The truth is, playing cautious without paying attention to your business chassis will limit your potential to increase profitability and future market share.
Let’s look at what would happen if you made slight improvements to each component of your business chassis.
How Small Improvements Can Double Your Revenue
Let’s consider the example below of a residential landscaping company (for illustration purposes, we will leave out the added complexities or variances you see from business to business).
They bring in an average of 100 leads per year from multiple sources — web based, walk-ins, calls, interest from showrooms, signs, and truck branding. They have a 40% conversion rate, meaning that from those 100 leads, 40 become new clients.
They have a gross margin of 30% and an average sale of $1000, which brings them an average gross margin of $12k. Lastly, their customers purchase twice per year for 10 years, which brings their gross margin total to $240,000.
Now, what would happen if each component of this business chassis saw a 10% increase? By adjusting the “controllable” numbers by 10%, the business nearly doubles its revenue from $1,200,000 to $2,108,304.
The idea is to focus on one area and improve it, then move to the next area. As we can see, fine tuning each component by 10% one at a time leads to a massive increase to your bottom line.
How do we achieve a 10% increase in each area? Let’s look at a few examples.
Top Simple Ideas To Optimize Your Business
A few strategies to increase qualified leads from 100 to 110 could include:
- Investing in PPC ads
- Asking clients for referrals instead of waiting for word of mouth
- Optimizing your website for lead generation
- Investing in email marketing
- Asking for more Google reviews
- Putting out door hangers in target neighborhoods
Going from a 40% to a 44% conversion rate could mean:
- Picking up your phone more often
- Refining your sales process
- Enrolling your team in a sales training program such as Sandler
- Implementing ideas from books such as How to Win Friends and Influence People
It’s important to keep in mind that you do not want a conversion rate above 80%. A high conversion rate could mean that you are priced too low and saying yes to too many inquiries.
To increase your average sale, you could:
- Increase your prices by 10% across the board
- Say no to smaller jobs and focus on bigger ticket items
- Add a budget field to your contact form and setting a minimum
- Showcase your higher end jobs on your website and social media
- Charge for site visits and consultations
Average Gross Margin
This number will naturally go up as your average sale increases. You can also reduce your cost structure and processes to realize the 10% boost.
Purchases Per Year
A few ways to increase the frequency of purchase of your customers could include:
- Getting customers to sign up for regular maintenance packages
- Suggesting bonus services after each job, such as mulching or hedge trimming
- Starting an ecommerce portion of your business
Keep in mind that everyone likes fries with their burger. Ask yourself: where can you “add fries” to your business?
Average Lifetime in Years
Increasing the average lifetime of your customers could mean:
- Adding them to an email newsletter so that they continue to hear from you
- Getting your sales team to follow up at regular intervals
- Feature your customers on your social media
- Send handwritten thank you cards
None of these strategies involve hiring new team members. Some of them will take time while others will generate results right away. The idea is to keep tweaking your operational system so that the cumulative effect of these small changes results in big improvements to your bottom line, now and for the future of your business.
At the end of the day, every single company has the same growth engine. Just like a car — whether a Volkswagen or a Porsche — they share the same core components yet see wildly different results in performance. The question is, which chassis do you want to build your business on?
If you would like to learn more about these concepts — and how they can apply to your business — book a 15-minute strategy call with one of our growth experts. We’d be happy to help guide you through your own business chassis.