Why Having Key Performance Indicators (KPI’s) are Important to Help Reach Your Sales and Profit Goals – Part II
By Thad Whittenburg
Back in February, I started a series of blogs on KPI’s and then branched off into different subjects. Now that 2018 is nearing it’s close and budget season is upon us, I thought it was important to approach this topic again.
As I mentioned in the last blog, we’ll be covering these KPI’s and this week I’ll be talking about #3 & #4
- Gross Margin Per Person (GMPP)
- Customer Survey Scores
- Margin Erosion
- Closing Ratios
- Net New Accounts
- Key Product or Service Growth
The first KPI that I want to discuss is margin erosion. This one has one of the biggest impacts on productivity and non-value-added cost. It’s not easy to measure and it’s only the tip of the iceberg when it comes to true cost to the company. Margin erosion is quoting at certain margin and ending up at a lessor one. That means that somewhere in the job process, you had additional cost that you weren’t planning for like extra labor, material or maybe even a credit back to the customer. Most dealers go into the Fireman role when problems arise and throw money at the issue so things can keep moving forward. Rarely do they review afterward and track the margin loss to find out where in the process things went astray.
I have used this example before but it’s important to understand the impact on your bottom line.
Example – $10,000 project has $300 in cost over budget. That’s 3 margin points of erosion. It doesn’t sound like a lot until you see what those 3 points cost you on $2 million in sales…yep, that would be $60,000 out the door!
Most K & B dealers have a margin erosion rate of 2-5%. Again, that hard cost is about 30% of the true expense when you take into consideration all the non-value-added rework everybody is doing. This doesn’t even include the brand damage that’s taking place because of these mistakes.
Okay, let’s move on to closing ratios.
This is also a very important KPI that most dealers are not measuring. The reason it’s such a key component of your business is because it has a direct impact on your productivity. If your current closing ratio is 30% that means that the time spent quoting projects with 70% of your customers or leads is all for naught. You should also be tracking the source of any leads that come in.
I think you will find that there is a big gap in closing ratio percentages based on how they found about you. From what I have seen, here is the break out of how these closing ratios look based on the source of the lead:
Advertising/Drive By/Website 25%
Referral from a past customer that is a fan of yours 40%
Referral from a RAVING fan of yours 60%+
This shows how important it is to create that amazing customer experience that will drive leads to you that are already excited about doing business with your company.
Lastly, you can learn a lot from your sales people that have high closing ratios. They certainly have some best practices that the rest of your team can learn from.
Hope this helps, and I will cover the remaining 2 KPI’s (Net New Accounts and Key Products or Service Growth) in our next blog.
As always, I would love to hear your feedback!
Don’t forget to check out our new KABS (Kitchen and Bath Systems)website https://kabstech.com/ and request a demo. The feedback from Dealers so far has been overwhelmingly positive!! Have a great day! Thad