Contractor's Corner: Know your geographic market and competition - Jun 19

By Dave Stafford

It’s like a bucket of ice water in your face when you realize the year is half gone. Between the talk of more tariffs that may affect your bottom line and increased costs for installation, your head is spinning. Sales and profits year-to-date are not quite what you’d hoped they’d be. It’s time for a thorough analysis of each business segment and the competition.

Your expertise in flooring and installation is an integral part of any review of each business segment and stats compared to previous years. Where is the growth coming from or lagging? Does this match what’s happening in your geographic area? What is driving your business? What makes you special?

Take a hard look at your geographic area, its size and business opportunities. Are there new areas to explore or a piece of business that’s no longer feasible? Review your top five business categories for changes; are they still viable or now out of date? How many school systems, colleges or universities are within your typical service area? What about healthcare facilities or major corporate clients? Is a commercial building boom going on now, or has that passed? Where do you see your chances to expand?

Map out your last 50 (or 100) commercial installations; look at the radius of the area, or zip codes. How far are you traveling to deliver a job? Are you efficiently using your time and resources? I made the huge mistake of bidding an annual contract for a school system that was 45 minutes away. The potential for volume was there, but I had not figured on the typical travel time, even on smaller jobs-a big mistake and a logistical nightmare for our service department! A much smaller school system with an average travel time of ten to 15 minutes was perfect, so that became a specialty segment for us. There were three smaller school systems in our local area with a total of 40 schools. It was profitable, and we could offer superb service.

YOUR STATISTICS ARE IMPORTANT
What is your most profitable business segment, overall, when accounting for volume, gross profit and the internal cost of managing installation and deliveries? Once you determine that, you are well on your way to growing your business segments by design rather than happenstance.

Are you keeping track of your product sales and profit mix? One excellent use of statistical information is to decide if you are on track with your current business strategy. How else will you know where to put your focus in terms of advertising dollars, sales hiring and training for personnel or expertise in installation?

Do an analysis of year-to-date sales by group, gross profit, billing, accounts receivable, accounts payable, supplier credit lines and bank lines of credit. What were the anomalies that surfaced? Any bright spots? What happens if lending standards become tighter, and it looks like that will surely begin in 2019? When you have the up-to-date numbers, you’ll know where you are and may be headed-expand your business or shut down certain segments if needed. In the final analysis, a commitment to tracking your business is really a part of making smart business decisions.

Nothing beats having the statistical breakdown when you are talking to your managers. They should have answers when you ask the right questions. “Jim, bottom line, why did we lose JF Contruction’s business? We were counting on that for the third quarter. And, Jenny, I notice the average gross profit is lagging in your area by over 11%, although the sales volume is up by 3%. Terry, deliveries seem to be much slower although your written sales are ahead of last year by 15%. Melissa, we are having more complaints, most of them are in the resilient area; what’s going on with our resilient installation teams?”

When all the conversations were done, JF Construction business was lost because of sales team missteps and the excuse that “your price was too high.” Jenny’s business was up due to price cutting to “meet competition.” Terry was also facing stiff competition but countered by offering better pricing and more components; however, jobs could not be completed as quickly due to complexity, thus the lag in billing. Melissa had looked at each resilient complaint and found that over 60% had originated with one new team.

A couple of things stood out. Competition was stiff, and aggressive pricing was the norm. And our largest competitor was making a big push for marketshare in several business segments rather than in a single area.

Competition in each business segment may be fragmented, but I’ll bet if you kept track of lost projects or those that you should have lost but didn’t, some names will keep coming up. What are they doing differently? Are you able to compete with them in terms of size, financial resources, supplier credit lines and personnel? It may not make sense to pursue projects that will strain your resources and put other business in jeopardy. Perhaps they are specialized to the point that they can take jobs at 10% to 15% under your bottom number and still make money. Maybe they are just going for marketshare and volume. Do enough research and you’ll see a pattern develop in their business.

I vividly remember losing several large projects to a competitor-they were low bidder by 3% to 7% on each one. Infuriating! After considerable back-channel research, we found that most of the low bids were coming from one salesperson; he had been hired to make their general contractor and commercial segment the metro leader. Well, he did that through low-ball bids and underestimating the resources for installation. Then, we began to hear rumors of mill credit-holds, late deliveries, sub-standard installation, two-party check requests (so that product shipments could be released), large accounts receivables and inability to meet “Friday’s payroll.” Their “successful” salesperson left after being paid a big salary based on written sales, and the company was bankrupt within 18 months. Quite poetic, but their disruption cost us some large sales and profits. Whenever I was tempted to give an aggressive low bid, that competitor’s descent from successful business into bankruptcy hell made me check the numbers again.

SOLICITING FEEDBACK
I recommend taking pains to identify your one or two biggest competitors in each market segment and do some research on why they’re taking business away. Is it price, service, product offering or high-quality installation? Ask around. You’ll always learn more from the jobs you lost than those you landed. “Hey, George, I’m sorry we couldn’t work with you on this last project. May I ask, what caused you to give the job to my competition? We want to learn from our mistakes, and you’d be doing me a big favor by answering a few questions.”

In the majority of cases, you’ll get better information by asking a series of questions with a checklist. It’s easy for them to say it was price, but it will not uncover the real reasons. You’ll get a more measurable response if you use a short email form similar to those used by major companies like American Express. A personal call from you and followed by the checklist form is ideal.

Checklist questions may include the following: how would you rate our proposal quality, pricing and terms, services offered, customer service, and overall presentation of our company? I would suggest no fewer than five questions and no more than ten; most clients become impatient after that. Refine your questions for clarity; you don’t want a “feel good” response; that won’t give you the valuable info needed for you to make changes. Allow for a scoring 1 (poor) to 5 (excellent). Also include: “Would you like to offer any specific comments?” This is not an after-the-sale survey; rather, it’s a why-you-lost-the-sale checklist.

More bids are lost due to ineffective selling skills than price. Close behind is a lack of timely follow up. A classic example is when we followed up the same day after providing a bid. “Steve, have you had a chance to review our bid?” Steve reviewed the bids and felt the quantities were off. We re-checked our quantities and asked, “Have you added any areas or taken the attic-stock requirement into account?”

Steve reviewed the numbers, “Now, that you mention it, I do see your price summary includes attic stock.”

“How is the comparison in quantities now? I’ll bet my competition missed this. That’s why our bid looked high.”

“Yep, your bid looks a lot better now. You’ll be hearing from me, I expect.” We ended up with the project because we asked solid questions before the buyer made his decision.

TAKE THE LONG VIEW
When your main competition is pushing LVT and carpet tile or adding services like maintenance, does it make sense to compete? If you’re going to swim upstream, do it knowingly, not by accident. When broadloom carpet is declining in your area, you may find that your competition is not offering much of a selection and has already focused their efforts in other segments. This may open the door to build a great niche business that would have been impossible earlier. Train your sales staff to become experts in a new product line. Tailor your presentations to highlight service response time and installation expertise.

If you’re on the leading edge of a trend, how can you build a solid foundation with your suppliers? One way is to build a relationship with key vendors. Have you neglected certain areas or the overtures from important suppliers? Rome wasn’t built in a day, and the same is true of reputations and relationships. Maybe you’ve had trying times with certain vendors, personality clashes or a rocky financial experience and a claims issue. This might just be the time to make an effort to mend fences.

It is much better to place a call or ask the territory manager to stop by for a chat when you don’t need something immediately. Use their visit to reignite their interest in your company since you have decided to focus on their product category. Ask about a mill credit line review and better credit terms commensurate with your new product sales goals; schedule training sessions for your sales and installation personnel to show you mean business. Look for some spiffs-immediate bonuses for a sale, sample credit and promotional tools.

When you look at product and buying trends, realize this typically covers years and is how you need to prepare. While you can change direction and see dramatic changes in sales and profits in months, real success will come from consistency over several years. Know who you are, what you stand for, your strengths, and where you need to improve. Build your reputation and become the acknowledged leader.

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