The biggest cost within a commercial flooring business is labor and materials captured as COGS.
The second most significant cost is the cost of selling and completing a job.
Our benchmarking has revealed:
- There is huge variance in this cost from company to company
- It is not usually tracked or managed
- It is a goldmine
We have tracked this benchmark and we call it Sellex –the cost to sell and execute the job. It includes:
- Cost of salespeople (including their commissions)
- Sales support staff
- Estimation costs
- Warehouse costs
- Installation and project management
- Any onsite supervision
The Sellex benchmark is measured against gross profit.
Here are two companies:
At the end of the day, they both make the industry average operating profit margin of 4% but they have two distinct business models.
Leanco has a very light overhead structure and can price and win work at 18% margins and still make their 4% operating profit.
Enterpriseco has significant overhead costs. In fact it is 50% higher than their lean and mean competitor. But that overhead supports a selling and delivery capability that commands gross margins in the 27% range.
As an aside, which company would you prefer to own? We would love to hear your thoughts. For example, some thoughts to ponder on might be:
- Which company has the greatest opportunity to grow?
- Which company has the greatest opportunity to improve profitability?)
OK. Now let’s make it more interesting and introduce the Sellex benchmark.
We separate the overhead costs into two components:
- Sellex costs
- Other overhead costs.
Let’s take a look:
Our Sellex benchmarking of commercial flooring companies tells us a good Sellex is in the 35% range.
In the above example, Leanco is slightly under-invested and Enterpriseco is over-invested.
By doing your own analysis you can identify:
- Where you should focus to improve your gross and operating margins
- Are your costs in line with your business model?
- Lastly, what does it tell you about your future growth strategy?
The only way Leanco can grow is to hire more salespeople that can eat and kill (Account Managers) because they have no infrastructure to support pure hunters.
Enterpriseco can hire hunters as well as farmers so growth options are more abundant.
If you want to chat about how to optimize your Sellex give us a call.
PS Our Commercial Flooring Benchmark Report shows the Sellex benchmark. Download your free report here!