One of the most common challenges our commercial flooring customers ask us to help with is the lumpy nature of their business.
From a financial context some months (mainly the summer) they do fairly well. Cash is always tight during these months, but profits are acceptable.
The problem is that the outcome is significantly reversed in the slower months. The business gives back a significant amount of profit we made during the busy season.
Typically, they have a group of GCs that are loyal and give them a good portion of their work. The difficulty is when they are busy, they are busy. When they are not there is a problem.
Dealers respond by asking their sales teams to go out and get new business. Hectic sales campaigns are launched, frenzied sprints happen but peter out with little discernible success.
All this can be solved by having a good end-user element in the total portfolio.
I know you know. But why don’t you do it?
Let’s come back to that.
Let’s begin with “is it worth it”.
Consider this analysis we conducted by examing the sales portfolios of several commercial floor companies over a 5-year period.
We separated out those customers who bought flooring services more than 3 times per year and had no retention built into their contract. It was all end user work and this portfolio had the following characteristics:
- Delivered the same amount of revenue each year for all 5 years
- The average margins were over 35%
- The average days receivable was below 20 days
In summary, end-user work is an annuity, a gift that keeps on giving. It is highly profitable and there is less competition.
Our benchmarks tell us for every $1 million of end-user work you can bank $350,000.
OK why aren’t you going after it or doing more of it?
Mostly it is because of three reasons:
- It is perceived to be hard (i.e. harder than going to the bid board and bunging a few bids over to the estimating team)
- Salespeople don’t know how to go after end-user work
- Salespeople think they can make more commission closing a one-time bid of $500,000 at 20% than getting a 5-year annuity on 5 end user jobs of $50,000 at 40%
Let’s do the math on point 3—
- In year 1 the big bid produced a gross profit of $100,000.
- The end-user jobs also generated $100,000 gross profit.
- In year 2 big bid is all done. Back to the bid board for you. Nada profit dollars.
- In year 2 our end-user portfolio typically gives us another $100,000.
- And again in years 3,4, and 5!
- So over a 5 year period we got $100,000 of gross profit from our big GC bid.
Our end-user portfolio generated $500,000 off gross profit without really having to do much extra selling as the end-user come back year after year.
An end-user portfolio is a must!
Want to get your salespeople to go after this end sure work to generate higher margins, reduce the lumpiness of your business and generate annuity revenues?
Then enroll them in our tried and tested course: