Business Basics: Know Your Numbers 101
One of the most common reasons we end up talking to a home pro is when they want to grow their business. However, most home pros don’t know how to answer the questions our team asks after that to determine what mix of strategies/tactics they’ll need to hit their growth goals because they were so busy running their business that they haven’t had time to stop, fully audit everything and get a grasp on their business numbers.
Knowing and understanding your business numbers is the lifeline of your home services business. Without knowing how much it costs to get a new customer and execute a job, how much money you’ll make from different job types, how likely it is that you’ll have enough leads to hit your sales goals, etc. it can become very challenging to grow and scale your home services business in a predictable way.
There are a lot of numbers you’ll need to know to operate and your business running smoothly. Those numbers include your cash flow, accounts receivable, sales revenue, costs of products sold, net income, your profit & loss (P&L), and your margin. It doesn’t have to be the business owner, but someone should be monitoring these numbers closely and reporting on a monthly basis (at minimum).
There are also specific numbers a home pro should know before investing a single dollar into marketing their company. Knowing these numbers and setting a baseline will be incredibly helpful at knowing what works and what doesn’t in the long run – ultimately – what actually grows your business versus what is wasting your hard-earned money.
Return on Investment
Any dollar spent in marketing should produce a strong Return on Investment or ROI.
In order for a home pro to determine ROI, you need to know a few things: your customer value and how much it costs to get a new customer.
While it may seem like all of your customers are worth the same to your business, that isn’t the case. In the home services space, how valuable a customer is to your business varies significantly and sometimes the customers that seem like they are most valuable (because you are charging them a lot for the job) may not actually be because of how much it costs you to get the job done.
The type of home service business you’re in can also impact your numbers. If you have a reoccurring business model where you provide a service that can be done multiple times over the course of a year, then your customer isn’t just worth the cost of what you charge one-time – they are worth the cost of what you get over the lifetime of keeping them of a customer. However, if you provide a service that is more of a one-time thing, you’re limited to what you’ll make off of them during that transaction.
Cost to Acquire A Customer
While most home services business rely heavily on referrals to get new jobs, it’s difficult to calculate and to ultimately rely on referrals to keep your doors open, so at some point you’ll likely want to start investing in marketing.
It’s important that if you’re going to begin to invest in marketing to get new customers that you track how much that marketing is costing you to get a new customer. Your cost to acquire a customer is calculated by understanding your cost per lead and your close percentage. Your cost per lead is simply the amount of money you spend divided by the number of leads that money generates. Your close percentage is how many leads you have divided by how many you are able to close into a job.
Price Per Job & Profit Per Job
As you begin to generate more leads and close them into customers, you will want to track the average price per job and profit per job. The price per job is how much you charge and the profit per job is how much you make. When you are calculating the profit per job, it’s important to account for ALL of your costs- to include your time if you’re currently the labor in your business too. This will help you get a better grasp of the full financial picture and how much it would cost you to hire replacement people as your business grows.
Number of Qualified Leads Per Marketing Channel
You’ll likely want to try a lot of different marketing channels as you continue to grow your business. It’s very important that you track how many leads you are getting by channel to best determine where your money should go. Too often, you may launch three or four different things at one time and not really have a good idea of how well each of those channels are working on their own. Remember too that there is a big difference between a “lead” and a “qualified lead”. If you end up spending a lot of your time talking to people who aren’t ready to buy, don’t want to pay your prices or are only looking for smaller profit jobs, the time you spend on them may not be worth the money you are spending to acquire them. By tracking each of your marketing channels, you’ll have a better idea of what’s actually producing for your business.