Not every trade business is built to go the distance.
It's a grim reality that can't be ignored if you want yours to stand apart from the rest. Thousands of trade professionals call it quits on owning and operating a business every year. Some cite a lack of work as the culprit, some say it's a failure to compete in a tight market, and others say it's the inability to break even on jobs.
But one issue underpins them all in some way or another, profitability.
This is the first in a series of six articles, written for the trade professional who wants to run a business that creates profit and continues to thrive where others fail. You'll learn everything you need to know about getting paid, from measuring your success and creating new opportunities to bringing in the ‘right’ customers and fine-tuning your cash flow.
Large-scale owners and operators, stick around! Our getting paid series isn't just for small trade businesses and their owners. Our guide on getting paid is a powerful resource for all trade professionals, whether you're going it alone or running a large team of technicians and office staff.
Each chapter will cover a different part of the 'getting paid' process, packed full of tips, advice and processes you can implement today.
Let’s start the conversation around getting paid by examining how your business measures up to the rest.
There are thousands of other trade businesses in Australia, and they all want to get paid, just like you.
How do you compare in terms of business reach and success?
We call this process of discovery benchmarking, and it's one of two core components we'll be discussing in this chapter. Why? Because comparisons help trade business owners like you understand and measure their current success and chart their future objectives.
Why would you want to compare yourself to your rivals? Simple, what they do is similar to what you do, and they can help you understand how your business can grow and scale effectively. How do you grow and scale once you know all this? We'll get to that later in the chapter when we discuss the favourite topic of business advice blogs everywhere; KPIs.
But let's start with benchmarking.
What is Benchmarking?
A benchmark is a point of comparison between two businesses that are usually in the same industry. At a glance, you can see how you rank against your peers and how much ground you or your competition need to make up to close the gap. Benchmarking is an industry-standard practice in many sectors throughout Australia. But the trades are a slightly different story. Benchmarking is traditionally used less in smaller trade businesses and, most often, in large-scale enterprises. This is a travesty because benchmarks are still an incredibly powerful tool for smaller trade businesses looking to improve their operations and get paid more for their work.
Need more convincing on why you should be focusing on benchmarks? Let's skip right to a couple of examples:
Say we quote at $85 an hour, and after a quick bit of recon, we find out all our competitors are quoting at $100 an hour. We’ve just benchmarked our business and found that we could charge an extra $10 an hour while remaining the best value option for our customers.
Or suppose you're assessing additional revenue generation methods and think you might want to start operating on Saturdays (if you can convince the team to work weekends). A quick look at your competitor's operating hours shows that they all offer Saturday servicing, but nobody offers after-hours work. With two short benchmarking exercises, you've increased your quoting profits and discovered a potential additional revenue source in after-hours servicing: nice!
Benchmarks are 100% repeatable as well, and with the right processes in place, you and your team can easily revisit old benchmarks and get a quick update on where you stand and whether there are any new opportunities for growth and revenue generation in areas you've already looked at in the past.
The key thing to remember when using benchmarks is that they are a point of comparison first and foremost. In comparisons, there are differences, and in those differences is valuable data you can use to move your business forward and help position it as one of the best in the market.
Let's broaden the scope slightly and look at a powerful benchmark every trade business should use: your yearly revenue compared to competitors. You might think your competitor's financials are entirely off limits, but thanks to the wonders of modern digital taxation, your competitors MUST reveal their profits (or losses) every EOFY. Jump on the Australian Tax Office Benchmarking Tool and follow the steps to compare your business against your competitors and your entire industry if you like.
The ATO calculates its data set from over 1.9 million small businesses, so you've got the finances of the entire trades sector at your fingertips. This sounds like an overwhelming amount of information to work with, but a core principle of any good benchmark is the narrowing of your vision to focus only on a specific point of comparison.
Here's an example to help explain further:
Within the ATO's benchmarking tool, I compare my imaginary electrical business to my biggest rival in the area and discover that I reported substantially more motor vehicle expenses last EOFY than they did. I've also benchmarked our businesses in other ways, and we're almost identical in fleet size and staffing. Now we've seen the comparison, how do we improve our bottom line using benchmarked data? Well, the biggest difference between our businesses that I know of is that they have a small second office where they park half their fleet every night. So, they've substantially cut their vehicle costs by dividing their fleet locally. If I do the same and the cost of renting a spot isn't too high, I'll reduce my yearly fleet expenditure and improve my bottom line as a result.
This is a slightly unrealistic example, but it highlights the power of benchmarking as a decision-making tool. Businesses worldwide struggle to make decisions every day, and hesitation often costs money. Proactive trade business owners always rise above the rest, and with good benchmarking practices in place, you'll always know what opportunities are out there and up for grabs.
When you've decided which opportunities to turn into goals, it's time to get to work.
Introducing: Key Performance Indicators (KPIs)
Something they don't tell you when you start a trade business is that you also become a full-time project manager, and your first and most important project is building a successful company. Every project needs a set strategy for success, and KPIs or 'Key Performance Indicators' are the perfect choice for growing sustainably and strengthening your bottom line.
A KPI helps measure how your trade business is performing in relation to a set of goals and objectives. Taking our example from earlier in the chapter, say you did decide to start offering after-hours trade services. A set of strategic KPIs that measure whether you're completing enough extra work to justify paying your technicians to work outside hours will help you monitor the strategy's success over time. Now if demand for after-hours trade services rises suddenly, you're ready to jump on the opportunity to put on more staff and collect the extra profit.
Within your team, KPIs help create lines of communication that keep everyone working toward the common goal of growing the business and bringing in the revenue that gets everyone paid. Have you ever heard the saying that field technicians are like mushrooms? It was probably told to you by someone who didn't understand the true value of having all their field employees on the same page. Sitting down with each of your field team and individually creating a set of KPIs for them to work towards helps provide clarity to their work and gives them goals to pursue.
The aim is to have every member of your field team on board with what they're working towards and how close they are to achieving it. With KPIs such as these in place, you'll quickly see the benefits too. Incentivise employees to hit their KPI targets with a proper reward system and reap the benefits of greater confidence amongst your employees and increased productivity in the field.
Here's a quick example of a field tech KPI in action. Say we want to know whether our technicians are making the most of their working day. A KPI that tracks billable hours as a percentage of paid time will quickly reveal whether this is the case. From here, we can work with each tech to refine their workday and add efficiency to maximise profitability (maybe sweetening the deal along the way with a pay rise if they smash this KPI consistently).
Back at the office, KPIs are just as useful for monitoring individual employee performance as they are for tracking organisational efficiency as well. Average invoice turnaround times, quote turnover, and even callback times on job requests. Your office performs these types of tasks every single day, and it's easy to create process-based KPIs that monitor these processes and help you refine them over time.
Here's a quick and useful example to help get you started. We all want to get paid faster, and a KPI that tracks the average time taken by customers to pay their invoices can swiftly bring some clarity to the shortfalls in your cash flow. For example, suppose you've got a few long-term clients who repeatedly delay paying their invoices. In that case, the data from a delayed payment KPI can help understand what toll this is taking on your profitability. You can act on this data right away too. Take a step back and ask yourself whether keeping a client that repeatedly and knowingly delays paying their invoice is worth keeping. Chances are that if they're willing to put your financial viability on the line, they aren't going accepting of your needs, and it might be time to say goodbye.
Now let's broaden the horizons of your KPI journey. Business-wide KPIs are highly useful for creating a more cohesive team of employees that work beside you to solve problems rather than expecting you to handle every issue that arises. With a collective goal, everyone is more likely to contribute, and that's an essential part of business innovation. As a trade business owner, you view your company from the top down, and that makes it difficult to see things from any other angle. Technicians see small yet meaningful inefficiencies every day, just like office staff see all the slow and tedious parts of your business and its processes when you might not. Why expend time and energy trying to find these inefficiencies when a strong set of KPIs can inspire your team to look closely at how they work and bring you ways of making things run smoother?
The 4 Types of KPIs
Don't feel daunted by the broad nature of the KPIs we've discussed so far in this article, either! We've really only covered four 'types' of KPIs, and below you can find a quick outline of what they are and how they are used:
- Strategic KPIs are used to monitor progress towards a defined goal.
- Individual KPIs are used to inspire each employee with set goals for them to achieve.
- Process KPIs are used to track whether the business is operating efficiently and profitably.
- Business-wide KPIs are used to provide a vision for the businesses future that everyone needs to contribute towards.
Each type of KPI type listed is a powerful tool for business growth, but each is only effective if your targets and goals are achievable. KPIs should challenge you and your team to perform at your best, not crush you under the weight of unrealistic expectations. If you feel like your KPIs aren't challenging enough to increase performance, consider adding additional performance-based KPIs in other business areas rather than moving the goalposts further away from an existing one. Getting started with KPIs doesn't take much work either; pick an area of your business you want to monitor and write down some key criteria you'll track to see whether or not things are up to scratch.
When to Review Your KPIs
The last thing to discuss on the topic of KPIs is when to review them. Some say weekly, some say monthly, and some say yearly; but it's always best to settle on a timeframe that works best for you and stick to it.
Although, we do recommend scheduling a KPI assessment and benchmark refresh session at around the end of each financial year at least. It's a great opportunity to evaluate your business data from the previous year and look at getting a head start on the next.
Now you're equipped with the necessary benchmarks and KPIs, it's time to use them to bring in more of the two most important things to any trade business, jobs and profits.
Still hungry for more? In the next chapter of our Getting Paid series, we'll take a look under the hood of your trade business and discover dozens of ways to win more work, get paid faster and make more on every job. Click the banner below to continue your getting paid journey with Chapter 2: More Jobs, More Profit.