Financial Data Analysis You Can Use Right Now!

You’re probably sitting around thinking “Now that the year’s over what would Judith do with all this information?” Today’s your lucky day because I’ve been thinking the very same thing: after tidying up your Balance Sheet here are useful analysis you can do with year-end information.

But FIRST, make sure your Balance Sheet accounts are 100% accurate: all the way from checking to equity.

That means:

  • No unexplained open checks or deposits older than 30 days. – same with credit cards;
  • AR aging only showing client invoices you will collect;
  • Same with AP – only invoices you intend to pay;
  • Payroll liabilities tied into 4th Quarter PR tax reports;
  • Workers comp and general liability balances are reasonable;
  • and Retained Earnings accounts tied out to the 2015 tax return.

Only then you can dig into the Profit/Loss statement, because when the Balance Sheet is accurate the Profit/Loss is correct TO THE PENNY (even though there might be some mis-postings).

So now that you’re on the P&L Statement, you’ll want to:

  • Compare the gross margin on the Profit/Loss statement (less WIP) to that from the Job Cost Reports – they should be within 2% (plus or minus);
  • Compare the Gross Margin Percent on the Profit/Loss statement (including WIP) to that on the WIP Final GP% – again they should be within 2%, plus or minus;

Now for a really useful analysis: compare your estimated labor rate to that shown in your job cost reports. This will probably take some digging. From Quickbooks, Job Profitability Summary which is used to compare the GP%, Customize/Filter/Transaction Type should equal Paycheck and then double click on any large dollar job.

Here you’ll be taken into the detail of the numbers. Be sure to Customize Columns and add “Source Name” and “Qty” so you can see the employee and the number of hours.

Choose one paycheck and add up all the costs, divide by the number of hours shown on the first line and VOILA! You’ll have calculated the average labor cost actually hitting the job.

If this is different by more than 2% (again + or -) then you’ll have to do some more work! Download the Labor Burden Calculator from the RemodelersUniversity.com member’s resource library to determine how much field-employees really cost and compare that number to the estimated labor rate and the actual you’ve just figured.

And some other great tools in Calculator section of RemodelersUniversity.com is the Growth Sustainability Calculator as well as the Critical Ratios Tool. Now that your numbers are clean and pretty USE THEM to make 2017 one of your BEST YEARS EVER!

Happy New Year – be safe, work hard and enjoy yourself!

How to make upgrades look like a bargain

Hot Deals Look Like Bargains!

Price is probably this single most common objection your clients and prospects have.

But you’re not selling bricks and sticks. You’re providing and creating value. And, you make every effort to move them away from price as their primary focus.

As a seasoned salesperson, you expertly navigate the conversation back to benefits and value.

Right?

But, inevitably, price will bubble back up to the surface. Especially when it’s time to make selections. Of course, the selection process varies greatly from remodeler to remodeler. A design-build firm is going to have a completely different dynamic than a specialty exterior company.

But still, one thing remains. Selections are a great opportunity to upsell. Even if you’ve set an allowance, there may be certain products you’ll want to steer them to because of higher margins. For example, perhaps your crews can install “Product X” faster than Products Y and Z. This would lower labor and increase profit.

Whatever the reason, there may be certain products you would prefer the client choose, and you can use behavioral economic principles to increase the likelihood that your preferences are their choices as well.

Here are four you may not have considered using in your pricing strategy.

Anchoring

“Anchoring is a cognitive bias that describes the common human tendency to rely too heavily on the first piece of information offered (the “anchor”) when making decisions.” –http://en.wikipedia.org/wiki/Anchoring

In other words, the first price sets the expectation for what is coming up. And, therefore, if the second price is significantly less, it could actually be perceived as a bargain.

So, how do you sell $2,000 kitchen faucet? Show them an $8,000 faucet first. Suddenly, $2k is a deal!

Normalization

Okay, so this past fall I had to go to the DMV to renew my license. As I walked in I immediately came to a line of people leading to a reception-type desk. So I stood in line. 15 minutes later, as I got to the 2nd position, I finally saw the small sign on the counter that read, “title transfers.”

Normalization is, at its core, the belief that if everyone does it, it must be the right choice. “A thousand people can’t be wrong.”

Identifying a selection as “our most popular choice” is an example of normalizing. A stronger way is to include social proof, such as client ratings and testimonials.

Normalizing works because, “a thousand people can’t be wrong.”

Talk ROI

Nobody likes to spend money frivolously. So showing a selection as an investment is a good way to convince clients that it’s the sensible choice.

So, for example, let’s say you find a real estate study that suggests homes with granite countertops sold an average of 87 days faster than those without. That’s a strong argument for the added expense.

Remodeling Magazine’s annual Cost vs. Value report is an example of a good resource for this technique.

Contextual Pricing

When people buy things, they make their decisions based on relative information, not absolute.

Put another way, let’s say someone wants to find the best value choice for their money. Typically, they have no idea what is a good value unless you put it into context for them.

You need to give them a selection of choices that they can compare to one another. You’ve seen this many times before: it’s the Good, Better, Best price table.

But here’s the thing about contextual pricing: You must place the selection you prefer to sell in the middle, or “better” position.

Why?

Because that’s the choice most people will make.

You see, clients will typically avoid the “Good” like the plague because no one wants to choose the lowest quality item (the perception of this “lowest-tier” item).

However, “Best” is generally avoided because it is perceived as the “luxury-top-tier.” They will feel they are being extravagant and overspending.

And so this leaves the comfortable, sensible, middle-tier. The “Better” option. It’s like Baby Bear’s porridge. It’s juuuuust right.

Please note that you must use three tiers for this to work right. Two options will land everyone in the lower level-one tier, and 4+ tiers lack the “sensible middle.”

What about you?

Do you use any of these techniques? There are a number of other behavioral economic principles that can influence your clients selections. Do you use any of the ones I didn’t mention here? Please share your stories in the comments below!



Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Is Your Gross Profit Where it Should Be?

Last week, I spoke with two different remodeling company owners about various business challenges. In the course of the conversations I asked (as I always do) about their targeted gross profit margin. Their answers were astonishing!

So much so that I’ve dedicated this week’s episode to answering the one question every remodeler should be asking themselves, “Is my gross profit margin where it should be?”


Don’t believe what Victoria had to say?

Well, she offered a free business review with one of our experts, so here it is!

Just fill out the form and schedule yours.

https://www.remodelersadvantage.com/go/complimentary-financial-review/  Sign Up for a Free Business Review!


How about you?

I really want to know what you think! Let’s start a conversation in the comments below!