Few residential HVAC or plumbing contractors have someone responsible for managing sales. Many owners do the selling, perhaps along with a selling technician or two, and get good-enough results. Companies with a technician-selling strategy usually have the service manager responsible for replacement sales and the added revenue makes the average service call revenue KPI bells ring. Those with just one or two full-time comfort advisors have the owner watching over them…when they can. Any of these strategies can produce good results, but could they be even better?
What about companies that have 3 or more full-time comfort advisors? For the most part their sales leads are randomly distributed but the results can be hundreds of thousands of dollars different from the bottom to the top producer. What are the better producers doing to create that difference? Could a sales manager coach the others to do the same?
Having a sales manager is a costly proposition. Typically the sales manager was a highly productive sales person and that takes a proven revenue producer and turns him or her into an overhead expense. For the company to at least breakeven on this, the company has to first replace the sales that he had produced in the past, and then the sales manager must create incremental profits of an amount greater than his/her cost. As many of us have learned the hard way, managing others has it’s own challenges and there is no guarantee that the great sales person will be a great manager. Too many sales managers become sales administrators and little or no coaching is ever done.
So, if you don’t have someone managing sales, what is the cost of not managing, and if you do have someone managing sales, what is he doing to create sales and profit growth of an amount greater that his cost?
A starting point is to determine if investing in a sales manager, or investing the time in sales management, makes financial sense. Here’s a straightforward way to see if change is warranted. The difference between what you are now producing and what you could be producing is called “opportunity cost”. For example, if you sold a basic replacement system for $6,000 and, with some sales coaching, you would have included an enhancement such as Aeroseal, the customer could have bought it at $8,000. The opportunity cost for not proposing Aeroseal was $2,000 on this one sale. There is a much greater opportunity cost when you consider a whole year’s worth lost business.
Let’s say that you, as owner, or your sales manager did the things sales managers do:
- Hire the right people
- Set sales goals
- Determine and document your in-home sales process
- Measure results
- Recognize and reward good performance
- Continuously coach for improved performance
With these types of management activities it could be fair to assume more sales would be produced at higher selling prices and at higher margins. Try this quick calculation:
Before Managing Sales
The number of leads =_____
X current close rate = _____%
X current average job selling price = $______
= Total Current Sales $_______________
X current gross profit margin _____%
= Current Gross Profit $______________
After Managing Sales
The number of leads = (same number as above_____)
X new close rate = _____%
X new average job selling price = $______
= Total New Sales $_______________
X new gross profit margin _____%
= New Gross Profit $______________
Total New Gross Profit $_______________
– Total Current Gross Profit $_____________
= Opportunity Profit Cost of Not Managing Sales $_________________
If the opportunity cost of not managing sales people is not significant then do nothing. If what you are leaving on the table can justify the investment you would need to make in having someone manage your sales process and sales persons, then perhaps it’s time to do something about it.
Want an unsettling thought? Imagine what the opportunity cost has been for the last 2 years…5 years…10 years by not managing sales. Every incremental gross profit dollar not produced has been all lost net profit.