The CEO Dashboard for a $1M Business

Hey everyone, it's Mike Handys. And today on the Home Service Millionaire podcast, we're talking about two very important KPIs that you can know from afar without being in your business. You can be working on the business as the CEO and determine a lot of key information and diagnose problems within the organization. As you begin to grow past a million dollars and you spend more time as the architect and less of an operator in the business doing the work, you gotta have KPIs, you gotta have dashboards to be able to look at and know the numbers and then be able to make decisions in the business. The highest leverage thing you can do in a business once it's of size is make good decisions. And in order to make those decisions good, we've gotta have good data. And so the challenge becomes when we understand that we data is important, is like what data should I be looking at? Because there's so much like what tiny little fragment of information am I missing to make a good decision? And so I like to chunk things up and that is, how do I look at the least number of KPIs first? In other words, if I can identify the problem with my top major couple KPIs and then dig deeper into the root cause, it allows me to spend less time looking over data that isn't super relevant. So I'm going to share with you today two major KPIs, two key performance indicators. I like to think of this as speedometers and I've drawn them out for you on the screen today. And I'm going to go over them because I believe that as long as you are getting work and you are doing the work efficiently, those are some of your biggest chunked up KPIs. If one of these are off, does that mean you can immediately solve the problem and diagnose the problem? No. But being able to have red flags when you step out of operations is very important. And so knowing these two numbers and then being able to determine whether or not you need to step in and get more information and is very valuable. Otherwise you're just in this constant loop of getting a ton of data and you start annoying your middle managers because you're constantly in the business, like, wait, chill out. But when I chill out and when I step away from the business, I do need to have a few key numbers that if they go bad, I know I need to step in. And this also gives me the confidence to not micromanage, not be stepping on people's toes as long as I know, just a few numbers. So let's talk about the two major ones today. The first one I call the sales speedometer. This is measuring our close rate or our number of accepted estimates divided by total number of estimates that we sent to customers. So for example, if I sent out 100 estimates and 50 of them were accepted, that would be a 50% close rate. Now when we look at the scale on the drawing on the screen, I like to think of anything above 70% close rate, you got to raise your prices right away. Like maybe 72, 73, I'd give you a pass on for one or two months. But like, if you're consistently 85, 90% close rate, you got to raise prices immediately by at least 15%. It will hardly change your numbers. But you got to get under 70% because you're leaving money on the table. And like, well, I'm trying to grow really fast. The difference between you being at 90% close rate and 70% close rate is probably going to be like a 25% price increase, maybe even more. And that extra margin, if you just spend it on marketing, you'd be able to get more leads. So like, the reason I don't like having a 90, 95% close rate is it means if I raise prices by so much, I can make so much extra margin that if I was really into growth, I just pump it back into marketing. And so for every person I was like, I close basically every estimate, I just look at them like, man, like, you're crazy. Either a, you're leaving money on the table in terms of profit, and if you're trying to grow really fast, raise Your prices by 25%, get down to 70% close rate, and have twice as much profit to go spend on marketing and getting more leads. So in my opinion, I want to be between 50 and 70% close rate if I'm in growth mode. So if I'm trying to grow the business and when I hit capacity, I am buying more trucks, hiring more people, and I'm actively trying to grow top line revenue and the number of customers that I'm serving. And I'm going to do so by acquiring trucks, equipment, increasing the shop size, hiring a bunch of technicians. I want to be in 50 to 70%. Now why do I see this as the sweet spot? Because if I'm over 70%, I know I'm leaving money on the table and at least I'm leaving money that could be otherwise spent on the marketing machine. If I'm under 50%, let's call it 25, 30% close rate. This is bad news. It's very difficult to grow if I'm putting money in the marketing machine or even if I'm just getting referrals. If I have a super low close rate, it means that the cost of getting the sale and closing the deal is high. Because even if you have to go do drive by estimates or in person estimates, if you have to do that, like you get one closed sale for every five estimates you're doing, we have a big problem. Not so much for like you're doing sales incorrectly. Let's not even address that for a moment. Let's just look at the fact that from a statistical standpoint, if you have to do five estimates in person, talking with customers, and you're doing them for free to get one closed sale, you could very well be actually in get getting the cost of $801,000 of overhead just to close the one deal. Because you have five other estimates you have to send out to customers and they don't, you'll get paid for them at all. So one thing you can do, some people do for expensive projects is charge for the estimate. When I see, when people do that, I just see the number of estimates getting booked so rapidly decay that a lot of times people get scared and back off. But if you're trying to grow the business between 50 and 70% is a good sweet spot. It means that we aren't charging so little that we're leaving money on the table, but we're not charging so much and we're not so expensive that we have to do so many estimates just to get one closed deal. It's very difficult from a customer acquisition perspective if you have a low close rate. Because if my cost per lead, let's call it $30, great. If I close one in five deals, my customer acquisition cost is $150. If I close 50%, it's only $60. You could literally buy twice as many customers because your customer acquisition cost went from $150 down to 60. Why? Simply closing more of them. If this is helpful, go to mikeandys.com where there's over 50 hours worth of online training completely free to help you grow your home service business. So you're like, well, I'm so worried about increasing my prices and having a better clothes and increasing my profits. But if you have a really, really close, low close ratio, you won't be able to grow simply due to the fact that your customer cost is so extremely high. Once you factor in your close rate. So if you take your cost per lead and you divide it by your close rate, you get your customer acquisition cost. Okay, so if I have the $30 cost per lead and I close, 50% is my close rate. If I close 50%, that's $60. You change that one number from the close rate being instead of 50%, if you drop that down to 30%, 20%, 20%, we're going more than double the customer acquisition cost. So you have to really make sense of like a lot of things to convince me that you're trying to grow and you have like a 20, 30% close rate. It doesn't make a lot of sense because it's so expensive to get the new customer from a customer acquisition perspective. All right, now if you're in profit mode, this means you raise prices when you hit capacity. You do not buy more trucks, do not hire more people. I like to see your close rate somewhere between 30 and 50%. So 33%, 45%. These are great numbers. I like them. Why? Because it shows that I am raising my prices to the point where I am maximizing profit. But I am still able to get customers in the door efficiently and replace Churn. Because the problem that people don't think about when it comes to profit mode is like, I'm jack up my prices. Great. Maybe a bunch of your customers stay the recurring customers, but you've got to still attract enough new customers to replace the ones that are leaving because they moved, they pass away, they change services, et cetera. And so we still need to get new customers and we still need to do it at a level efficient enough to replace Churn. And this is why I say you raise prices when you hit capacity. Because what happens when you hit capacity, it means you, you're having too many new customers for the number of customers leaving. Because now your capacity is fixed. Let's just say you can only serve 200 customers. If 20 new customers come in this month and you already at capacity, you have to raise prices to make room for the extra 20. And so in my opinion, between 30 and 50% is the sweet spot for close rate. If you're in profit mode, you're not trying to grow top line revenue, you're not trying to grow number of employees. When you hit capacity, you raise prices. You don't buy more trucks, you don't get more equipment. Now, in my opinion, even if you're in profit mode, I don't really want to see a close rate below 30%. Now I'm going to explain because you're like, well wouldn't I just keep raising prices and raising price, yes. However, you start to become inefficient and there's a cost of admin and overhead in having all these leads come in that don't get closed. And so unless you have purely instant quotes, I don't care. Like if you do 100% instant quotes where there is no extra admin time, there is no overhead, there's no marketing being done, then I would give you the pass on a 15, 5, 10% close rate because there's really no cost of getting new leads. But for the vast majority of our projects there is cost of inputting the lead, taking their information, whether it be on the phone or doing a drive by estimate or meeting the customer in person. And so even in profit mode, I want at least a close rate of 30%. Unless, unless I'll let you go lower. If you have instant quotes, if you have instant quotes and you have no one answering the phone, there is no bottleneck to number of calls that can come in or the estimator going to the property, then you can go lower. But for the vast majority, I would say 98% of home service businesses, if your close rates under 30%, you are wasting money. And a lot of times it comes in the form of driving around as an estimator, meeting customers, spending time doing follow up phone calls, answering incoming inbound leads. And so what you can do if you're like well I'm in profit mode and I don't want a lot of customers, great, put more filters in place so less leads come in. Cause you can affect your close rate by just sending out less estimates. So for example, when they put in their estimate request form, if you're doing projects put in that your minimum budget should be $5,000, it'll weed out all the tire kickers that you're spending time right now going to, talking to them, sending them a quote. And they're like oh, beyond our budget. So you can do things to reduce the number of estimates you send. And if you look at the close rate formula of accepted estimates deployment divided by sent estimates, if you reduce the number of sent estimates and hold the number of accepted estimates fixed, your close rate goes up. So if you get 30 closed estimates, great, out of 100 it has 30% close rate. But instead of 100 let's take it down to 60. Now all of a sudden your close rate is 50%. And so if you're still in profit mode and you really do not want more customers I, I would recommend putting more filters in place so that less customers even enter your process. You qualify them before they even answer the phone. So on your website, making sure that your brand screams premium. And I want as many of those people weeded out. So I'm not spending, you know, sending out 10 estimates to get one or two accepted. It's going to be a waste of admin time, a waste of sales people's time. And those are usually your most experienced and, and skilled people. And so I like to be between 30 and 50% if I'm in profit mode and if I'm going to start sinking below that, usually it means you need to diagnose your sales process as a rule of thumb. Because I kind of went on a tangent there, like, hey, you can go lower assuming you have instant quotes for the vast majority of home services. If your close rates under 30%. Before you immediately rush to I need to, I need a lower prices because everybody does is you gotta think about how do I produce more value to the customer, how do I save them more time? Saving time is valuable to people. Being more professional is valuable. Having insurance, having great reviews, having a great Google reviews on your website connected, having a great Facebook page that you post to consistently. These are things of value that then someone can actually attribute to when it comes to the buying process. If you hold all things constant and you get back to customers within 24 hours and the competition takes five or six days, you, you will win more jobs. And so if you have a low close rate and you're like, well, I'm trying to grow, but I'm at like 25% close rate, I would first look at your sales process before immediately jumping to thinking, oh, I need to increase price, I need to decrease prices. Because again, that's the easiest, laziest, simplest thing to do is just if you cut prices, yes, your close rate will 100% unequivocally go up. I happen to believe the first thing we should look at though, and the thing that has much more value to thinking about and solving for is how do I get the estimates to the customer faster? How do I appear more professional? How do I use video and text message to prove that I'm different than everyone else? How do I follow up in a different way? Using text, email, phone calls? This is the type of mentality that a CEO can have to use this information, the close rate to diagnose, okay, where should I be at and why am I not there? And instead of immediately thinking that price is the only determining Factor of close rate. Realize that 70% of customers in home services accepted the first estimate they got. Which means if you just increase the speed at which you got customers, their quote, you'd probably increase your close rate. Now, we spent the vast majority of our time focused on close rate incoming leads. It's extremely important. But the other part I want to touch on. The other KPI that I want to look at if I'm not inside the business's daily operations is efficiency score. Because I need to get the work and I need to make sure the work gets done efficiently. This is simply the number of budget hours divided by clocked hours that you have inside the business. So budget hours is how long do I think the job should take divided by how long did it actually take? And if I come up with that number, I can determine a percentage. For example, if I have 8 budgeted hours divided by 10 clocked hours, in other words, it took 10 hours from the clock in and out of their whole day drive there, do everything in their day. When you have morning meeting, morning huddle, unload their truck. At the end of the day, there's 10 hours. Great. Eight divided by 10 is 80%. That percentage is also something I want to look at if you're over 90%. If your crew is over 90%. Efficiency. Very good. You are crushing it. Now keep in mind that budget hours is a construct, meaning it doesn't change the price to the customer. So be careful if you like. I have 130% efficiency score. Okay, let's, let's just be careful here. Because if you're constantly getting 120, 150, 180% efficiency score, and your team is literally doing 16 budget hours in a six clocked hour day, hundreds percent efficiency score, it could very well mean that your budget hours is way too high. And so keep in mind that budget hours should be how long the jobs take on average. So be very careful. Efficiency score. As much as I love this percentage, it can be gamed by the fact that you can simply reduce your budgeted hours and, and increase your price per hour and it changes your efficiency score, but doesn't change the price to the customer. So keep that in mind. Now I generally like to think though that as long as budget hours are accurate, that's the big assumption here. If your budget hours are accurate, in other words, how long you're saying job should take is actually how long it takes, then I'm trying to get above 90%. That's elite. That means only less than 10% of their day is wasted, drive time, fueling up, meetings, et cetera. They're very efficient, very tight routes. Typically if you're doing route based jobs or they're on the projects, they're not taking a ton of breaks. Like things are getting done efficiently. Now on average though, like an average crew is usually between 70 and 90%. If you run the math on P4P, usually I see people start making above base pay around 70 to 75% efficiency score. And that's good. That means like anything above average, 85, 90%, they start to make more money on P4P pay for performance. And so 70 to 90% is very average. Now when I start seeing efficiency scores under 70%, like not great, between 50 and 70%, they're usually not making above base pay. Usually it's a very mediocre team that is new. There's a lot of newbies, a lot of training happening. And if I see under 50%, in other words, more than half of their day is not spent actually doing work that is revenue producing budgeted hours, we have a problem. I have yet to see any home service business in any industry with a efficiency score under 50 be profitable. That's why I marked it as very bad. It's not as half percent as 50%. Like in the middle. I have yet to see someone at 40%, 30%, 38% efficiency score be profitable. Because even if you have $200 an hour, if your efficiency score is 25%, you're still not making enough money. And so efficiency score is a very quick and dirty way to determine are people actually getting jobs done efficiently? It's not the only number. Remember these metrics that I'm talking about, they're just red flags. Because mostly what I like to use this efficiency scores for is comparing crews and comparing employees. Because if everyone's at 120% efficient score and then someone at 70%, I'm looking at the 70% person. But if everyone's at 70% and this person at 70%, that means they're probably average for the team. And so I much use it as an inter crew, inter team comparison tool. Although I am looking at as a holistic perspective to see are we getting more efficient. When we bought the new trucks, did it lead to a higher efficiency score? If we bought the new equipment, did it lead to a higher efficiency score? So I like to use efficiency scores comparing the past and the present as well as projecting into the future what kind of efficiency can be gained if we buy new trucks, if we get new equipment if we train our people like the reason you actually train, that you take a day off and train everyone, is because your hope is that in the long run, the efficiency score of the entire team goes up. And so by tracking efficiency score, I can see what is affecting the overall efficiency of the team. But the reason I put an asterisk always next efficiency score is it can be fudged simply by moving up or down budget hours. And if you move budget hours up, but the cost per hour down, so your price per hour down to the customer, the price stays the same. If you move your budget hours down, all right. And move the price up to the customer, same exact thing. The price to the customer doesn't change. And so be very careful with this. I would say if you're way in, 120, 130 budget hour efficiency score, reduce your budget hours by simply raising the price per hour but not changing the price to the customer. Okay, so if I'm charging someone $75 to mow their lawn and I'm charging, let's call it a hundred dollars per hour, that means the budget hours on that job would be 0.75. If I take that same exact job and say, okay, we are now charging 150 per hour, all of a sudden, instead of 0.75 budget hours, I'm gonna get 0.5 budget hours on that job. And so I didn't change the price. Still $75 per cut. But because I increased my hourly rate per budget hour, I was able to reduce the number of budget hours on the job. And if that seemed really complicated, listen to it again, write out what I was saying and understand the fact that you can somewhat gain budget hours. I want it to be consistent with how long the jobs actually take. So when the crew shows up, they're like, yes, this is accurate. If there's jobs that they pull up to and it says six budget hours and they know it takes two, no, not good. They pull up to a job and it says half a budget hour and they know it takes three budget hours, not good. I want budget hours to always be accurate. And then I can raise prices if needs be based upon capacity. Something totally different. Let me know in the comments below. If you're in profit mode, are you in growth mode? Where's your close rate at and how has that been impacted by you raising or lowering prices? If you have a specific question you'd like me to answer here on the podcast, go to mikeandys.com? you can submit a 90 second video and, and I'll answer on the next podcast. Thank you so much. Mike Andes, home service millionaire, signing off.