When you own a small business, it can be hard to know how to measure success and make sure you're primed to grow. There are, however, tried-and-true KPIs to help you monitor the trajectory of your company and correct the course as you face new challenges.
Running a small business can be daunting and in markets as competitive as HVAC, electrical, garage door repair and plumbing, you need to know how to keep the finger on the pulse of your operation. By zeroing in on several key metrics, you can assess where your company is succeeding, where it could be doing more, and what can be done to ensure your business thrives.
Here are the six KPIs we recommend:
1. Sales Revenue Sales revenue is simply how much money is coming in from the sale of your services (and any products you may offer). This is a foundational metric essential for any company to stay in business, hire staff, adjust inventory, and so on. It’s also important to look for trends in your sales revenue. Do you experience spikes or slow periods during certain seasons? Distinguishing and anticipating these trends can help you make long-term financial decisions and ensure longevity.
2. Gross Margin Your gross margin is your sales revenue minus the cost of providing services, divided by sales revenue. Gross margin is expressed as a percentage and can help you track the growth of your business. This percentage represents the amount of every dollar from your sales revenue you retain as profit. If the percentage is high, your efficiency is good. If it is low, then look into increasing productivity.
Tracking expenses — and then properly applying to your bookkeeping every month — is more complicated than it sounds. Remember not to close out your month’s numbers until accurately assigning the expenses to the services provided over that time period. Part of this includes tracking materials used from your inventory only when they are used for booked jobs (rather than calculating an incoming stocking order as one large expense for the month).
3. Monthly Profit/Loss There is another number that needs to subtracted from your profit to determine your monthly profit (or loss): fixed and variable operation costs.
Fixed costs are regular costs you pay every month:
- Staff salaries
Variable costs are unexpected costs that may fluctuate month-to-month, like gas usage, repair services at your office and so on. Both fixed and variable costs every month are subtracted by your profits to calculate the money your company is bringing in. If you find that your total costs are eating up a significant part of your profits, look into where you can start saving money every month. A good rule of thumb is try and keep the total cost of operations (fixed + variable) at 30% or under.
4. Various Service Metrics Do you know how long it usually takes for your techs to perform a certain install? How many service calls your techs can complete in one day? How often you sell a particular service in one month? The revenue of your average ticket? The close rate of each of your techs? There are many different numbers you can derive from tracking tech performance and customer buying trends. Track what you can, and over time you’ll find the the service metrics that are the most valuable for measuring your business’ success.
For Weldon Long, President of Wright Total Indoor Comfort, that metric was revenue per lead. As Long told Contracting Business: “Revenue per lead is total volume divided by total number of leads, including cancelled leads, sold, lost, everything. If a guy had 40 leads in a month and did a total of $100,000 in sales, you have $2,500 per lead. That's the best metric we've found."
5. Customer Retention How good is your company at inspiring loyalty among its customers? Returning customers can dramatically increase a home services company’s revenue. Use customer service surveys or simple asks on the day of service to gain insight on how many customers keep coming back to your service (and, if possible, why).
Net Promoter Score, a tool used to gauge the loyalty of one’s customers, asks customers to answer a simple question on a scale of 1-10, “How likely are you to recommend (this company, this product, this experience, this representative) to your friends, family or business associates?” Customers who score between 0 and 6 are unlikely to give you repeat business while customers who score between 9 and 10 are likely to be promoters of your business or service.
If you find that your business is subsisting on many one-time, low-scoring customers, look at your customer services practices or implement retention campaigns (such as discounts) to bring customers back.
6. Advertising ROI If you make the effort to invest in advertising — whether it be online, radio, print, TV or elsewhere — make sure you have some system in place to measure the return on your investment. Customer surveys and CSR/tech inquiries to customers can help you understand where new customers and coming from and end costly advertising campaigns that may not be effective. If you run various online ads (Facebook, Google PCP, Yelp paid listings, etc.), make sure that you get answers that specify which platform customers are using when they encounter your ads. To calculate your advertising ROI, divide the returns (revenue) resulting from the campaign by the cost of the campaign.