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Welcome to Financial Series #8Benchmarking – Your KPI’s
Your Hosts for Today’s Conference are:Gary Elekes in Nashville, Tennessee
Gary Oetker in Plano, Texas
Conference Objectives: Review the significance of Benchmarks and
Key Performance Indicators (KPI’s).
Review key KPI’s by market segment
Review how to use Benchmarks and KPI’s to help evaluate financial performance.
Review why and how to use BenchmarksReview residential replacement & service commandmentsReview residential replacement/service/maintenance and IAQ Direct Cost ModelsReview other residential replacement/service and maintenance Key Performance IndicatorsReview other business segment benchmarks and Key Performance Indicators
Agenda for Conference
DefinitionsBenchmarking:The process of comparing a company’s performance against Industry Standards or Key Performance Indicators (KPI’s).
Key Performance Indicators (KPI’s):Critical performance measurements as modeled after successful companies in that particular market segment.
CommandmentsThe most important Key Performance Indicators.
They help you evaluate your company operationsThey allow you to “ASK” why do we do the way we do and to challenge the existing normsThey help quantity and identify what’s happening in operations to focus efforts on the “RIGHT” changesThey help a company to get focused on the task at hand, which is to get better in a given area? They help create validity to goals
Why Use Benchmarks?
Compare your company to double-digit model companies (by market segment)Focus priorities on what you want to changeDetermine what if anything needs to be reviewedOperations may need to be adjusted to attain certain goalsAlways look at KPI’s in groups. Never get focused too much on one number
How do You Use Benchmarks?
Initial Insights
Each market segment has its own set of KPI’sFor example: revenue,office support staffing & overhead matrix
No two companies are alike; each has its own Business Mix
For example: A 30% overhead structure will work for a residential service & replacement, but is
too high for Residential New ConstructionIf your company serves multiple market segments, combine KPI’s to evaluate office staffing and overhead
Residential Commandments
13 Commandments for Success in Residential Replacement/Service/Maintenance: Goals for 20% Pre-Tax
1. Ethics and ethics every day. 2. Equipment cost equal to or less than 25% or replacement sales 22% 3. Gross Margin Equal to or greater than 42 % of total company revenue 45% 4. Revenue per employee greater than $ 100,000 per employee $ 120,000
(Exclude outbound telemarketers) 5. Service Agreements greater than 500 per 1 million in Replacement Revenue 1000 SA’s 6. Service and Maintenance Equal to or greater than 25% or total revenue 30% 7. Field to office employee ratio equal to or greater than 2 to 1 3 to 1 8. All Replacements completed in 1 day Same 9. Replacement Sales Financed equal to or greater than 40% 70% 10. All Managers and direct reports know and understand the numbers. Every Employee 11. Accurate and timely departmental financial statements by 10th of the month. 5th of month 12. SG&A (Operating Expenses) less than or equal to 27% of Revenues Less than 25% 13. Excellence and Ethics every day.
Res. Replacement Direct Cost ModelDouble DigetCompanies
Parts/Materials 7% or lessLabor 9% or lessEquipment 25% or lessSubcontract 0% to 1%Permits .5% or lessExtended Warranty 1.0%Buydown 0.5%Equipment Rental 0.0%Warranty 2.0%Allocated Fringe Benefits 3% to 4%Sales Commissions 4% to 8%Sales Salaries 3% to 4%
Total Cost of Sales 55% to 61%
Gross Margin 42% to 45%
Note – Also watch grossMargin dollars per crew-dayIn conjunction with the Gross Margin Percentage
Other Residential Replacement KPI’s
Revenue per Sales Person
Minimum $600,000, Target $1 million or more
Revenue per installation crew per year (2 man crew)
Minimum $500,000, Target $750,000 or more
Average sale $3,800 or higher
Gross Margin Dollars per crew day (2 man crew)
Minimum $1,200
Target $1,500 and greater
Res. Service Direct Cost ModelDouble DigetCompanies
Parts/Materials 13% or lessLabor 22% or lessEquipment 0%Subcontract 0.5% or lessPermits 0.00%Extended Warranty 0%Buydown 0%Equipment Rental 0.00%Warranty -4%Allocated Fringe Benefits 5.5% - 7%Sales Commissions 1Sales Salaries 0%
Total Cost of Sales 38% to 39.5%
Gross Margin 60 to 65%
Other Residential Service KPI’sRevenue per service technician
Minimum $100,000 , Target $125,000 or more
Average ticket - $150 or more (total sales divided by total tickets)
Gross Margin Dollars per technician per day
Minimum $185, Target $300 or more
Service Agreement sales – 25% or more of all eligible (less warranty, callbacks and Service Agreement calls
Accessory sale or equipment lead – 20% or more of all eligible calls
First time solution rate – 85% to 90%
Res. Maintenance Direct Cost ModelDouble DigetCompanies
Parts/Materials 6% or lessLabor 34% or lessEquipment 0%Subcontract 0%Permits 0%Extended Warranty 0%Buydown 0%Equipment Rental 0%Warranty 0%Allocated Fringe Benefits 9%Sales Commissions 4Sales Salaries 0%
Total Cost of Sales 53%
Gross Margin 47%
Pricing Strategy affects GM% range. Should range from 45% to 60% depending on strategy.
Other Residential Maintenance KPI’sRevenue per maintenance technician
Minimum $65,000 per maintenance technician per year
Gross Margin Dollars per technician per day
Minimum $150
Service Agreement sales – 63% or more of Precision Tune-Ups
Service Agreement renewal rate 90%
Accessory sale or equipment lead – 20% or more of all eligible calls
Residential Overhead KPI’sDouble DigetCompanies
Total Marketing/Advertizing Expenses Target 3% - less than 4%
Employee Related Expenses Target 13% less than 15%
Vehicle Ralated Expenses Target 3% less than 4%
Plant & Equipment Expenses Target 3% less than 4%
Administration Expenses Target 2.5% less than 3%
Total Overhead Expenses Target 27% or less,no more than 30%
Other Department KPI’sGross Overhead Support to Revenue GM $ /
Margin % Production Per Crew/Tech Crew DayPer Year or Month
Min $100K Min $150Target $120K Per Tech
Or More Per DayMin $350K
Target $500KOr More
Min $350KTarget $500K
Or More$200K $500 or more
Or More Per TechCommercial Plan & Spec 12% to 14% $500K $9,000 Per
Or Less Or More Crew / MonthCommercial Maintenance $80K $170 to $180
Or More Per TechCommercial Replacement $550K $6,500 Per
Or More Crew / MonthCommercial Design Build $250K $6,000 Per
Or More Crew / Month
Plumbing Replacement & Service 48% to 50% 30% to 35% 1 to 2 or more
$450
Residential New Construction - Custom 34% to 35% 18% to 20% 1 to 3 or more $700
Residential New Construction -Track 22% to 32% 12% to 15% 1 to 4 or more
Commercial Service 45% to 50% 31% to 35% 1 to 3 or more
20% to 22% 1 to 4 or more
32% to 35% 1 to 3 or more
30% to 39% 1 to 3 or more
26% to 30% 15% to 18% 1 to 3 or more
Consider Business Mix When Evaluating Overhead KPI’s
Residential Residential Replacement New Construction
- Track -
OverheadRange
Revenue $500,000 $500,000 $1,000,000
Total Company
27% to 30% 12% to 15% 19.5% to 22.5%
Compare your company to the KPI’sMake assessmentDecide on a list of issues that are creating the poor company performancePrioritize this listConsider meeting with key managers and employees before making changesMake the list public and allow for commentaryAttain buy-inMake the changes happen
Now What?
Questions
&
Answers