Business Metrics for the AV Industry

“Knowledge isn’t

power…the right knowledge

at the right time is power.”

Overview

This presentation is targeted to financial

professionals

The focus is on metrics that help in

operations and strategic planning, not

valuation or financial ratios

We will discuss the current trends we are

seeing in the A/V space for metrics

Where we see the future for A/V metrics

The barrier to making the most of metrics

The Big Ten

Total Revenue

Net Profit / EBITDA

Gross Margin (Total and per project/line

of business)

Labor Utilization

Recurring Revenue (RMR)

The Big Ten Cont’d

Revenue / GM per employee

Backlog and it’s variations

Cost per Sale

Fixed Costs / Break Even Point

Cash Flow / Working Capital

1. Total Revenue

Although top line revenue is used as a

quick indicator of company size, it’s value

as a metric is limited.

2. Net Profit

The bottom line is still the end goal.

3. Gross Margin

Project

Service call

Maintenance agreement

Product or Service line of business

Market segment

Geographic territory

Customer or customer group

GM / Labor hour

Key Gross Margin Reports

WIP

Delta change reports

The 4 GP’s

The 4 GP’s for Projects

1. Budget

2. Current projection

3. Invoicing position (Accrued Actuals)

4. Earned (Income Statement)

4. Labor Utilization

Available time per employee

Booking percentage

– Time accounted for / available time

Billable percentage

– Time booked against customers vs

admin time

5. Recurring Revenue

Maintenance agreements

Monitoring, hosting, SaaS etc.

As a percentage of total revenue

Recurring GM as a percentage of

overall GM

6. Revenue/GM per Employee

Just like top line revenue, revenue per

employee is not nearly as important as

gross margin per employee

7. BacklogTotal backlog as a percentage of annual revenue

Backlog burn rate - At the current level of operations,

how fast are you burning through existing sales

backlog? The increment or decrement in monthly

order backlog is much more important than the

aggregate dollar backlog of orders.

A variation of the backlog ratio, is the “fixed cost

coverage months”. Fixed cost coverage months =

GP$ / Monthly Fixed Cost $s. If you have $500,000

in GP in the backlog and your fixed costs are

$100,000 per month…you have 5 months of fixed

cost coverage.

8. Cost per Sale

Sales and marketing costs / number of

new sales

Sales and marketing dollars / sales

dollars (new sales, excluding RMR

renewals etc.)

9. Fixed CostsAKA “the nut to crack” - What costs do we need to

overcome every month that are recurring?

“It is imperative that management knows what

contribution margin dollars they are accumulating

daily or monthly to crack the nut. In the short term, it

is nearly impossible to scale back the nut. For this

reason, you need to be able to project short-falls so

you can manage cash needs. Lack of cash flow kills

much faster, than does lack of profit.”

10. Cash Flow

Managing working capital

Days/Months of cash covering fixed

overhead

How are they used?

• Making business decisions (expansion,

contraction, new ventures etc.)

• Proposal generation based upon past

experience

• Labor force management – hiring and firing

• Reporting to banks and bonding companies

• Management and employee compensation

• Franchise model for expansion

Emerging Metrics

• Forecasting is becoming more important

than ever

• Monthly forecast of material, labor, cash

in / out

Emerging Metrics

1-Jan Jan Feb Mar Apr

Remai

nder

Orig Value Month 1 Month 2 Month 3 Month 4

Mat/Sub/Misc $100,000.00 10.00% 10.00% 30.00% 50.00% 0.00%

Labor $50,000.00 5.00% 40.00% 10.00% 45.00% 0.00%

Invoicing $200,000.00 20.00% 40.00% 20.00% 20.00% 0.00%

Emerging Metrics

• Bringing more costs above the line, true

cost of executing a project

Emerging Metrics

• Cost allocation methods - provide

allocations by cost factors

• finance charges

• PM time when direct booking is not

possible

• Supervisor / team leader

• other overheads

Emerging Metrics

• Material burden

• Budgeted and Actual

• Material burdens range from 2% – 5%

of cost

• Represent internal purchasing and

handling costs

Emerging Metrics

• Focus on customer profitability

• GM across projects, service,

maintenance agreements, brokerage

sales etc.

• Customer groups (individual customers

looked at as a whole)

“If you do what you've

always done... you'll get

what you always got.”

Eric Morris, CFO, Wayne Automatic Fire Sprinklers

The Missing Piece

Execution!

Barriers to Execution

1. Accurate tracking of labor hours and

costs

2. Disciplined job costing processes

3. Accountability at the correct

organizational levels

4. Formalized tracking of the sales

process

Labor Tracking Suggestions

“The only real difference between one

organization and another is the

performance of its people.”

Peter Drucker

Weekly ExampleUser ID Customer Avail Total Book Book % Billable Bill % NonBill Admin

AWONG ABC Company 0.5 0% 0.5 0% 0 0

AWONG ACME Inc. 31 0% 17.25 0% 13.75 0

AWONG XYZ Company 5 0% 0 0% 0 5

AWONG Total: AWONG 35 36.5 104.29% 17.75 48.63% 13.75 5

BHILL ABC Company 0.62 0% 0.62 0% 0 0

BHILL ACME Inc. 31.86 0% 0 0% 0 31.86

BHILL XYZ Company 2.47 0% 2.47 0% 0 0

BHILL Total: BHILL 40 34.95 87.38% 3.09 8.84% 0 31.86

BSTEFANIDIS ABC Company 7.54 0% 7.54 0% 0 0

BSTEFANIDIS ACME Inc. 31.06 0% 31.06 0% 0 0

BSTEFANIDIS XYZ Company 0.63 0% 0 0% 0 0.63

BSTEFANIDIS Total: BSTEFANIDIS 40 39.23 98.08% 38.6 98.39% 0 0.63

CFLANNIGAN ABC Company 0.89 0% 0.89 0% 0 0

CFLANNIGAN ACME Inc. 1.49 0% 1.49 0% 0 0

CFLANNIGAN XYZ Company 22.03 0% 0 0% 0 22.03

CFLANNIGAN AAA Inc. 0.53 0% 0.53 0% 0 0

CFLANNIGAN Total: CFLANNIGAN 40 24.94 62.35% 2.91 11.67% 0 22.03

Weekly Example

Weekly Example

Labor Tracking Suggestions

• Link time tracking to payroll (works for

hourly workers)

• Make it easy to track and link time

Labor Tracking Suggestions

• Every time entry should be linked to a

task/call/project or customer

• Educate employees on the reason for

tracking

• Cost allocation

• Customer / Job profitability

Labor Tracking Suggestions

• Make it difficult to enter it late – possibly

extra approval steps, or a system block

• Daily review by management

• Follow up on daily review

Job Costing Suggestions

• Educate operations staff

– More than 50% of PM’s we

encounter do not know the difference

between cash and revenue

Job Costing Suggestions

• Incent profitability

– Teams, bonus program etc.

Cont’d

• Review WIP and delta reports

frequently with the team

Job Costing Course Overview

• Optionally at end of presentation

Accountability

“No snowflake in an avalanche ever feels

responsible.”

Anon.

Accountability Suggestions

• Make the project team responsible for

profitability, and grant the appropriate

authority

• Have the PM’s review WIP and delta

reports

• Have PM’s do a budget approval

Sales Tracking Suggestions

• Document a funnel or pipeline process

• Track sales support labor (eg.

engineering and design)

• Use sales opportunities or pre-sales

projects

Sales Tracking Suggestions

• Measure forecast vs actual sales

• Pre-sales projects can flow in to final

project

“The time to repair the roof is when

the sun is shining.”

John F. Kennedy

Summary

Execution of the drivers is critical

Educated operations staff make

profitable decisions

Daily follow up by management is

mandatory

The changes required are cultural and

process based

In Closing

“Even if you're on track, you'll get run

over if you just sit there.”

Will Rogers.

I went to a bookstore and asked the

saleswoman, “Where’s the self-help

section?”

She said if she told me, it would defeat

the purpose.

Steven Wright