Know Your Snow Numbers or Fail

This was featured in the October 2014 issue of Snow Business

Customer retention rates, your cost to acquire a customer and your closing ratio are key numbers to know at your snow business.

As we gear up for another winter, it’s a good idea to get dialed in with your sales team and have a handle on your sales numbers before the first event occurs. There are several numbers you need to dissect in order to help your sales team (even if you are the only salesperson) thrive and your business grow.

A simple average for what each property is worth to your business is pretty easy to figure out, and it’s helpful in many ways. Take your total revenue, divide it by the total number of properties you service and you have your average revenue per property.

Because commercial and residential properties are usually vastly different when it comes to snow revenue, you might want to separate the two client types and determine an average for each one.

Once you have this calculated, it will help you in several areas of sales planning. The most obvious reason is so you will understand what landing a particular job means for your company.

It’s also helpful because it’s a key component to understanding what you have to replace (and then add to) when setting your goals, which brings us to the next number you need to focus on: customer retention rate.

Know Your Customer Retention Rate

Before you can plan for growth, you have to know what you’ve lost. After all, you can’t achieve growth unless you first put back what you’ve lost.

When you have your retention rate down, use your average revenue per property to determine how many new customers/jobs you need to fill the void and continue to grow. Here’s an example of average revenue and retention rate working together.

If your annual revenue is $1 million and you maintain 100 properties, your average revenue per property is $10,000. You retain 90% of your properties each year, which means you lose 10 properties, or $100,000.
If you want to grow by 10%, you have to first gain 10 properties to make up for the ones you lost, and then you need 10 more. So you need 20 new properties to grow your company by 10%.

How are you going to win 20 new properties? This brings us to your closing ratio.

What’s Your Closing Ratio?

How many people do you have to contact to generate one sale?

Let’s say you have a 20% close rate, meaning you close one in five sales. If we reference the example contractor who plans to grow by 10% next year and he closes 20% of his sales:

• He does $1 million in revenue.
• He wants to grow his business by 10%.
• He has 100 customers and retains 90% of them.
• He needs 20 customers or $200,000 to achieve his goals.

This means he will need to talk to 100 people to win 20 sales. Now he has to figure out which market he wants to approach for those  sales.

What is Your Cost to Acquire a Customer?

When we’re talking about snow removal, the cost to acquire a customer goes beyond the time spent working with the client prior to winning the sale. You need to consider:

The property’s location – Is the property in your favored geographic area or are there going to be higher-than-usual costs to drive out and service it?

Your fleet of equipment – Do you have the proper equipment to service a property, or will you have to purchase more equipment if you land the job

What it takes to service the property – Will you have enough cash flow to preorder deicing materials for your book of business?

As mentioned earlier, your average cost per property will tell you where a certain account falls in the spectrum of your contract portfolio. Always consider this benchmark when you’re going out to win new work and use it as a guide.

I’ve been using easy math and big jobs as examples, but we know in reality not all customers are going to be worth a high dollar amount. You still want them and need them to grow, but understanding what it takes to acquire them will help you make better decisions about what you will do to win a sale.

Strategic Decisions

Knowing your sales ratios for all profit centers is a critical area of focus for managing a successful company, and clearly there are many components to your sales numbers that you need to understand to grasp the impact of winning and losing clients. Hitting your numbers allows you to be confident in making decisions in a more strategic and timely manner so your company can grow.

Priming the Pipeline

Some of the big questions you need to ask before the snow selling season is in full force are:

• How big is your current book of business?
• What is your average revenue per property?
• What is your retention rate?
• Are you winning more clients than you are losing?
• What are your closing ratios?
• What does it take to make one sale?
• How much does it cost to acquire a customer?
• What is your average revenue per property?

Good luck with snow and ice management this season. If we can help you with proposals and estimating, don’t hesitate to reach out!