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All New Small Business
case study
We helped this mid-sized family-owned construction company increase its bottom line to align with its revenue.
the story
Mid-Sized Family-Owned Construction Company
The company is a midsize.Construction company specializing in very niche types of construction. It's a family-owned and operated business that has multiple family members working in different positions throughout the business.They're well known in their city and outlying communities. They work with small municipalities as well as residential and larger commercial clients. Their construction projects range from pools to irrigation and from landscaping to playgrounds.
Good marketing and word of mouth have achieved growth for them that exceeds industry standards. However, as their revenue has increased their bottom line has not grown with it. They could not figure out why. They weren't making the money or having the profitability they expected. Every month, when looking at their P&L, they were disappointed that the bottom line wasn't moving as as well as the revenue line.
the goal
Raise their margins to align with their solid revenue growth.
The task was to find out why revenue was increasing, but their bottom line was not tracking with it.
"Getting their bottom line to track with revenue growth was a serious undertaking and would require a multi-faceted approach to understand and then solve."
the solution
A Multi-Phased Process
The first thing we did was look at the historical P&L. And as we did, we noticed that the revenue was growing and moving along, but commissions seemed to be getting higher. We noticed that the overhead was increasing and the actual cost of goods was starting to increase as they were buying more and more material. They were also using more and more labor to complete jobs. We took one particular project and broke it all down and looked at how it was priced and how the commission was paid out. What we found was that the commission had too large of a sliding scale. Meaning that they paid way more as the price went up higher than it should have been. We noticed that the cost of goods was slowly getting out of control. At one point it reached 50% then slowly became 60% over time. They were just buying more and more material and adding more labor. So they weren't running as efficient as they could have been.
New Compensation Plan
We developed a new compensation plan for them.The plan was based off of the net profit of the build rather than the gross revenue. And what we did was we made it incentive laden, meaning that the more profitable the job was, the more commission the sales reps would earn. This is really a profit sharing structure that works wonderfully. Sales became more invested and engaged in making sure the estimates were accurate. They now took ownership of that process and stayed involved in helping to keep each job on budget.
New Pricing Model
Next, we developed a consistent pricing model. We centered pricing on operations and engaged their operation team. We built in a profit sharing piece for the operations team as well. This gave them an incentive to also keep everything on or under budget. Efficiency was our goal and we reached it with this model.
We also integrated into the new pricing model a percentage of overhead to make sure that overhead was properly allocated in the pricing of each project.
Checks & Balances
Lastly we created a system of checks and balances. This worked as a comparison of our estimated pricing, which included overhead. Commission and potential bonuses for the operations crew compared is to the actual payout of the company. This included tracking all of the costs of materials and labor. And then we did a straight line comparison estimate versus actuals. As we became more and more efficient comparing estimates to actuals, our estimates were more and more accurate. The variance between the actuals and the estimates became smaller and smaller. We now knew we were pricing effectively and so this drove our margins much higher.
the results
A much more profitable pipeline & a thriving business
Today, the company is on good footing. Revenue and margins are up consistently. Both the sales team and construction crews are happy with their compensation. After three years we continue to see year on year growth. Their new incentive program is designed to foster employee retention.
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HERE'S THEN NEXT STEPS
Follow our simple process which will determine if we can help you.
STEP 1
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STEP 2
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STEP 3
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