It has been a while since our last post and I apologize. During these economic times we have been working almost around the clock to help our clients through. Some of this has involved financial planning, cash flow projections and helping develop workforce reduction plans.

These measures are necessary but mostly reactive in nature. As mentioned previously we have been pushing aggressive business development in these times. Clients who have embraced this and executed well are doing well. The construction market has been impacted as a whole but that impact is not spread evenly across all construction companies. Depending on the study you ready construction starts are down by 13% – any construction company could withstand a 13% reduction of revenue. The problem is that the impact is not equal across all markets and all contractors. We have some clients who are in markets that are still growing like healthcare or industrial plant environmental renovation who are doing quite well. We have some clients who do “plain vanilla” work on commercial buildings who are posting their best quarter ever in Q1 due simply to being good with their marketing efforts. Along with that we have several clients who are posting their worst Q1 in a while.

One thing we have stressed a lot is that satisfied customers are profitable customers. This is something I have known in my gut for a long time. Recently as we have started doing customer satisfaction surveys for some of our clients as part of our marketing services we found a much stronger link that I’d like to share with you.

The “Ultimate Question”

We based our customer satisfaction surveys on research from Fred Reicheld and his book “The Ultimate Question”

The book is well worth reading just for the background but the basics are that Fred and his team at Bain & Company set out to find the customer survey question that had the most direct relationship to profitability and growth. That they determined was “The Ultimate Question” and therefore there wasn’t much need to create a burdensome survey with 20 questions when one would suffice.

The Two Question Survey for Contractors

Phrased for a contractor this “Ultimate Question” turned out to be:

We found that we got a very high response rate from people by telling them that the survey just had two quick questions and would only take a couple minutes.

We actually made the phone calls instead of trying to use some other survey tool such as an online survey or mailer because we really wanted to communicate with them and enter into a true discussion about “ABC Construction.”

Survey Result Quantification

The next part of the survey was to quantify the results. The scoring system used compiles everything down to one number called the “Net Promoter Score” or NPS. Based on the scoring each customer fell into one of three categories:

• Promoter:Those who would be likely to proactively promote ABC Construction (score 9-10)
• Passive:Those who would likely not say anything positive or negative about ABC Construction (score 7-8)
• Detractor:Those who would likely say negative things about ABC Construction if asked and possibly are proactive in saying negative things about ABC Construction to others. (score 6 or less)

The NPS score is a decimal taking the total percentage of Promoters and subtracting the total percentage of Detractors.

The Financial Link between Profits and Customer Satisfaction

Now the interesting part – we correlated the results of the survey against a 24 month financial analysis of projects. One of those was to categorize margin gain and margin fade by group of Promoter, Passive and Detractor.

• Margin Gain: Additional gross margin dollars over and above what was estimated or budgeted.
• Margin Fade: Gross margin dollars less than what was estimated or budgeted.

The chart below is typical of what we have found. There are always jobs that will do better or worse than planned but in the group of customers with lower scores (Detractors) the incident of margin fade is much higher.

Put another way if you take the difference between the gain and fade for ‘Promoters’ and add it to the difference between fade and gain for ‘Detractors’ you will have a dollar figure for what customer service is worth over the prior 24 months.

Even for the smallest contractor we did this survey for ($1.5M per year in revenue) this difference was over $200K!

Driving Results!

The best part of the survey is that through the second question your customers will actually provide you a roadmap for fixing things. If the comments are condensed down and summarized to their core elements there are usually 3-4 key things the contractor needs to focus on and an additional 3-4 minor items.

What is important if you are going to do such a survey yourself is:

1. DON’t let emotions get involved! We have an advantage as a third party because we weren’t the ones dealing with the customer on a day-to-day basis. If you do the survey in-house you should assign it to someone who will be able to get to the bottom of the issue with the customer but who won’t try to dispute what the customer is saying. They may have been absolutely horrible with their bid package and scheduling but in their minds they thought you were the one with the problem. Customer satisfaction is about perception – and perception is reality. Arguing about the validity of the customers comments won’t help anything.
2. CALL everyone that you have done work with in a particular market segment – being selective isn’t a good strategy for getting truly good feedback.
3. LISTEN hardest to those with the most complaints – those are the comments that can make you better.
4. FOLLOW-UP on the comments. Whatever you hear create an action plan internally to address them and then follow-up with the customer thanking them for the survey, summarizing their core concern and then presenting some actions that you are taking to correct this internally.

Just the process of the customer survey has generated work from existing customers for the clients we have done the survey for. I would expect that almost any contractor doing such a survey would get similar results.

Beyond that this will give you a lot of feedback on how to improve your organization as well as providing some guidance on where to market.

	DAVID BROWN is the Founder and President of D. Brown Management, a consulting and management firm that helps construction companies improve profitability. Headquartered in Northern California, the company provides a full scope of general management solutions to construction clients nationwide, including strategy, planning, operations, field productivity, workflow, financial management, technology, and marketing.
As always, ask any questions and comments are always welcome. You can post them here or send an email to david@dbrownmanagement.com. Reader comments and questions will become future posts.

We are all looking for ways to make our operations more profitable.  In an economy such as ours, we can basically forget about raising fees to cover those inefficiencies inherent in General Contracting.  We can also forget about charging for our pre-bid services.  I am so often amazed at how much time and effort we give away to clients for no cost – only to be told that our proposal for whatever reason did not contain the winning formula.  Ugh!

When we can’t raise rates to cover runaway costs, we’ve got to look somewhere.    As boring as this subject may be, simply streamlining processes and getting more efficient use out of our resources is the most cost effective means of quickly generating dollars to our bottom lines.  Where do your jobs often go over?  If you are like me, estimating portions of general conditions (such as job cleanup) is a disaster.  My trouble is that I understand that at 3:00 during the week for an hour or so and on Friday everyone is cleaning up the site and prepping it for a weekend.  But I also know from experience that the  ”General Conditions” line item is the catch all place to code unaccounted time for the field workers.  The time “Harry” is using to drive between jobs or pick up a tool from another jobsite.  I am afraid to add more time to the job cost but in essence this is job specific overhead that I don’t account for enough.  I  know some would say (myself included) that I need to bring the hammer down on time coding, set these expectations and require follow through.  Fair enough.  But that is only part of the problem. 

I started putting these things together and realized that, while my company is very small, having only one table saw and one miter saw was an absolute crimp on productivity.  Having only one rotary hammer in the company saved me the $500 for the second one, but bred terrible inefficiencies into the workday as carpenters chased them all over town.  Simple items such as this popped up all over the place, when I cared to look.  Of course I worried about the cost of keeping track of and maintaining these extra items and/or loss or theft – but assigning them to a superintendent cleared that hurdle.  This is just one small example of the inefficiencies that I sawbuilt into my tiny organization.  I now see many more built into much larger ones.

We have to think of our organizations as an organism.  One in which several different locations depend on the home office to coordinate logistics.  Make time to ask your staff what inefficiencies they see.  (Remember payday Fridays before direct deposit when staff had to go to the bank??)  Note what things are inefficient in your day, from stopping to pick up coffee with the line around the block at the local coffee shop to answering each and every call as it comes in instead of screening them.  Items such as these affect the small contractor and the large organization tasked with multiple projects in multiple locations.   The list could take up much more time than allotted on a blog.  But remember that efficiency breeds time savings, which begets more profitability without raising costs.  These small items often help us to uncover larger issues, and it is there that real savings can occur.  Sometimes we have to take the “aerial” view of our companies to get a grasp on our major processes.  Other times we need to dig into the minor processes and see where we can become more efficient with our resources.