What do you do to set your construction company apart from your competitors when viewed from a marketing perspective? How do your clients perceive your firm vs. how you and your employees perceive your firm? What is your competitive advantage and how do you exploit it? Better yet, how do you go about simply getting people to put your firm’s magnet on their refrigerator and call you first?
Developing a marketing plan for your company does not have to be expensive. It doesn’t have to be overly high tech or include a “wow” factor. It doesn’t have to have a stamp from an MBA or include tens of thousands of dollars in the budget to be successful. At the end of the day a marketing plan doesn’t mean just advertising, it means conveying the “sum of the experience” that your firm offers. We can all place an ad in the paper. But can you pen articles for a local newsletter, or handwrite thank you notes to past clients and clients that you have met with? Where are you when it comes to thought leadership? Are you seen as an expert businessperson or an expert craftsman – or both? It isn’t just about placing an ad, it is about the venerable 4 – P’s of marketing: Product, Price, Place and Promotion. Notice that advertising (promotion) is only one aspect of the program.
Product:
What is it that you are selling? We sell a service that is dependent upon numerous products. Become as expert in your products as possible, but tout service if you are a high service provider. Service is the difference in most cases. It is important to actually back up your service claims with actual action or this will backfire in short order
Price:
Are you selling on price? Service? Believe it or not I believe that there is a market for firms in each category. But you must understand your target market and build your strategy accordingly. Very seldom will the markets mesh – you can’t be a low price volume firm marketing to demanding service oriented customers. No one will win in that arrangement.
Place:
Define your region that you have the most clear cut advantage in and exploit it for all it is worth. If you narrow your focus to those areas that have provided you with work in the past, your marketing dollars will go further and your success rate will climb. Blind marketing may yield results, but the yield will be much less efficient than defining the geographic areas where you have an advantage. Expand your regions of focus slowly and with thought, not just haphazardly.
Promotion:
Advertise; provide thought leadership (articles, lunch and learns) develop how to videos, tighten up your website; get interviewed on the radio, etc. Pick a firm color and roll with it. Pass out shirts with your logo on them. Sponsor a lunch for past clients, maybe an annual “Friends and Family” type of event. Bring in your subs. Bring on a forum of experts to discuss issues of the day. “Green” topics work well (at least until the tax credits run out at the end of the year!) Sponsor a good deed – it is amazing what a team building exercise this can be.

I’ve seen so many great ideas. One firm I know hands out excellent quality brooms with their logo emblazoned on them to homes near where they are working, extolling the level of “Care” that they provide to their clients. Another pays an artist to draw a pencil rendering of their home or office, frames it and presents it to the client after the final punchlist. We have used a “Good Neighbor letter” for years with great effect. We’ve also been diligent in handwriting thank you notes to people that have honored us by working with us or allowing us the opportunity to legitimately compete for their work, even if we were unsuccessful. We ask when we don’t get the job what we could have done better and learn from the responses, unless the client was driven only by cost. If that is the case, we learn that we didn’t screen them well enough and learn from it.
Developing a marketing package need not be an expensive proposition. In fact, many times marketing can cost a postage stamp. The key point that I am trying to make is that it is critically important to develop your own marketing plan and stick with it. Develop your own “stamp” to imprint on clients. I would love to be the company that “Dropped that darn broom on my porch” the other day when that client is thinking about building an addition. I would love to be the company that brought thinking capital into the workplace and discussed aging in place to a group of baby boomers or green technology to young families. We have the knowledge to market effectively, yet many (if not most) of us don’t do it and depend solely on word of mouth. Word of mouth is great – but that is only one P of the 4 P’s – don’t neglect the other three. And have some fun while you are doing it.
I would love to hear some low cost methods of marketing you have used successfully in the past.

The quest for efficiency from our supply chains is important to any business.  In an industry like ours, where our supply chain consists not only of raw materials but of finished goods and labor, our suppliers and subs present as much of a public face of our organizations as our own employees do.  “Squeezing” them for every last dime just doesn’t cut it.  Threatening to fire them unless they reduce their fees isn’t a magic solution, either.  Instead of fighting a losing battle with our suppliers, lets partner with them and get their feedback on where they think efficiencies may be found.  It may sound like an irrational statement, but oftentimes, getting more efficiency out of our supply chain has nothing to do with the suppliers and subs themselves, but how we and our staff manage these relationships and our projects.

Many of us have been there before.  The client dawdles in making selections on unspecified items (Terrible inefficiencies – thus wasted dollars – exist in allowances.  Eliminate them whenever and wherever possible).  They choose an ornate Italian stone that must be steamed over on the next ship, which may take six weeks.   In the interim, the quarry union went on strike.  Another two week delay occurs.  We can’t finish our custom bath tile.  Without tile, we can’t trim out the plumbing.  Without trimmed out plumbing, we can’t complete the project and final bill.  The plumber wants his payment, the tile setter is getting out of whack with his schedule.  The client wants the crew out of their home.  Anger ensues and a great project can easily turn to mush.  Sure, we will ultimately get the project done and the final bill will be sent and paid, but we are floating the project with our company’s money until we get it wrapped up and bills in and accounted for.  I don’t know about you, but I would much rather use client funds to float the project, not my company’s.  Cash flow is paramount.

While it is easy to blame the client and the supplier for this mess, we aren’t paid to lay the blame at someone else’s feet.  Clients don’t pay us to be finger pointers. Believe it or not, construction is not a production business.  It is a customer service business with a production component.  Our suppliers and subs, like it or not, are part and parcel of the public face of our organizations.  Choose them wisely, and not based solely on price.  Look at them as a critical component of your business, not the enemy.  While the example above is not the fault of any supplier, but the choice and delay in selections, it does not matter one bit to a client.  Let’s work with our suppliers and subs at the onset of a project.  Work hard up front to find areas that will cause problems down the road.  Selections are always a project delayer and game changer.  Your subs should be able to compile a list of items that are often found on punchlists or tend to be longer lead items, like the example above.

In this environment we are all trying to do the same or more with less.  This includes your subs.  Browbeating them now will not produce the intended result.  It will only drive a good sub away the moment they have enough backlog.  The only way this efficiency equation works is if we get more efficient in managing our projects, staff and supply chain.  Don’t expect everyone else to have all the answers, but, rather, work with them and gain their particular knowledge.  Small efficiencies can add up to big dollars.  We can’t manage a successful company unless we manage our supply chain as efficiently as possible.

The holidays tend to make us wax nostalgic, and this one is no different for me.  In fact, our collective economic struggle makes the simple joys of the season even greater.  While I am not yet willing to hoist the surrender flag that our industry is fundamentally different than it was a short while ago, there is no denying that our lives have been dramatically altered the past couple of years.  Some of these changes are part of the natural business cycle and will bring with them positive changes – whilst others will bring more tough decisions to make.  In this holiday message I would like to, for just a moment, ignore the tough issues and focus on the positive.

I hope that your families will continue to grow and prosper.  Our industry and economy are changing, but the traditions that we should focus on during this time of year do not have to.  My fireplace will still crackle with life on Christmas Eve.  My five and two year olds will still be overjoyed at the site of the Christmas tree on Christmas morning and will so eagerly tear open their gifts that lie beneath it. My wife and I will still enjoy decorating the old Cedar tree that has grown in our front yard for years.  Christmas carols will still play in the background, and the smell of freshly cut Pine, fully regaled in holiday trinkets and ornaments, will grace the inside of my old house.  Across the country churches will fill with praise and song – while those of us that choose to not exercise the religious aspect of the season may rejoice in the brotherhood and good will of the Christmas Story and holiday season. 

Indeed, there is much to be thankful for this Holiday season.  There is much work left to do, and many struggles yet to be fought. 

That said, I will cherish every Christmas, every season, every day I am granted to work in the industry that I have chosen to.  The blessings of this season are often clouded by “50% off sales” and a fundamental materialism so pervasive in our society.  It is easy to be swept up by all of it, throw our hands in the air and give up hope.  The real meaning of this season is that hope is everywhere – if we are willing to work and look hard enough for it.

I cannot thank you enough for reading this blog this year.  I hope I have managed to strike a nerve or two or at least make one ponder an idea or two.  I have learned quite a bit from notes and emails sent my way.  Regardless of the outcome of this rough economic period, we all belong to an industry that is a necessary and needed one.  We help to provide shelter to families, meeting places for the engine of commerce to be managed, schools to teach in and hospitals to care for the sick.  I firmly believe ours is a noble profession made nobler by doing the right thing and managing our businesses with sound fundamentals.

I wish for you and yours a safe and blessed holiday season.  May 2010 see a continued improvement in our economy and industry.  Most of all, I wish you some quiet time to reflect on the successes you have had and the ability to plan for more in the next year and years to come.

Maintaining a high-level of jobsite productivity is one of the most important activities for any foreman, superintendent, or project manager. By using the four pillars of productivity, the productivity levels of any construction crew, on every construction project can be increased.   

When production rates drop on a construction jobsite, money is lost, and often cannot be recovered. On the other hand, when production rates are monitored closely, and improved upon constantly, profits are earned and a company will gain a competitive advantage. How can jobsite productivity be enhanced? One ways is by utilizing the four pillars of productivity.

Getting productivity out of a crew breaks down into four key areas: materials, tools and equipment, information, and goals. How well you execute all four of these will determine the overall productivity of your crew. The systems you set up in your company to guarantee these four areas are managed effectively will determine the success of your company.

Let’s take a closer look at these four areas, and what you can do today to start increasing your productivity tomorrow.

Defining the Four Pillars

1.  Materials: This is priority number one, but luckily, materials are also relatively easy to manage and set up systems for. If the crews do not have materials, they cannot install anything. Making sure all materials are on the jobsite and that they are getting to the work areas for the crews to install in an efficient manner are what should be focused on.

2.  Tools and Equipment: This is a simple enough concept, as no tools equals no production. This is not a place any construction crew wants to find themselves at! Therefore, ascertain that the crews have all the tools they need and that the tools are easily accessible. Do a quick analysis to see if the higher cost of the tool will offset the savings in labor.

3.  Information: If people have materials and tools, then the only thing they need to get started with installation is the information about what, where, and how they will be doing the installation. This is the area where pre-planning comes in as a critical tool. You will never be able to achieve 100 percent in this area, which is why you need to be constantly working on improving what information you have, and how you communicate it to the crews.

4.  Goals: If your crew has the proper materials, tools, and information, you might wonder what’s left. Adding in goals can improve production by 10 percent or more on a consistent basis, so this pillar should not be overlooked. Don’t underestimate the power of setting goals for the crew on a daily and weekly basis. Look at tying small rewards to meeting certain production goals throughout the entire work process. If an activity is budgeted to take a crew three days of work, offer them all a steak dinner if they finish in two. You will be amazed at how many times they will earn that steak dinner.

Good jobsite productivity really is that simple! There is no reason to make it more complicated. Every project management process in your company, every activity that you do every day should be able to be categorized into one of these four pillars. If they aren’t, you need to ask yourself whether it is really necessary.

Remember that good productivity means a competitive advantage, more work, good profitability, and more opportunities for everyone in the company. It’s a win/win situation!

DAVID BROWN is the Founder and President of D. Brown Management, a consulting and management firm that helps construction companies improve profitability. See www.dbrownmanagement.com for more information and to sign up for a free newsletter. 

I am about to put the finishing touches on a porch I have been building for my family.  A rather unremarkable job for the most part, until I set down to thinkin’ about it.

Part of the process that I steer all of my potential clients to is an attempt to assign each lead a number that corresponds to a stage in the sales/execution process.  (1-5)

1. Website feeler or call for information (cold lead)
2. Potential for developing relationship (warm lead)
3. Pursuit in Progress (prelim scope of work/design ideas)
4. Proposal
5. Client

But what struck me as I was sanding and spit polishing our new gathering place last weekend was just how different the project seems from an owner’s perspective.  We didn’t want to start with anything more than a rough design, because it is fun to tinker, modify, change and adapt as we go.  My wife (our CFO) wanted a firm price before we tore the old one off (without a design! Sound familiar?)  I wanted to know how many of my summer weekends this porch that I hadn’t designed yet or planned would take. (Familiar to anyone?)  In essence, my wife and I were the worst possible clients!   

It made me realize just how important the process of lead to client navigation is.  I preach over and over that we cannot give anything more than an absolute ballpark guess of cost (and I try to stay away from anything other than a # to see if we aren’t even in the same orbit)  until after Phase 3 is complete.  We can’t begin to know what something will cost or how long it will take until we have a rough scope of work and at least a preliminary concept design, which then pushes us into phase 4.  But yet, on my own porch, with my own precious time and my own precious resources, I became the worst possible client.  I wanted to know everything possible without going through steps 1-4.  It suddently dawned on me on why my clients are often like this.

When we commit to a project, we know the end will justify the means.  But so often, our clients don’t enjoy the means of getting there.  This is the area that I strive to excel in for my customers.  We have developed a simplified process not only for tracking lead to client – but for tracking earthwork to punchlist.  We strive to make the means enjoyable by setting out a plan that gets them to the justification at the end of the project.  We work diligently, almost religiously, on tracking costs and avoiding missing steps in our process.  I did none of this on my own project at my own home.  Part of it is because I didn’t want to make the effort.  Part of it is, as sick as it sounds, building things is not only my livelihood but my hobby.  I didn’t want to make my hobby seem like work.  In so doing, we bumbled the cost to complete.  We missed the estimated completion time.  Our design looked nothing like what we started out with, because we started with hardly an idea.  Sure we are happy with the end result.  But is cost 1/3 more than I thought and took 3 weekends of work longer than I estimated.

Our clients want to behave in this manner, too.  They have a vision and immediately want to send out invitations for the housewarming party while the addition is nothing more than a sketch or two on a sheet of paper.  It is our job as professionals to guide them in the steps of building, the “Order of Things” as I like to call them.  Betraying this order causes a curse to be put on our projects in terms of time and dollars and ultimately client retention and good word of mouth.  The “Order of Things” is darn near the ten commandments in my company.  But, oddly enough, not for my own project.  I betrayed my own commandment of thou shalt not betray the Order.  I like this phrase so much I want to write a book about it someday.

I often marvelled at how some folks that hire us haven’t a concept of the difficulties and pitfalls in renovation and construction.  It is our job to develop a process, stick to it and not sacrifice it for the sake of expediency.   If we do, years of tinkering with process go out the window, and goodwill often goes with it.  Don’t become your own worst enemy – develop your process and stick with it.  The efficiencies gained when you can say “Client X is a 3 right now” and everyone knows exactly what that means is important for laying the foundation that our reputations are built upon.  I didn’t follow my own plan, but I learned something valuable – how my client thinks the moment that they call some one to design or renovate their home.  How much will it cost?  When will it be done?  When can you start?  I am sorry, Mr. or Mrs. client – the answers to all of these questions can’t be determined until you are at least a 4!!!

Maintaining a high-level of jobsite productivity is one of the most important activities for any foreman, superintendent, or project manager. The first step to increasing—and maintaining—jobsite productivity levels is to understand what all the fuss is about.

When production rates drop, a project can lose money. Without proper documentation, these losses cannot be recovered. Worse yet, if production rates are left at a lower level, and a company adjusts their estimating to match their production rates, the company will become uncompetitive in the marketplace.

On the other side of the coin, if production rates are monitored closely, and improved upon constantly, then the company will gain a competitive advantage in the market, and any impacts will be seen immediately, when they can be dealt with. Many factors affecting productivity are well within our control, but many more factors are generally out of our control.

Here, we’re going to explore what productivity is and how it is measured.

What is Productivity?

Quite simply, productivity is a measure of how much of something is produced for a given amount of resources.

Productivity is related to job costing, but is typically more detailed in that it captures both the quantity of installation AND costs for a specific period of time.

Job costing systems typically capture costs at such a “big picture” level that it is impossible to get accurate production numbers out of them.

Job costing systems also typically run a minimum of one week behind, so by the time you could get any useful productivity information out of them—it is likely too late.

How Productivity is Measured

Productivity is expressed as a ratio between units produced or installed and
resources used.

A very simple calculation example is a trenching operation where production could be expressed in feet per day. Typically one of the numbers, either resources or units, is set to “1,” and that is typically expressed as the second part of the equation, as in the different examples below:

• 310 Feet Per Day

• $4.62 Per Foot

• 32 Fixtures Per Day

• 0.25 Hours Per Fixture

• $12.76 Per Fixture

The following table shows some typical Units and Resources used in productivity measurements:

PRODUCTION UNITS	RESOURCES
• Each • Linear Feet • Square Feet • Cubic Feet • Cubic Yards • Tons	• Schedule – Weeks, Days, Hours • Manpower – Hours, Crew Days • Equipment – Weeks, Days, Hours • Cost – Total, Variable

Production Rates at Extreme Detail

A great example of production rates are the labor units used in the bidding of construction projects. These rates have been determined through very detailed cost accounting on a variety of construction projects.

There are several companies that assemble this type of cost data. Some are industry specific such as NECA (www.necanet.org), while others hit the broad construction market such as RS Means (www.rsmeans.com).

While this level of detail is required for accurate bidding, it is impractical to track job costs or production in the field at this level of detail.

Measuring Production in the Real World

You have to find a balance between labor units used for estimating, which are too detailed, and the job costing system, which is too broad and provides information that is too late.

A realistic production measurement timeframe needs to happen on a daily basis, at a maximum, in order to provide actionable feedback. These should also be summarized by the week to even out high-production and low-production days, as well as taking into account when setup and pre-fabrication is done to support higher production over the following days.

Production Rates are Relative

Production rates are relative. They mean nothing if they are not compared to something else.

The typical comparisons are:

• Estimated: If your production rate exceeds the rates you estimated the project by, you are making money. If not, then you are losing money. It is critical to know this on a daily basis so you can make corrections. If you are unable to attain the estimated productivity rates, then the feedback needs to get back to the estimators so they can adjust the production rates they estimate jobs at. Overestimating productivity on a bid CANNOT be made up for with more volume!

• Past Production: Comparing your current production rates to your past production rates on the same or other projects is the best way to determine if you are being impacted or if the new installation method is working.

• Industry Standards: This information is hard to attain, but with a little work, you can gain a lot of information and set benchmarks for your production. The importance of comparing your production with the rest of the industry is that if you can exceed that production, you will gain a competitive advantage, which equals more work, more profits, and more opportunity for everyone. The opposite is also true.

One other area you can compare production rates is between crews and even crew members. This will clearly show the wide variation between a top producer, an average producer, and a bottom producer. You can use this information to help share ideas about production, and in turn, raise the overall average. Having this data widely available takes care of a lot of people management problems because it makes it obvious where people really rank.

By understanding what productivity is, how it is measured, and by monitoring production rates closely, a company can increase their jobsite productivity level, and therefore, create a strong competitive advantage in the marketplace. It’s worth the effort!

	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.

By recognizing and solving conflicts quickly, an organization can save thousands upon thousands of dollars annually. The key is to focus on efficiency in the pre-planning stage, and then to follow through until project completion.  

Identifying and solving problems expediently within any business should be of the utmost importance for all levels within a company. After all, the quicker a problem is solved, the less time and money is lost. Beyond the monetary benefits, a workplace that runs smoothly and stomps out issues quickly tends to have happier employees and far more satisfied customers and/or clients overall.  

This is true across all industries, but construction is one of the most challenging because we work in essentially an “un-controlled” environment that is constantly changing. Establishing processes, inserting controls, and creating standards is much easier in the relatively controlled environment of manufacturing, where the facility can be designed around efficiency. When the same or similar things are built over and over, unexpected problems are less likely to arise.

With construction each jobsite, the manufacturing environment, is created from scratch for each project. Because of this, the possibility of problems emerging within the jobsite that will affect the cost of the project is magnified exponentially.

The big opportunity in construction to save money on a project is to very efficiently plan the work. Not only will efficiently planning the work save time, it will reduce the possibility of common problems emerging, and that will save money over the course of the project.

Focusing on pre-planning projects and improving efficiency for a subcontractor is critical to the overall success of any construction project. Understanding the cost of problems within the construction industry, and on the jobsite in particular, is the first step. Learning how to recognize these problems at the earliest possible stage, and correct them, will save valuable dollars per project, and over the course of a year, these savings can add up big.

The Cost of Problems

Prolems are not usually recognized until you are right in the middle of them.  At this point, the problem will cost about 30 percent of the original cost to fix, so if you are in the middle of a $1,000 piece of work, and discover a problem, it will cost about $1,300 before you are done.  In the worst case, when problems are discovered after the work is complete, it will cost up to 80 percent to fix. This is lost money, and at this point, there is no way to recover it.  Think about something as simple as a beam that conficts with the HVAC ducting above the ceiling.  Finding it on the drawings and making corrections to either the structural or the HVAC fabrication or both will cost a lot less than finding the problem out when you are installing the HVAC ducting. 

Therefore, it’s easy to see that the focus needs to be on spending whatever resources are necessary to identify and solve problems before the middle of construction. 

Construction and Problems

Constructing a project is challenging; it is very messy. The number one thing to remember is that there will always be problems. Problems are a fact and they need to be factored into your plans far before day one on the jobsite.

Problems are often amplified on construction projects because of the separation of the design functions from the construction functions.

Architects, engineers, and design consultants are often forced into “low-bid” contracts, and the pressure to constantly deliver lower prices means cutting out on coordination between engineering disciplines, eliminating detail drawings, cutting down on elevations, minimizing plan-checking, peer reviews, etc.

All of the cost-cutting on the design side means that fewer and fewer conflicts are caught at the design stage, and are then left for the contractors to figure out. While problems cannot be eliminated, by focusing on pre-planning, they can be reduced.

The quicker conflicts are recognized and overcome, the more successful your project will be. By focusing first on pre-planning, then on efficiency, and then on quickly identifying and solving problems, your organization will save, at a minimum, thousands of dollars annually.

DAVID BROWN is the Founder and President of D. Brown Management, a consulting and management firm that helps construction companies improve profitability. See www.dbrownmanagement.com for more information and to sign up for a free newsletter. 

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.

First of all I apologize that it has been a long time since the last post.  The holiday season this year has been more challenging than most. 

The winter months have always been difficult for most contracting businesses because of weather-related work delays.  During these months contractors basically live off their savings that they built up during the peak summer months. 

November and December add additional challenges because with the holidays we typically can only work about 70% of the time on “revenue generating” field activities while maintaining most of our overhead costs. 

With the economy having depleted most of the profits that contractors made during the summer and also making 2009 backlogs weak the months of November and December have been especially trying. 

We have been working with our clients relentlessly during the last couple months helping them get through these months.  The basics are simple – the execution is very, very hard:

1. Shed ALL costs that don’t generate profits and cash
2. Be relentless about selection of revenue

Regarding item #1 when we say ‘ALL’ we mean ‘ALL’.  Literally you should run a report from your accounting system listing out every expense for the last three months and go through it line-by-line.  Every expense should be looked at and ranked in descending order about how it is linked to profitability and cash generation. 

Don’t try to make too many stretches here – if there doesn’t seem to be a direct link between an expense and profitability or cash then there probably isn’t!  For some more ideas on cutting costs there is an article by our LeAnn Evoniuk, our Financial Solutions manager: 

Cut the Fat, Thriving During an Economic Downturn

(http://www.dbrownmanagement.com/docs/article_cut_the_fat.pdf)

Regarding item #2 – this is just as critical.  Cutting costs is a huge first step but you usually can’t cost-cut your way to profitability.  The other side of the equation is that you need to bring in high-quality revenue. 

This sounds like common sense but typically when we end up doing a revenue analysis with a company we find a lot of inefficiency in the use of resources.  Here’s where to start:

1. Going back 24 months make a list that contains all projects with revenue, direct job costs, margin and completion date
2. Add in fields for customer and type of work (service, commercial, healthcare, industrial, etc.)
3. Summarize the list by customer listing the quantity of projects, last completion date, totals for revenue and profit and then add two columns showing the percentage of total revenue and percentage of total margin – Microsoft Excel has a feature called ‘Pivot Table’ that is perfect for this analysis
4. Sort the list in descending order by percentage of percentage of total margin
5. Sort another list in descending order by percentage of total revenue
6. Sort one more list in descending order by the last completion date

Now is time to sit down with your top team and start asking some hard questions.  Don’t stop with the surface level answers – dig down peeling back the layers of the onion on every one of these:

1. Review the list sorted by margin and look at the sources near the top.  Hopefully none of your customers make up more than 15% of your margin – if they do you may have too much concentration with one customer leaving you exposed if they run into problems.  If this is the case you should be looking hard at how to diversify a little more. 
2. Start adding up the percentages of total margin on the list and find those that create 80% of your total margin.  Most likely this list is relatively short compared to the total customers served.  Start brainstorming the ways to develop new customers that fit the profile of these “Top Producers”
3. Review the list sorted by “Last Date” and see if there are any opportunities there to recapture revenue from past customers.  If there are customers on this list that fall within your “Top Producer” category that you haven’t done work for in a while it is probably worth starting there from a business development perspective.
4. Look at the bottom of the list sorted by margin and start at the bottom having a very thorough discussion about each starting at the bottom and working your way up – the key question:  “What value does this customer truly add to our business?”  Like the expenses now is not the time to mince words – be relentless.  If you can’t clearly articulate the value the customer adds to your company then start looking for ways to shed these “Bad Customers” in a way that won’t hurt your reputation.

How many of your expenses have gone into supporting “Bad Customers?”  You may want to go back to your review of expenses and take another look.

This exercise should give you a much clearer idea about where your money and profits are truly coming from.  There are additional elements that we will discuss more in the future but this will get you started improving both the quality and quantity of your revenue.

The basics – you need to be relentless in your focus on high-quality revenue. 

My six year old daughter is just learning about money and already has the basics mastered.  For the last few years she has really liked the spare change – it is shiny, heavy and fun to play with.  Now that she is getting old enough to want important things like dolls and such from the store she has realized that pennies, nickels, dimes and even quarters don’t go that far!  Starting appropriately on January 1, 2009 she woke up and simply stated

“I don’t want to get paid in quarters – I need DOLLARS!“ 

I can’t think of any simpler of a way to describe the revenue strategies that we need to focus on to work our way through the current economy. 

Closing on a positive note EVERY one of our clients who has been relentless about business development during the last few months has actually increased revenue even during the downturn.  I cannot reiterate how critical aggressive business development is during these times.

QUESTION:  What can I do to market my construction business? 

In a previous post Construction Company Marketing Package we discussed what the elements of a good marketing package for a construction business are. 

Now the question becomes what the heck do we do with all the shiny brochures? 

The tactics below are geared mainly towards contractors that doing project work – marketing service work is different and is covered very well by a fellow consultant, Adams Hudson who has a regular column in both Contractor and Contracting Business magazines.  Each column is a wealth of knowledge about service marketing. 

There are two things we need to do – (1) is to reinforce with our existing customers why they use us and (2) introduce ourselves to new potential customers. 

In this post we are going to focus on getting #1 dialed in creating a foundation to build on for #2. 

The only way I have ever seen projects get sold is with basic, old-fashioned personal sales tactics.  What I’m going to describe below is truly stating the obvious but the problem we see is that few contractors engage in these activities on a regular basis. 

Start with your existing customers because that is the easiest way to get additional work. 

Do you have one centralized list of all your customers setup in a place where you can add in notes about them and keep track of details such as birthdays, spouse names, etc? 

If not then you need to set one up – Outlook is a great tool for this. 

You should be in regular contact with all your current customers at least quarterly just checking in to make sure they are happy with your company’s performance.  This typically isn’t a problem in a small company because the owner is heavily involved in the management but once the company grows this little detail can slip through the cracks on the assumption that other people in the organization are taking care of the relationship. 

For past customers you should communicate with them regularly.  These should be prioritized ranging from ‘1 – would like to do more work with them’ to ‘3 – don’t bother’ or some other system that suits your business.  Often times if you start making calls or visits you will find that there are some reasons why they aren’t doing business with you currently and that can be an opportunity to fix some of your internal problems and win back some work. 

Having new marketing collateral can be a great excuse to drop by and see a current or past customer.  They may not be aware of new people within your organization, new capabilities such as an added service team or of new project experiences. 

Don’t get too caught up in thinking that just because they have or are currently doing business with you that they know the full scope of everything you do.  We have a client who is primarily a glazing contractor but also does doors and hardware.  They have the word ‘Glass’ in their company name and because of that they were overlooked by an existing customer for a large scope of work on the doors and hardware because the customer “didn’t know they provided that service.”

Don’t leave anything to chance.  Make sure that all your current and past customers know the full scope of everything you do. 

Also make sure that this information gets to all levels – it doesn’t do much good if the owner of the company has your information but the estimator does not. 

Your goal should be building tighter relationships at all levels within the customer’s organization.  Everyone from the field foreman to the project manager to the accounting team should know and love your organization. 

Work heavily on building those relationships and getting your new marketing package out. 

While you are there meeting with them ask for referrals. 

Look at this exercise with existing customers as a way to hone your skills in presenting your company and its capabilities.  It will set you up for phase 2 where you will work on introducing your company to new potential customers. 

As always, ask any questions and comments are always welcome.  You can post them here or send an email to david@dbrownmanagement.com.