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 belong to an era that has automated nearly every process available to some extent.  Hanging door blanks in a jamb is a lost art in the field and will solicit confused looks from many of our carpenters.  Much of what we do gets pushed off to specialists that do one thing very well.  The jack of all trades is often seen as antiquated or too expensive. This axiom is often also true for our field leadership.  Those that fully understand the technical aspects of the trades are often not taught the intricacies of management and vice versa. In a tough market we normally can’t pad our estimates to include missed items.  We have to get more efficient, and reducing or eliminating end of project completion items is a great place to start.

I think part of our training program should include fundamental skill tasks as well as management tasks.  I don’t think it is necessary to teach a superintendent exactly how to cope/miter crown moulding, but it is important that he/she understands what it should look like at the end of the project.  If we can eliminate or, at the very least, take a big chunk out of the punchlist at the end of the project through improved quality control, we have earned much more than the cost of training in time and production costs.

I have often suggested that a list of Quality control items that often find their ways onto punchlists get put together.  At a monthly meeting, take one or two of the items and explain how this issue made it to the end of the project before being corrected and when/how could it have spotted earlier.  Some punchlist items are difficult to spot until final trades are completed.  Others can and should be caught at the time the subcontractor is on site performing their portion of the project when it can be most efficiently corrected.

We are all getting pushed for tighter margins and tighter times to completion.  Right now, the client holds the upper hand.  Eliminating time and expense from completion items is a great way to increase profit without increasing bids and/or proposed profit margins.  If we think of each item on the punchlist as costing a minimum of $500-$1000 to correct, it easily adds up to a significant dent in our budgets.