What is the difference between a business that is good enough and one that is truly exceptional?
Pulling the gross profit and payroll levers correctly.
These two levers determine the success or failure of your business if you use them properly.
Let’s break it down.
Gross Margin Lever
As the most important metric to properly manage, gross margin pays the bills and payroll. In other words, it is the core of every CI business.
There are two types of gross margin: blended margin (which we break down here) and top-line gross margin. Top-line gross margin, or collected revenue minus equipment and parts, reflects your business’s bidding function, makes it easier to manage payroll, and more.
Generally speaking, a good top-line margin is 60% or better. But what if your business isn’t hitting that number?
- Eliminate discounting
- Perform a mix analysis on your bids
- Confidently charge what you are worth
- Diligently track and bill for change orders
- Stay on top of price changes
- Put expiration dates on your proposals
Now it’s time to look at payroll. And when we say “payroll”, we mean covering sales, techs, admin, operations, support, service, and management, as well as taxes, payroll expenses, benefits, etc.
Your top-line margin should be at least 30% points greater than your payroll. For example, if your gross margin is 60% and your payroll is 44%, there’s only 16% to cover operating costs and profit.
That’s simply not enough.
Here are some successful compensation management strategies our clients have implemented:
- Properly manage or eliminate overtime
- Adjust sales compensation to max at 8% of revenue (4–7% is best)
- Ask whether you achieve $200k+/employee in revenue? If not, how can you boost productivity?
- Reduce windshield time
- Eliminate friction in daily dispatch and return
- Most importantly, have a plan, work the plan, and be intentional.
Pulling the gross margin and payroll levers to find the perfect mix for success may take some time, but it is worth it. Remember to measure, tweak, observe, and reward to keep moving forward.
Matt & the Team