For contractors who want to grow your restoration business understanding financial statements is key. There is a lot of valuable information that can be obtained through several simple yet vital comparisons. The two key numbers that every restoration business owner understands is gross revenue and net profit.
How much did you make, and how much did you keep? At the end of the year we pour over our Income Statements and those two numbers, one at the very top and the other at the very bottom of the report are the focus of our reflection. Most numbers in between the two are a blur to us. Let’s get right at it.
How do you assess your business growth performance using these two numbers? Industry benchmarks may help to place you on the performance continuum and help compare your company against other industry leaders. Then I will offer some steps you can take to improve upon what you have already achieved.
When it comes to growing your business and making financial comparisons the first assessment we tend to make is to compare this year’s gross revenue with last year’s revenue.
How much did you increase, or decrease during this past year? If today’s number is larger than last year’s, you tend to feel good about the outcome. A better barometer of business growth is to look at the past three years as a single unit of time. The three year average does a better job of revealing your company’s growth trend and clearly shows your current growth trajectory.
It helps to normalize spikes in activity up or down to give you a more accurate picture of your growth rate. If you have experienced an unusual CAT season you may be lulled into a feeling of achievement when in reality you have simply benefited from an anomaly that can’t be counted upon to sustain next year’s growth.
Determining your average annual growth rate over a three year period will give you a more accurate gauge of your performance. What direction is that trajectory moving and at what rate?
Complete this simple gross revenue exercise to identify your growth trajectory. Identify your gross revenue for each of the years 2012 – 2015 and follow this formula for each year – ((2013 GR – 2012 GR)/2012 GR = %). This is pretty simple math. Subtract 2012 from 2013 and divide by 2012 equals the percentage difference between the two years.
This is your annual growth rate stated as a percentage of change for 2013. For example if your December 31, 2012 gross revenue was $570,000 and your 2013 gross revenue was $625,000 your calculation is (625,000 – 570,000) ÷ 570,000 = .096 x 100 = 9.6% growth for 2013. Do this for each of the three years, add the percentages and divide by three and you will have your three year average annual growth rate.
This trend is worth evaluating. Do it now and then come back. Now apply the Rule of 72 by dividing 72 ÷ by your 3 year average to show how many years it will take to double your business at its current average annual growth rate. What do you think about that?? Are you satisfied or not? Are you growing your business at a rate that satisfies you?
Here are a couple of examples to consider:
My company earned a decadal average annual growth rate of nearly 50%. Applying the Rule of 72 we were doubling in size every 1.4 years. We lived with constant change. The management team constantly grew, new positions were added, new sources of revenue both within and outside the insurance industry were secured. Innovation, adaptability and changed were constants.
Another company I know finished 2012 with $345,000 in gross revenue and will close out 2015 with approximately $600,000 of revenue. When the 3 annual growth rates were determined we found that this company grew at a 3 year average annual growth rate of 22% doubling the business every 3.4 years. Knowing this helps the owner better anticipate personnel, equipment, and marketing requirements over the next several years. Another company has been in steady decline since 2012 when $600,000 was earned.
That company will close out 2015 with approximately $400,000 of revenue. This represents a three year average annual decline of 14%. At that rate unless something dramatic changes the 2016 year end is likely to produce $345,000 in gross revenue. If something is not done quickly the company may not survive.
A company in decline tends to accelerate the decline year over year and that is true with this company having declined from 4% to 14% to 19% over the three year stretch. Now that you have a clearer picture of your growth trajectory and a sense of what this suggests for your future growth trends what is in your heart in terms of changes needed, or opportunities to seize? What can you do to increase your growth rate?
You only have so many sources that can produce growth. They include:
- National referral sources
- Local referral sources
- Internet leads
- Expand the service coverage area
- Add new services offerings
Many contractors find that website SEO, lead generating sites, AdWords campaigns, and yellow pages are too expensive and don’t produce the results they pay for. You are far better off putting your time and energy into participating with several of the major referral sources that have a lot of business to send downstream to dependable contractors like you to complete the work.
Grow Your Restoration Business through National Referral Sources
The insurance damage repair industry is dominated by preferred contractor programs. Today most insurance carriers have opted to assign their claims management to Third Part Administrators (TPAs) like Contractor Connection. Every large and rapidly growing restoration business I know is heavily involved in TPA programs.
You should be too!
There are eight national Third Party Administrator Networks who collectively manage the bulk of insurance program work. My company was active on 30 individual insurance carrier preferred contractor programs that along with other non-insurance sources of work and together propelled our rapid growth year after year.
There is nothing like it. Once you are selected by one TPA you are more likely to be selected by another, and another. Once activated for one preferred contractor insurance carrier program you can be activated for another and another. Once selected for a carrier program you are added to one of their programs and then another and another.
Get the picture. Once the flow begins, it never stops and almost always continues to increase over time. It really is an amazing relationship. For example, USAA is a client carrier of Contractor Connection. They offer six internal damage repair programs, and while you may initially be activated for one or two in time you can become active on all six. These include:
- Mitigation Program.
- Managed Repair Program– the build back for mitigation services.
- Large Loss Program – claims that exceed $100,000.
- Roofing Program – my company did over $2 million a year in roofing alone and roofing can be subcontracted.
- Fire & Smoke Program – the typical rebuild from fire or smoke damage is greater than $100,000 and if you provide Contents Cleaning you can add another $35,000 or more for cleaning the contents of an average sized home.
- Consumer Services Program – many insurance carriers are making their preferred contractors accessible to policyholders who are interested in kitchen remodel, basement finish, decking, and other general remodel projects. This opens an entirely new opportunity to the program contractor.
No doubt this one example opens your eyes to the enormous opportunity program work provides with the constant flow of work that is available through these national referral sources. My client contractors are typically added to three or four TPA Networks within the first 120 days of their efforts. Knowing who they are and how to effectively navigate the application process is critical to selection. But with a little finesse and care you can become a program contractor too.
Grow Your Restoration Business through Local Referral Sources
I am here referring to insurance agents, plumbing contractors, property manager and realtors. The day of building relationships with area adjusters who steer damage repair claims to their favorite contractor is gone. Adjusters are required by their supervisors to insure every claim goes through the Managed Repair Program which generally means it will be sent to a TPA for assignment to one of their contractors. Other than adjusters marketing local insurance professionals is a very worthwhile commitment to make.
The problem is that most of what you read in marketing blogs and what is taught in current seminars is just repackaged old worn out stuff that doesn’t really work in the marketplace today. You are taught to build relationships, have an ample amount of giveaways, bring donuts, sponsor golf tournaments and such. Who has time – you or them – to build relationships these days? No, that is not the key to effective marketing of those local professionals.
There are some amazing strategies available today that will catch the eye of these professionals and earn you their referrals.
Many of the strategies will make you smile and others will make you outright laugh. If you are not overly creative, and I am not, you will be surprised at some of these strategies that are fun, whimsical, highly relational, and really work at gaining the attention of local professionals and lead to new and quality professional relationships that produce work for you.
None are money or time intensive and so just about any restoration company can employ them. Of the dozen or so strategies available to connect with plumbing contractors many owners will take three or four of them to weave into a “constant contact” process that can result in immediate referrals.
Establishing a connection with potential referral sources that come in contact with water damage regularly can add an almost immediate boost to your revenue, and you can have a lot of fun in the process. Just like adding a national referral source once you establish yourself as the “go to” Restoration Company for local insurance professionals they could be yours for life.
One insurance agent brought my company $300,000 a year in work and I never once had to ask for it. Isn’t that amazing? You need a marketing plan that puts the focus on local referral sources and builds a pathway to each of them. Once a restoration company becomes full-service a whole new world opens up to them.
In addition to these local professionals there are other sources that can dramatically increase your revenue such a government agencies and local fire services. There are three government agencies that work in every community of America. They provide grants to local homeowners that range in size from $7,000 - $70,000. My company did $500,000 of work for these agencies annually. There are local fire services available in most communities that can produce $1 million in annual revenue.
Imagine just five $200,000 rebuilds in a year and what that would do to boost your company revenue. I am not referring to the distasteful fire chasing efforts employed by some contractors.
Nobody likes an ambulance chaser! But yes, there are ways to gain access to this wonderful opportunity and highly lucrative arena of damage repair. This blog has been longer than most. Thanks for hanging in there with me to the end. There is just so much to say about the importance of good assessment and proper planning in taking your restoration business to its next level of growth.
If you want to talk more about these things or your business call me for a FREE 30 MINUTE CONSULTATION and let’s apply some of this learning specifically to your company and circumstances. The next in this three part series is about assessing net profit and is titled Get the Most Out of Your Year End Profits. To read the entire series right now visit my website at www.growmyrestorationbusiness.com/blog