Business Advice that Leads to Profit
Follow-up with Business Makeover winners proves that making changes can lead to successful outcomes.
About two years ago, we ran a Business Makeover contest. And — winner winner chicken dinner — the lucky company was Gene Johnson Plumbing in Seattle, Washington. Owners and siblings-in-law, Kimberly Kean and Dennis Hamon, welcomed me enthusiastically, and we poured through their financials, reviewed operations and asked the big question: What do you really, really want?
In one busy day, we put together a simple plan to make it happen. That’s what business planning is, a tool for clarifying your dreams and taking aligned action. The plan is just the beginning, and I was interested in how the Gene Johnson team was progressing.
Then, I ran into Kimberly at a Blue Collar Coaching event, where I was presenting. She looked fantastic and was super excited to tell me how well she and Dennis and the team were doing. “We’ve had some real breakthroughs,” she said.“What we really wanted was a business that worked; that was profitable and offered great careers for our team, and the best care for our customers. We have that now!”
We later caught up on the phone and Kimberly shared, “My outside now matches my inside. I used to put on a happy face when I came into the office. Now, I am happy on the inside, too.”
What a wonderful thing to say! “Tell me more,” I encouraged.
“We are making more money than we have ever made. In this year so far, we have made more than the last 14 years combined. The money buys us the time we need to work on the business,” Kimberly said. “When we were financially strapped, we were in perpetual crisis mode. Dennis would make a sale in the knick of time, and we would make it through another day and check cycle. Our profitability has dramatically reduced our stress levels.”
So what changes have they made over the last two years? Here’s what I learned.
One of the takeaways from our Business Makeover time together was a weekly meeting to review the plan and the financial reports. They noticed that sales were up 20 percent, but profits were still non-existent. The focus on the numbers demonstrated the need for systematic changes. They couldn’t just keep working harder.
Kimberly said, “In our financial meetings, we focused on the big rocks such as sales, COGS, gross profit and profit and the corresponding percentages. We had a suspicion that our mid-sized jobs were dragging us down. When we upgraded our dispatch program to Service Titan, we used the opportunity to restructure our chart of accounts. We split the data into three classes: service, installation (mid-sized jobs like re-pipes) and equipment replacement.”
Dennis and Kimberly were grateful for my help, and I was delighted to have been of service to them. I offer lots of help, but few people take the information and run with it. Dennis and Kimberly did! And they found other great consultants and mentors along the way.
Bill Palmer of The Profit Journey, a local business expert, helped Kimberly dig deeper into the numbers. They discovered that the service department wasn’t broken; it was rockin’! The gross margin was 65 percent, customers were happy, and the service department seemed to be running well.
However, 50 percent of their sales were of the installation variety. Those jobs are labor intensive, without a lot of materials, so there isn’t the corresponding COGS for materials. The gross margin on those jobs was 40 percent, and Bill pointed out that it should be much higher.
They combed through every installation and equipment replacement job. They tightened up their job costing to establish gross margin per job and to measure hours bid versus hours in.
What they found is that they were under-bidding the jobs. Dennis overhauled the bidding procedure. This had a big impact for two reasons: first, formalizing the bidding process ensured that enough hours would be built into every job; and second, the procedure allowed Dennis to hand off the sales duties to other team members.
They also let their team members in on the score. They embraced open-book management, and shared their financial understanding with front line employees. If you show your team the score, they are going to want to play the game. So Dennis and Kimberly changed their compensation program.
Changing the way you pay should always be done thoughtfully and gradually, and Team Gene Johnson did just that.
“We got clear on what we were willing to accept, and expect,” Kimberly said. Dennis added, “We wanted to make sure that they didn’t think we were just messing with their bonuses. They had worked at places before where they felt that was happening. As an owner, I can see how even the best intentions can be misunderstood if you aren’t relentless in your communications. I let our techs know we wanted to be real with them, tell them the real story about how they were paid and what was happening with each job.”
All the service techs are empowered to sell install mid-sized jobs. A few techs are free and clear to sell equipment replacement jobs. Dennis went from selling everything to selling nothing! He admits it was tough — at first — to let go. The financial analysis, and the improvement in procedures, helped him delegate responsibilities. Sales, and profits, are skyrocketing without a price increase.
“I have time to do coaching and ride alongs, things that always got pushed aside when I was racing off to make one more sale,” said Dennis. “I’ve got time to work on projects. When I was shopping for a new price book, I found one of my techs who was interested in the project. We chose The New Flat Rate, and he and I worked on the book together, before we shared it with the whole team. We played with the structure, and the add-on suggestions. One tech after another wanted ‘in’ as we rolled it out organically. We’ve added $200 to our average ticket.”
Kimberly, too, has discovered the freedom, and time, that comes from proper delegation. “I used to do every bit of the accounting. If I got sick, or went on vacation, it was all waiting for me when I got back,” she said. “Now, I have accounting procedures, and our awesome office team keeps up on the data entry. This frees me up to work on projects and update our business plan.”
Kimberly and Dennis continue to grow and learn. One of their friendly and very successful competitors is Bill Buckingham of South West Plumbing. Kimberly shared, “Bill once told me, ‘Do enough things right. That’s what makes you rich. It’s not just one thing.’ I’ve discovered that it’s one thing, then another, and another. They start to add up, and you really gain momentum.”
As we wrapped up our conversation, Kimberly said, “We have the best team. I would be proud to send anyone of our techs to your home if you needed service.” Nice!
At Gene Johnson Plumbing, dreams are coming true. It’s time for the mentees to become the mentors. I asked Dennis and Kimberly if they would help me consult with the next PHC News Business Makeover winners, and they said, “Yes!”
And that winner, dear reader, could be you! Stay tuned.We will be announcing our next Business Makeover Contest in the next few months.
Ellen Rohr is president of the franchise company, ZOOM DRAIN and offers “in the trenches” insights to contractors and family business owners. Reach her at 417-753-1111 or firstname.lastname@example.org. For free business tips, problem-solving webinars, money-making tools and lots of love, visit www.ellenrohr.com.