Benchmarking: It's 2009. Now What?

Starting this year, our industry is facing more uncertainty and adversity than most of us have ever seen. We’re heading right into an economic “perfect storm.” Overall, the economy is sluggish, to say the least. Credit markets have stalled. Consumer confidence is at an all-time low. Normally, any one of these three issues would usually be bad enough, but all three combined create an atmosphere of chaos that our generation has never seen. Your choice is whether to squarely face the brutal facts, give in to worry and pessimism or proactively create a strategic plan to help you weather “the year of the storm.”
So where should you begin?

Create a strategic plan

A strategic plan is a “big-picture” plan. Like the captain of a ship facing a storm, you need to have a strategy. First, batten down the hatches and put out into deeper waters so as to avoid the “rocks” and “shoals” that might surround you. Once there, you need to man your instruments (compass, charts and maps, GPS, radar, navigational system, etc.). These are your objective reference points – benchmarks if you will.

Your budget for 2009, as we discussed in the last issue, is your primary objective reference point for the upcoming year. Within that budget, your No. 1 benchmark to monitor is sales revenue. If you price and produce your work correctly, sales volume then becomes your primary mission. If you can’t price and produce your work correctly, first fix that problem, and then address the sales volume issue. Monitor your sales by means of a spreadsheet or chalk board that displays every lead and proposal along with its status. If you can’t hit your sales goal, be prepared with another plan.

Build a ‘fall-back’

If all of your costs were “variable” – increased or decreased in direct proportion to sales – your problems would be minimal. However, you have “fixed” costs – ones that don’t go away as sales fall. They include things such as vehicle and equipment payments and general and administrative (G&A) overhead items such as rent or office staff salaries.

G&A overhead costs normally comprise about 25 percent of your sales dollar. On average, office staff and owner’s salaries, with labor burden, make up roughly half of all G&A costs or 12.5 percent of sales. If you can’t achieve your sales goals, the first thing to address is office salaries. A $1 million company can afford roughly $125,000 in office salaries. If sales drop to $500,000, then office salaries need to drop to $75,000. Office staff can either reduce their hours or they can go into the field and produce billable hours.

Be prepared to sell unnecessary equipment or put it in “mothballs.” One of my clients has already taken six of his trucks out of action. Fortunately, the vehicle are already paid for. But they are officially out-of-service and now carry minimal insurance. The associated motor vehicle fees are much less, as well. He will not have to re-register them until he, once again, makes them active.

Stay positive

No one knows for sure how 2009 will turn out. Perhaps the fears will be more of a “Chicken Little” situation. However, I suggest that you prepare for the worst and hope for the best. I also recommend that you surround yourself with positive, pro-active people who focus on action that gets results. Look for opportunities and be creative. Discipline yourself to “stay” on your instruments – your objective reference points. For you, your primary reference point is your sales goal for 2009. And be prepared to make some very tough decisions this year to conquer the stormy seas. The survival rate for captains who take such an approach is much higher than for those who do not.

Finally, remember, the current economic cycle is just that, a cycle. You will get through this and you will be better for it, but it will be difficult. There are smooth waters ahead for those who discipline themselves and prepare today.

Jim Huston presides over J.R. Huston Consulting, a firm specializing in construction and services management in the green industry. For more information, e-mail benchmarking@gie.net or visit www.jrhuston.biz.