How a Home Service Company Improved Cash Flow
Jadyn DePhi, Birdseye DBM
Snapshot
A home service company knew something wasn’t right, because they were fully booked and not making any profit. Is it their operations, is something sucking their cash like marketing or labor? We dive into this together, and increase their annual revenue by 30% in a single week!
Client Introduction
There’s a common heart I see in the home service industry; they are so, so kind. They truly care about their customers, and about doing a great job. However this kindness can be a weakness; not following up on outstanding bills, pricing well below what a service is worth, and so on.
Here’s to keeping kindness in business, and how to set professional boundaries with customers.
Problem
This Home Service business was experiencing a consistent cash shortage. They knew an improvement needed to be made somewhere, but couldn’t pinpoint it. They had a great team that was happy to be there, they had very little loans to pay off, there was little overhead; so where is the problem?
After a bit of digging, we narrowed it down to their kindness. They had hundreds of invoices that had not been paid ranging from a year to a month old, they had jobs that were very underpriced, and they would do small add-ons constantly at the customer's request. Why is this due to kindness? They didn’t want to upset anyone, they didn’t want to say no, and they would graciously accept any excuse or make a kind excuse for their client not paying.
Solution
This company found me through Word of Mouth. A previous client of mine heard and understood that this business could use the unbiased perspective of a Business Manager.
How did we know they were underbidding their service? First, we need to know an hourly rate to use for backend bidding. This rate should incorporate all expenses, labor, location, competition, experience and the type of work completed. In this case, we worked backwards, we added all the services together and the expected time, and found that the current “hourly rate” was averaging 40.00 an hour. This was WAY too low, and only covered 73% of business expenses. We were going to increase rates on some clients.
There were also hundreds of invoices outstanding that have not been contacted or followed up on. (Disclaimer, yes sometimes companies accept a net amount of time late, the problem is when the service CONTINUES and no payment is coming in). We would tackle this by discontinuing service for unpaid customers, and adding an automated email/text chain to follow up on this invoice. If absolutely necessary, get a collections agency involved.
Finally, we addressed scope creep. Because the initial bids were not detailed and specific, customers could ask for more, and more, and more until labor on that job could be double what was originally planned. We tackle this in the bidding process, and set some clear expectations for clients.
Results
The client was very nervous to make these changes, the main concern; what if I lose too many clients? This is where my data analytics certification comes in handy; I made them a play sheet where they can see how changing their prices could affect their revenue with the loss of customers in mind. Bottom line, with this price increase, they could lose a full THIRD of their customers and STILL be making a profit.
Customers were notified of the upcoming price change to their service, with plenty of time to cancel if it was something they could not continue with. This next part is not the same for everyone, but this company only lost 5 recurring customers (and stopped service for 10 outrageously overdue customers). That was only 7% of their customers! In that single week, they had gotten thousands of outstanding balances collected, and an annual increase of revenue by 30%.
Conclusion
So in the end was kindness truly their downfall? No, and here’s why. The number one response they received from customers is that they are glad to pay more for such a kind and honest team and company. They had built an outstanding relationship capital with their customers, and they agreed that they should be compensated fairly for that level of trust that they offer.