Business Articles - Marketing

To stay in business, you must generate a steady stream of leads and jobs. Understanding job cycles makes it easier. A job cycle is the elapsed time between the day you begin an advertising promotion that generates sales leads to the day you deposit the final check from the job. Here is a typical job cycle for a small company.

Month 1

Week 1 Advertising goes out to the public
Week 2 Customer calls in and you set an appointment
Week 3 First appointment and subsequent callbacks
Week 4 Contract signed and job submitted for permits

Month 2

Week 5 Job Layout (pre-job conference), materials ordered
Week 6 Job is started

Month 3

Week 11 Completion
Week 11 Final inspection, Final payment
Week 12 Money available to pay bills

Obviously the type of work you do will determine your job cycle. Siding work will have a shorter job cycle than custom kitchen remodels. By looking back at completed jobs, you can determine your company's average job cycle.

In order to have work at one particular time of the year, you will need to generate sales leads weeks and sometimes months ahead of time.

But few construction companies include marketing time into their job cycles. As a result they consider it normal to have downtimes once or twice each year and also to have work lined up three or four months out at other times. Many contractors panic when they see no work ahead and decide to do promotion to get business in fast. But as your job cycle shows, you cannot accomplish in a matter of days or weeks what often takes months. When an emergency promotion effort fails (as it might), the next temptation is to take anything, even at little or no profit just to keep your crews busy. This is one major mistake compounded by a second.

The way to avoid this situation is to invest in marketing - even if you have all the work you can handle! Having the luxury of too many leads lets you select the jobs you want. You have the ability to negotiate work further out than a few months based on demand for your services, and charge a premium for your services. Knowing your job cycle helps you do this.

A typical job cycle

In remodeling an average job cycle ranges between 5 and 7 months. If you do smaller jobs the cycle will be shorter, and for larger jobs it will be longer. Specialty contractor's job cycles might run 3 to 5 months. Some specialty contractors can have an average job cycle of as little as one or two weeks, but normally it will range to three months or more.

New home contractors will have a job cycle of 7 to 9 months and for those that build larger homes, it can run 2 or 3 years.

Once you have determined your job cycle, use it to plan your advertising and promotion to generate a steady flow of leads. Use your job cycle to set do-able sales goals for the quarter or for the year. Use your job cycle to help in business planning.

For instance, suppose the average job cycle for your company is 5.5 months. Your average job size is $13,890, your overhead runs 29.5% and your goal is 9% net profit. You average 6 to 9 calls each week from potential customers, and sell about 5 jobs a month, so your sales-to-leads ratio is 1 in 4.25. That means you can reasonably expect to sell $69,450 per month ($13,890 x 5 = $69,450) and $833,400 per year ($69,450 x 12 = $833,400)

Having all this information stops you from falsely predicting that you could sell $950,000 in the next 12 months. Using these numbers and the predictability of your business, you can forecast annual sales of $800,000 to $830,000 with confidence. This may not seem important but the difference between the realistic and unrealistic sales volumes represents about $35,400 in overhead. ($950,000 - $830,000 = $120,000 x 29.5% (overhead) = $35,400). Over-predicting sales ($950,000) and then failing to produce it can mean spending $35,400 in overhead that will not covered by real revenue. Spending the $35,400 that you will not earn eats up roughly half of your 9% profit goal for the year, a fact that all too many contractors find out the hard way.

In contrast, setting realistic sales goals based on your job cycle, sales closing ratio, costs and other firm financial data helps you set realistic goals and firm budgets for overhead. And as long as you keep the overhead expenses in line with your actual revenue you won't be burning profits to cover overhead expenses because someone wasn't watching cash flow carefully enough.

I encourage you to pay careful attention to these details. When our coaching clients come to us, most are more than $100,000 in debt, usually due to poor cash flow management. Virtually everyone having this level of debt has ignored his or her company's average job cycle. Ignoring financial basics will break your company very quickly.

By Michael Stone
Michael Stone has more than three decades of experience in the building and remodeling industry. He can be reached by e-mail at michael@markupandprofit.com, by phone at 1-888-944-0044, or on the web at www.markupandprofit.com.