KPI Targeting for Disaster Restoration Companies

KPI’s:

Almost everyone references KPI’s at some point when business planning. KPI’s are also referenced when discussing accountability, or the desire for accountability.? What is a KPI though?? Really? The funny thing is, when the answer comes, in many cases the answer isn’t a KPI at all, it ends up being a fluffy goal.? So, what is a KPI then?

KPI = Key performance indicators

How is that different from a goal???

Answer: They are targeted, and specific.? KPI’s take you TO your goal, KPI’s are frequent checkpoints along the way to your destination.

For example, one KPI that we often work with is Net Profit.?

What percentage of Net Profit “indicates” that we are hitting the mark?? How do you influence your Net Profit? The goal is I want to be more profitable, how profitable?? 20%, 30%? (if your goal is under 20% think bigger, get specific and then target)

So the indicator is set, how do you influence your indicator? Everything is connected, your destination is your Net Profit target, you got specific and you set a %, now for the supporting KPI(s) to take you to your destination.?

***Trap, when thinking about profits, lets not think in terms of cutting costs, that is a different topic, we are focusing on revenue and the timing of, in this article***

In the disaster restoration industry, your biggest driver(s) to profit are labor, and the timing of your invoicing.? Some may question this by saying, “well, my equipment makes me all my money”.? This is a problem, we all love equipment rental but that is only "1" ingredient to the profit recipe, the other is our labor.? If you aren’t paying attention to this, the profit of your equipment will get absorbed by underbilling or under-accounting for your labor/scope. If your timing is off, you can have profitable projects but you never realize those profits, resulting in a hopeless feeling. This is a guarantee.?

What now?

Most healthy businesses, track the expense ratio of labor to income, and come up with a %.? If you don’t do this, you need to!? My guess is that if you don’t do this, you are not as profitable as you’d like to be.? This target is 12-15% of income.? 15% is the specific ratio, one part of the whole, being an attainable “target”.? Just knowing the target is not enough, you must influence the results!

Targeting and Close out:

The next step to managing your KPI is “targeting”.? We talked about Net Profit, and we talked about % of labor to income.? Now let’s marry the two.? The bottom line is that if you are in the disaster restoration industry, and your net profit is not where it needs to be, or where you would like it to be, targeting can help.? If this is the case, chances are that you are not capturing all of your labor at the right time.

As mentioned above, 12-15% of labor to income is the target.? To control and get in front of the profit goal for the business, we need to capture everything that we do at the time we do it, and that accounting must then make its way to invoicing and processing to the customer quickly.?

One of the questions we ask when we are solving the problem of profits and margin is, what is your timing for invoicing?? What is your timing of getting your invoices put together once you close out a project?? Do you have a system for this?? Generally the answer is that we invoice when the job is completed.? The follow up question is, how much do you invoice on a weekly basis?? The answer is, we get as much done as we can. NOT GOOD ENOUGH.

We now have an opportunity to influence the culture of the business by talking about targeting and close-out.

We know what the target is, 12-15%.? Now, let’s make that work for you!? Here is the magic.

Each week the office manager/accounting department will account for the labor spend from the prior week, divide that spend by 15% to create the target for weekly invoice.??

That target is then communicated to the team responsible for processing the invoices as the weekly goal, this is generally done in a mass email to appropriate team members, sent on Monday morning.? We then build a meeting structure for the team for Thursday(s) of that week to adjust accordingly to close out the week.? Does the owner run the meeting?? No, not necessarily, the team runs the meeting, on a specific agenda, with specific reporting tools.? The team is then driving the close-out culture for your business, and the targets are now in focus, and when the targets are in focus, the targets can be hit.?

You may be saying to yourself, “We can’t bill the following week what we just did if the projects are not complete”? I would then ask you, how much does your payroll fluctuate? Typically not much, meaning that your average of production should be fairly constant barring any event that is driving unusual volume to your business.? The point is, that each week on average your payroll spend is the same or close, which gives you an attainable target for your team.? One of the worst things you can do as a leader is to set unattainable targets, make them real and your team WILL WIN.

Culture and Cash Flow:

When an owner or a manager is able to be specific with their goals, by leveraging the data to create, not only a KPI but a path to attain the KPI. This is then communicated, and structured, the team members will know “at a glance” if they are winning or losing. A forum for them to adjust and adapt in real time to hit the target is created by the intentional meeting agenda. You now have the ingredients for a culture of close out that will directly influence your cash flow, and your financial performance. The result = making your business as valuable as it can be.

For help, or tips on how to set this up for your business, drop us a line and we will get you moving in the right direction!

Eugene Hicks, Founder and Principal at Declaration Consulting