Will you have a place to sit, or will you be “out’ of the game?
In the game of musical chairs, we have to guess when the music will stop and hope that, when it does,
we will have a place to sit so we can continue to play the game.
Otherwise, we are out.
At the time of writing this article, the federal reserve has not only increased the prime lending rate again, but the fed chairman stated rate increases would continue into next year. He also stated the Fed’s goal was to drive unemployment up and they expected the housing market to weaken significantly. Additionally, the stock market has dropped 20% for this year, mortgage rates have doubled, and housing starts are off 20%. None of this is good news for fabricators. (Yes, even a loosening of the labor market is not good if you are also laying off workers.)
This data doesn’t guarantee we’ll have a recession but, if we do have a recession, when does it start, how deep does it go, and how long does it last? Better yet, are you prepared for the impact on your business?
Would you rather ‘guess’ when the music is going to stop – when this super strong demand for countertops will end – and hope you will still be able to play the game – or would you rather have a plan for when the music stops and know you are prepared for whatever this economy throws at you?
When I ask this question, many shop owners will say they have prepared for a downturn by paying off all their loans and banking cash. That’s a solid strategy – if you’ve already completed implementation of it. Unfortunately, it’s pretty late in the game to start implementing that strategy.
One of the challenges with using only this approach is predicting how long any downturn will last and how much cash you will need to weather the storm. For this strategy to really work, it also needs some proactive components. Here are a few to consider.
Raise prices now – The mechanic’s adage of ‘tighten it until it strips, then back it off a quarter turn’ applies. Intentionally increase pricing until your customers start to really complain, then back off a little. All your operating costs are going up, as are your material costs. (A quick check on your pricing structure: For retail jobs, your material cost for the job – including waste – should run about 30% of the sales price. If it is higher, you probably haven’t been keeping up with the increase in your slab prices.)
Once inflation is no longer increasing, your customers will automatically push back on price increases. Increase prices now while you still can.
Know your leading indicators – If your first indication of a slowdown in volume is a decrease in orders, you’ll find yourself constantly behind the curve and playing catch-up to current market conditions. To manage your business effectively (in either a downturn or an upturn), you need earlier indicators of business volume.
Quote volume obviously precedes order volume. How is your quote volume trending? How is your conversion ratio of quotes to orders trending? Posting this data where employees can see it keeps them from having emotional reactions based on perception – and allows you to operate based on facts.
Inbound calls and showroom traffic precede quotes. How are those trending?
Are you using a CRM (customer relationship manager software) to track:
- Social media engagement
- Web site traffic
- How quickly your salespeople respond to inquiries
- How quickly your salespeople turn around quote requests
- Trends for all the above
Think of these leading indicators as an early warning system – radar – for your business. It will tell you what business changes are headed your way so you can proactively deal with those changes.
Quantify your intuition – You have additional fees for full height splashes, raised bar tops, mitered edges, and mitered full drop legs because you know they take longer to fabricate and install. But have you measured the true impact of those factors on your profitability?
You know that some K&Bs and some contractors are more challenging to deal with than others and they probably impact your profits accordingly. But have you quantified their impact on your profitability relative to your other customers?
You know that some market segments generate more profit for you than others. Have you quantified that impact, so emotion and your personal desires don’t color your decisions? Analyzing metrics like Throughput Dollars ($T) as a percent of sales is a start but, to really get at the heart of the matter, analyze $T per install hour for your market segments, your kitchen configurations, your materials, and your B2B customers. Determine what factors drive that variation and compare that impact to how fast you burn cash. This will quantify your business intuition to help you make sound business decisions.
Invest in good tools – Anything you can afford to purchase and implement that will allow you to produce more kitchens with the same labor or less labor and/or improves your quality is an automatic ‘do it’. All digital tools fall in this category: digital templating, CNC equipment, tool setters for CNCs, etc. So does material handling equipment like cranes and powered install carts. Focus on tools that help break recurring bottlenecks to the flow of orders through the entire business – including the front office. Don’t forget to upgrade your company’s computer systems as well.
Anything that improves the customer’s experience falls in this category. Take advantage of technology to automatically communicate the status of sales calls, templater arrival, and install crew schedules to your customers. This helps them feel safe and cared for. Invest in customer service training for customer-facing employee – including templaters and installers. Invest in upgrading the selling skills of your salespeople.
Build your marketing plan now – Too many shops rely solely on word-of-mouth marketing. While nothing beats a solid customer referral, you need a way to effectively leverage those referrals. This calls for a solid marketing plan.
What is your market identity and how does your market message communicate that? How well does this differentiate you from your competition? Have you customized your marketing message to meet the unique needs of each of your primary market segments?
Pro tip: Each market segment needs its own specialized market message.
This can be tough to do on your own. It can be immensely helpful to have the perspective of someone outside your business asking the right probing questions to help you define this. It also takes an experienced marketing professional to craft the appropriate language and integrate it into the appropriate delivery vehicle for it to be effective. Few shop owners have this capability in their business. Find the help you need and build your marketing plan now.
Hope is not an effective business strategy. As we face the headwinds of economic change, we can hunker down and hope to weather the storm or we can take decisive action. The shops who decide to take the actions recommended above are the ones that will come out ahead of their competition when this storm passes.
You deserve to have a business that makes you money, but also allows you time to enjoy it. Contact the author at Ed@FabricatorsCoach.Com or call 864-328-6231.
This article was published in the November 2022 Issue of the Slippery Rock Gazette, find it at: