Improving Your New Business Pipeline
By CutterCroix, LLC
For many construction companies, today’s marketplace seems harder than ever to survive, let alone thrive. There are many external challenges impacting the company’s ability to achieve its business goals. Some of these external forces include the lack of available credit to support new projects, cost increases in equipment, materials and fuel, shortages of skilled trade workers, increased competition, and unrealistic bids (i.e. low or no-profit bids). So, how does a company grow its business in this challenging environment? The answer is to improve its critical business systems, in particular (1) the acquisition of jobs (i.e. sales), (2) building the job or work performed, and (3) key support and tracking systems (e.g. accounting, field support/stores, equipment, etc.). We will focus our attention in this article on the development and management of a systematic and disciplined approach to securing more of the right kinds of jobs. While the company’s leadership team cannot control the national credit market or how its competitors will bid jobs, it can control how their company:
- Manages sales opportunities,
- Communicates and strengthens the relationship with current and prospective customers,
- Tracks the touches with leads, prospects and customers,
- Develops bids/estimates (e.g. efficiency, consistency and profile),
- Presents professional and timely quotes, and
- Utilizes the time and resources of its managers and employees.
Like other businesses, the construction company needs a sales process that consistently delivers enough leads in order to qualify enough opportunities so that the company can win enough jobs to achieve its revenue goals. This is best clarified in the saying, “You have to sell it to build it.” The contractor should know the number and type of bids required to achieve the company’s sales goals for the fiscal period. These goals are developed in concert with the company’s Bid-Win Ratio. For example, the company historically receives one job (i.e. sale) for every 10 bids submitted or a 10:1 Bid-Win Ratio. This ratio will normally vary by job type, location, economic climate, competition and the company’s reputation. The goal is to continually reduce the company’s Bid-Win Ratio to a point where you win each bid submitted (a 1:1 ratio). Understanding how many and what types of jobs the company needs and at what profit margins, allows the leadership team to take a proactive role in managing the company’s sales and ultimately, its success. In the words of General Dwight D. Eisenhower, “Plans are nothing; planning is everything.” General Eisenhower knew that because the environment is constantly changing and many factors are outside our control (a good description for the construction industry), the actual plan will always change. However, only with thorough planning can the leadership team consistently make the right course corrections on its journey towards success.
Although there are unique processes to the world of construction, there are far more similarities with other types of service businesses than most contractors would care to acknowledge. Contractors have spent their life refining their trade skills and providing quality workmanship (i.e. jobs) for their customers. However, the concepts of sales and customer relations management (CRM) seem foreign to many construction companies. And like most business owners, the company’s goal is to satisfy their customers so they will use their services again. They also want those satisfied customers to serve as ambassadors (i.e. word of mouth marketing) to prospective customers. In a perfect world, the company has a never- ending pipeline of prospects (sales pipeline) that fits the company’s target job profile or sweet spot. And these prospects are either returning customers and/or referrals willing to pay a premium for the trusted and quality service they’ll receive. Also, in the perfect world, there are no other bidders. Unfortunately, it’s not a perfect world and future work is best secured through a systematic and disciplined approach called the Job Acquisition System. This system consists of several critical processes: (1) sales pipeline, (2) customer communications, (3) bid management, and (4) quote presentation. Like all critical business processes, they need to measured, continually improved and driven by the leadership team. These processes are all within the control of the company’s leadership team. In the words of world-renowned improvement expert, Dr. Edward Deming, “Standardization, measurement and repeatability will drive business quality and profitability.”
The Job Acquisition System begins when a lead or opportunity is identified and ends when the job is won or an assessment of why the company’s quote was not selected has been completed. We will be addressing the first two parts of the Job Acquisition System in this article – Sales Pipeline and Customer Communication.
Sales Pipeline Process
The sales pipeline is a simple tool for ensuring that opportunities aren’t lost, right types and numbers of bids are completed, and quotes are submitted on time. If you want to increase your company’s revenues from last year, you need to bid more jobs in order to win more jobs this year. So, how does the contractor increase the number of bids without hiring more employees? Part of the answer is to standardize and improve the way you manage your sales opportunities (i.e. sales pipeline process). Again, it’s important to point out that the company’s best sales opportunities come from current customers, either through new work or referrals.
The first step is for the leadership team to clearly define what types of jobs the company wants (i.e. ideal jobs) and which ones it doesn’t want. Ideal jobs are ones with highest profit margins, lowest risks to the company, and the greatest likelihood of achieving customer satisfaction. Ideal job profiles should include job size, job type, complexity, external dependencies, location, and relationship with the customer. The leadership team needs to ensure that it does not take on jobs that put the company at risk. Risks of business failure increase when a job requires non-standard (i.e. not normally employed by the company) skills, processes, equipment, and labor. This does not mean that the company should never take on a job outside their ideal job profile, only that the leadership team should carefully evaluate the potential risks. Also, the leadership team needs to assess the company’s capacity to deliver the job in accordance with the contract. Many contractors have failed because of a single job that consumed their resources and cash flow. The better the company qualifies sales opportunities, the less time it spends working on bad jobs (i.e. jobs with low or no profit, that incur high risk to the company, and ensure customer satisfaction will be difficult to achieve). The key is that all sales opportunities need to be vetted using a standard criteria developed by the leadership team designed to achieve the company’s long-term growth strategies. This common framework helps focus the energy of the organization on obtaining (and building) the types of work that best accomplishes these goals. And like all important processes in the company, this needs to be enforced by the leadership team until it becomes inculcated or engrained into the culture. While process knowledge resides largely at the “doer” level, process improvement is always driven from above, by the leadership team with the authority to influence adoption.
Once the leadership team defines the types of jobs the company will bid on, it can then develop more targeted marketing strategies for gathering better sales opportunities. It’s important to continually narrow and sharpen the marketing focus by keeping score. If the company’s ideal job is a single story retail plaza, than the company should focus its energies and resources on finding those types of opportunities which will result in more of those types of jobs. This sniper approach to marketing will help identify alliances, partnerships, and channels that best locate those opportunities.
How do I get my estimators (or sales associates) bidding the right types of jobs? If your estimators aren’t seeking ideal jobs to bid on, you aren’t building ideal jobs. Unfortunately, few contractors tie sales/estimating compensation to finding and winning the right types of jobs. By definition, ideal jobs will make the company more money, so reward estimators with higher commissions (or bonuses) for winning those types of jobs. Another way to free up your estimators’ time to bid more work is to better delegate non-skilled tasks to others. This includes tasks like updating materials and equipment pricing, scheduling appointments, bid preparation (i.e. non-skilled tasks), etc. These tasks are often performed better by administrative staff and usually for half the cost.
One of the most significant ways to improve your sales and bid management processes is by using a sales pipeline. A sales pipeline (e.g. simple automated list) will ensure that walk-through appointments are conducted and quotes make it to their destinations on time. The keys to implementing a sales pipeline, like other company improvements ideas, are (1) keep it simple – the simpler it is, the better chance it will be used, and (2) make it a part of daily operations. The company should have only one sales pipeline view. The pipeline should provide a current and accurate view of all opportunities. Although a yellow pad or dry erase board might work to manage sales opportunities, it is better to use a simple automated or electronic tool. The company should have a weekly pipeline meeting with those employees responsible for sales, customer communications, bidding and quote presentation and submissions (e.g. estimators, project managers, sales associates, designated support staff). Companies that find it difficult to get their team physically together should use online tools and audio-conferencing. The key is that everyone is responsible for updating their information, whether directly into the company sales pipeline or through an assistant. Lastly, some companies include current jobs in their sales pipeline because many jobs transcend weeks, months and even years (i.e. “work in progress”) and the potential for change orders will result in additional or new work.
Customer Communication Process
Communicating with customers, before the sale, during the job, upon completion of the job and periodically is how to grow repeat business and best utilize them as sales ambassadors. According to Harvard researcher, Frederick Reichheld, keeping existing customers costs less to sell to than acquiring new ones, and returning customers spend, on average, 67% more. Reichheld’s work also shows a 60-70% probability of a successful sale to active customers versus 5-20% to prospects. The Company should have a formal process to strengthen the relationship with its current customers because they’re the best source of future ideal jobs and referrals. A study by the Daniel Group found that more than 40% of highly satisfied customers said they had referred a business over the past six months. On the reverse side, studies show that a single unsatisfied customer can influence 100 prospective customers. An IBM survey found that each unsatisfied customer tells 10 other people about their experience. Thus one complaint not handled correctly could lead to the loss of 100 potential customers. This is even more serious when viewed in light of our reliance on word of mouth opinions. According to a study by Forrester Research, the Nielsen Company, and Vizu Corporation, approximately 80% of customers trust word of mouth more than any other kind of information when evaluating potential purchases.
Customer communication and follow-up, especially when regarding an issue or problem, is essential to reputation and future sales of the company. The company should develop a structured and disciplined system to communicate with prospects and customers, whether email, hardcopy mail, phone or in person. These contacts or touches build trust with the customer. The communication process needs to occur on each and every opportunity and job, without exception, and it needs to be tracked. The staff needs to be trained in the process and held accountable for its execution. Again, the process will only be successful if it becomes engrained in the company’s culture and the leadership team ensures adoption.
Another important fact in driving sales and building customer relations is that 85% of sales take five or more touches to win (e.g. phone calls, emails, carrier pigeons, etc.). Many companies struggle to get in contact with the prospect one or two touches before getting sidetracked on the next opportunity. The lack of professional follow-up by construction companies is a common frustration for many consumers. While there are numerous factors that make it more difficult for construction companies to communicate with customers (e.g. mobility or field-based nature of the business, external forces, etc.), the data reinforces the importance of having an effective customer communication process. The way to contend with these challenges is to build and utilize standard customer communication templates or touches. These touches can be automated and delegation can leverage the time and resources of the leadership team, as well as the estimators and project managers. The automated process makes it easier to capture and track touches, which can be communicated using the sales pipeline. And by displaying these touches during the weekly sales meeting using the sales pipeline, the process clarifies problems and issues, as well as unseen opportunities, so they can be influenced by the leadership team. The old adage that “information is power” is only true if the information is timely, accurate and visible. This customer communication process allows the leadership team to strengthen customer relationships, address potential customer satisfaction issues and achieve the long-term goals of the company.
In summary, the construction company needs a sales process that consistently delivers enough leads in order to qualify enough opportunities so that the company can win enough jobs to achieve its revenue goals. The leadership team must define the ideal jobs and then marshal company resources to find opportunities matching ideal job profiles. The company needs to manage all opportunities on a single sales pipeline and implement a formal and disciplined process for strengthening the relationship with current and prospective customers or customer communications process. Further, the company needs to continually improve critical business systems and their associated processes. The adherence to, and measurement of, these processes will only be successful if the leadership team makes it happen. Although the plan will continue to evolve in an ever changing and challenging environment, the planning process is the one way that leaders can control their own destiny and ensure the company achieves success.
About the Author
- Mark Slavik is a co-founder of CutterCroix, LLC, a process innovator that leverages people and technology to drive process improvement. The CutterCroix Team has more than 50 years of experience supporting and servicing the construction industry. CutterCroix powers improvement through innovative tools like GiddyUp software.
- CutterCroix can be reached at info@cuttercroix.com or (877) 394-4339.