Dmitry shares the 10 most important KPIs you should focus on
By Ethen Kim Lieser
This is one of Dmitry’s favorite topics because it is so essential to creating a foundation for your company’s long-term growth. In short, if you don’t know your numbers, you really don’t know your own business. This is a great way to quantify your strengths and weaknesses, and if you take the appropriate action to rectify those shortcomings, your business will be in a wonderful position to flourish. Here are the 10 KPIs that will keep you in the driver’s seat.
Dmitry is adamant about knowing how many leads your business is generating on a daily and annual basis because they will affect all of your other numbers. Ask yourself what a lead really is. It’s just an appointment, a guaranteed time frame for you to pitch to a potential client. When talking about leads, business marketers often use the buzzword impressions. Companies often say they are going to sell you impressions, but really, what are they? According to Dmitry, they don’t mean much. Let’s say you put up a huge billboard on a busy street, and about 60,000 cars pass it on a daily basis. For each car driving past your billboard, that’s an impression.
Instead, what you should really focus on are leads. If you’re getting 10 leads a day from that billboard, now we’re talking because they offer you quantifiable value. Not many businesses do track the number of leads, but you should definitely try to. Keep your number of leads reasonable as well, as your salespeople will likely be overwhelmed and not be able to close them. Dmitry recommends that you don’t give more than five leads — three is the more ideal number — to one salesperson because you’ll likely end up wasting them. Another important thing to remember is to always be on your toes. Someone may have gone to your website and filled out a particular form in order to seek your services. If you sit on that for a couple of days and then call back, that potential client likely won’t even remember you. Memories are short, and attention spans are even shorter. He or she probably already signed on with someone else. Or maybe, you’re just playing phone tag with the potential client, and we all know that playing this game doesn’t pay the bills.
2. Closing rate
This number could vary wildly, but you must ask yourself what is the right closing rate, or how much you’re willing to pay for a lead. Some will pay $200 for a decent lead and $300 for an outstanding one. The right number depends on you and the current state of your business. For Dmitry, a good closing rate should be about 50 percent, because if you’re at anywhere lower than that, you’re wasting too many leads. And if you’re higher than that figure, your prices are likely too cheap. This is in line with what they teach at Rodney Webb University, where they tout the benefits of having 50 to 55 percent closing rates. So if you’re higher than that, try raising your prices to get back down to the 50 percent range. Successful individuals like Rodney Webb do it all the time, and many of his companies start at $450 per square foot.
Dmitry remembers working with one individual who used to ply his trade in real estate. Dmitry gave him 10 or 20 leads, but he wasn’t working out. He was stuck in the 10-percent range for his closing rate. After being questioned about it, he said the prices were too high. Well, the prices that he was suggesting were what the subcontractors were charging Dmitry. So, obviously, that wouldn’t make good business sense to go with those specific price points. What you can take away from this example is that you have to believe in the price. Sure, there will be seasonal fluctuations and economics-driven downturns, but try to embrace the price. For Dmitry, it is better to have a closing rate of 50 percent and have a $40 higher price point for square foot, rather than a 90 percent closing rate and only breaking even. An even better example: If you do $1 million in sales at $10K a pop, that means you have 100 jobs. Just a 5 percent decrease in price means you have to do 186 jobs for exactly the same profit. Keep that stunning fact in mind.
3. Cost per lead
These can end up being interesting figures because they vary by platform. For Dmitry, anything up to $200 a lead is a great buy, but obviously the quality of any lead could be debatable. In Orlando, Dmitry is paying roughly $200 per lead after discounts are applied, and about 50 percent of them have turned into decent leads. Always keep in mind the total cost. In Dmitry’s experience, platforms like HomeAdvisor are a waste of time, as 90 to 95 percent of the leads are terrible. Just having to go through such a large number of worthless leads can be like a full-time job. In addition, HomeAdvisor’s average lead sits at $387. If you have other quality options available to you, just stay away from companies like them.
4. Marketing budget
For the marketing budget, Dmitry recommends 5 percent. To figure this out, just basic arithmetic is necessary. Grab a piece of paper and a calculator and you can get a solid overall sense of what you can allot to your marketing budget. Always keep it reasonable, so it doesn’t interfere with your day-to-day operational budget. Utilizing QuickBooks or CRM is another convenient way to quickly run these marketing budget reports.
5. Net profit margin
The best net profit margins that Dmitry has seen is 13 percent. When Roofing Insights was funded by Storm Group Roofing, a relationship that ended about three months ago, the profit margins fell off a cliff to around 7 percent because Dmitry was so focused on hiring videographers and creating all of the video content. It didn’t take much for the Roofing Insights channel to eat up $200,000 on any given year, which made it incredibly difficult to hit that 13 percent net profit margin. However, the content creation has indeed garnered great leads. For example, after one review on OC Flex, a customer just came in the office to say that he wanted to do business with Roofing Insights.
Dmitry also tries to hit home that you need to know what your bread and butter is. For example, people might think that the bread and butter of McDonald’s are its burgers. It’s not. This fast-food restaurant’s biggest profits come from its fries and Coke. As for Dmitry, his highest profit margins come from insulation and gutter covers, not from roofing. If you’re only going to make 10 percent profit on a $10K roofing job, and you’re making 50 percent profit on a $6K attic insulation and gutter project, which is the smarter choice? Do the quick math and you’ll easily see where your focus should be. Identify your fries and Coke. It wasn’t too long ago when gutter covers were $6 a piece — now they are selling for $12. The numbers don’t lie and it’s your job to use that important information to your benefit.
6. Working capital
Simply, your working capital is your current assets and liabilities. Dmitry says don’t be shocked, but here is the truth: Most big companies are Ponzi schemes. This is exactly the reason why if you take away some sales of a $40 million storm-chasing business, they’re going to likely collapse. They are no longer viable and can’t complete basic jobs if they don’t bring in more money into their Ponzi scheme. Let’s take a closer look at these sales. Just because you completed a $1 million project doesn’t mean that you now have $1 million. You may have labor costs or maybe you want to purchase that new truck for your business. At the end of the day, you need the cash to pay off your bills. Or worse, people might start calling you to demand refunds.
That’s why you need a good accountant to tell you what your current assets and liabilities are. It took Dmitry many years to find that perfect accountant, but he works with one now. Dmitry didn’t trust himself around a calculator, and he hated working with numbers. He needed a more reasonable voice to help him on his business journey, and now all he talks about are numbers. You might wake up on any given day and check your bank balance. It may say $150K, but if you call your accountant, you’re going to get the real number — sometimes a number you don’t want to hear. But this is to keep you within reality, stopping you from spending cash that you really don’t possess. It’s indeed a costly mistake, and you want to avoid it at all costs.
7. Breaking point
Ask yourself this: How many jobs at your current price do you have to sell per month to stay alive? For Dmitry, he needs to hit a half million dollars. Maybe in one month, it’s sitting at $400K, but Dmitry tends not to worry that much because he counts his money on an annual basis. These, though, are important figures to keep in mind because if you can’t reach your breaking point, you’re not going to be able to pay your employees, and this will obviously put a dent in your business in the long run. If you ever do find yourself in the red at any given month, consider making changes like lowering your price for a period of time. This is akin to a big department store offering a huge sale.
Back in the day, Dmitry was one of the industry’s fastest floor installers. In his words, he was “fricking Speedy Gonzales.” He was so fast that he was able to only charge $1 per square foot. Even with that rock-bottom price point, he never made less than $500 a day, which is about $50 an hour. When Dmitry was working for somebody else, he was only bringing in $20 an hour tops. He even hired someone off Craigslist and paid him $15 an hour and still kept 80 percent of the profits. So what you can take away from this example is that it is okay to be the cheapest guy if it’s going to bring in more volume. A similar situation occurred in 2009, when the economy was on the verge of collapse. Dmitry decided to lower the prices for his flooring business. This worked wonders when other stubborn players in the market refused to do so, and they eventually went bankrupt. Yes, you might hurt the market a bit by dropping the price, but tomorrow, you might not even be in business.
8. Gross profit margin
You definitely need to know this because you will calculate quite a few numbers from the gross profit margin. For Dmitry, he often calculates his marketing budget and bonuses from this figure. Therefore, if he does $5 million in business, he knows that he can allot $250K for his marketing efforts. When calculating your gross profit margin, keep in mind the 30-30-40 rule: 30 percent for labor, 30 percent for materials, and lastly, the final 40 percent breaks into four parts. The first 10 percent is room for changing variables, next 10 percent is your sales commission, next 10 is your net profit, and the final 10 is your overhead. Always be aware of your bread and butter and try to hit 30-40 percent margins. Especially in the commodity-focused roofing industry, this is indeed very competitive.
9. Complaint rate
Don’t shy away from complaints via negative reviews. You can use them to better your business and profit margins. As for Roofing Insights, the complaint rate is about 5 percent, which means a whopping 95 percent of the reviews are positive. If you create content on YouTube, then between a 10-20 percent complaint rate is reasonable. Dmitry believes that on a 1-5 scale, having a rating of 4.5 or better is great. The higher the rating, the more likely potential clients will gravitate toward you. This rating system is not unlike Michelin stars for restaurants. Would you rather eat at a 3-star restaurant or a 4-star one? The choice is simple, and that’s how customers will react in the roofing business as well. Remember, you rating will sometimes fluctuate. You’ll never find a perfect 5-star rating for a particular product selling on Amazon. There will always be people who are unsatisfied. Forget those minor hiccups, and if you can stay in the 4.5-4.8 range, you’ll have nothing to worry about.
10. Sales growth
For Dmitry, this is the only number that he checks on a weekly basis. As he bases his entire business around the sales growth report, Dmitry can garner a better sense of whether or not his business is on track to meet all of the financial goals. For the last three to four years, Roofing Insights has been growing at an annual clip of 30 percent. So, Dmitry already has a keen sense of where the company should be numbers-wise. If it’s the month of May and the overall numbers aren’t where they should be, Dmitry might start panicking. He might be questioning whether the company is getting enough leads or the salespeople aren’t closing enough of them.
Dmitry already knows that he has a business that brings in $5 million annually. So, what if the number rises to $6 or $7 million? Now, he has $600K or $700K for his overhead, which is what he pays to his employees. With this newfound information, Dmitry can now recruit other workers and hopefully grow the profit margins. In short, if you pay attention to your sales growth numbers, they are going to give you insights into how much money you can spend on other areas of your business. Numbers don’t lie, and it will be prudent for you to stay on top of that. Lastly, Dmitry doesn’t want you to track your actual sales because that’s not actually putting any real money in the bank. Instead, focus on producing everything as fast as possible and track what you actually produced. At Roofing Insights, Dmitry doesn’t even consider a job a sale until it is fully completed. At that point, it is only a liability. If you remember that, you’re definitely on that golden path toward long-term success. As they say in Russia, “Don’t divide the pelt of a bear that is not yet killed.”