What's Your Mix?
A simple way to look at your mix of business is to compare your business to that of a car dealership.
What’s your mix? That’s a question that roofing manufacturers often ask as they evaluate their own business. They’re keenly aware that some of their products are more profitable than others. Their goal is to maximize the mix of their product offerings to achieve or exceed their volume, revenue and profitability goals.
Roofing contractors should also ask the same question for themselves to make sure that you’re maximizing your mix of business to meet your goals. This is particularly true in comparatively prosperous times while the demand for roofing work is relatively plentiful and there may be limitations on the capacity of business. Certainly we all want to employ our crews to get the most that we can for our services.
A simple way to look at your mix of business is to compare your business to that of a car dealership. Most car dealers have three types of revenue to drive their business: new cars, used cars and the parts and service department. New car sales tend to involve big dollars, but low margins. Used car sales typically deliver the most profit dollars per sale, while the parts and service department has quick turnover of inventory with the highest gross margin percentage on sales. Parts and service is usually the most profitable division at a dealership.
Similarly, roofing contractors can divide their business between new construction, reroofing, and service divisions. New construction work is often described as having the longest sales cycle, lowest margins, and slowest payment for receivables. Reroofing, which makes up 70-80 percent of the roofing market, allows you more access to the ultimate decision maker with more control on the jobsite and scheduling flexibility on projects that have the potential to be more profitable. Service work has lower sales revenue per transaction, but should bring the best gross margin percentage.
Do you know what your mix of business is? Have you established goals to leverage your mix of business with your customers in your local market area? Answering these questions will help you build a business model that takes advantage of your strengths and prepares you for changes in the economic environment. Many different business models for mix can be successful. It may be worth your while to re-examine your actual mix compared to the ideal mix for your business.
There are other ways to look at your mix. One of those is to look at your mix of the products or services that you provide. For residential contractors, in addition to steep slope roofing, do you have the expertise and crews to do other types of work, such as eaves, gutters, insulation, siding and windows? Knowing your profit margins in each product category can open your eyes to how you can be more profitable, whether it’s from increasing sales in particular product/service lines or improving under performing portions of your business.
Another perspective is to consider your mix of customers in their business sectors. Business sectors can be classified in many ways, but some common categories are: retail, religious facilities, hospitals, distribution, manufacturing and public sectors. If you specialize in one particular sector, do you need to diversify your customer base? Are you able to serve clients in other sectors as effectively? What investments might you need to make in order to serve different types of sectors and ultimately grow your business?
When times are good and the phone seems to be ringing off the hook with opportunities, it may be helpful to step back and evaluate who your clients are and how you can serve them most effectively. So, check out your mix and see if you’re capitalizing on the strengths of your company.