Business is becoming more challenging and companies must take action to address rising costs in our new economy or face difficult times. Raising rates is a logical response to offset increased operating expenses. However, will your competition allow you to raise rates?
Another problem many successful and profitable contractors face is how to motivate managers who have been with the company for many years. Long-term managers, the ones that helped build the business over the years, are loyal and competent, but are they motivated? Let's look at these two major challenges that can keep you up at night.
I want a raise
Insurance costs are going up by the double digits and most other operating expenses are also increasing, so contractors are seeing their overall cost of operating rising. This leaves one obvious solution: increase rates. That said, competition is preventing many companies from issuing rate increases, or giving serious thought to the size of the rate increase. Raising your rates can help offset expense increases. However, you also need to consider how many accounts you'll lose to competitors because of it.
One of your biggest challenges in raising rates is to educate customers that you're performing their services efficiently and at the lowest operating cost. Property owners are facing the same increasing costs that you are, and won't accept any perceived inefficiency on your end as a reason to agree to a rate increase. Be sure clients realize that you understand their budget issues and they know that you are a low-cost service provider and a smart operator.
With most operating expenses going up, it's time to review and analyze the priorities of operating in today's business climate. There's not much you can do to reduce some costs, like fuel. Try reviewing routing and use the new GPS programs available to optimize crew travel times because every small saving goes right to the bottom line. Look at each expense line item and evaluate how it could be reduced or even eliminated. It's normal to get used to doing things a certain way and companies should ask if all these expense items are necessary in business operations this year. By taking a fresh look you could find expenses that can reduced or eliminated.
For example, implementing a well-designed safety program can reduce insurance costs and training supervisors to reduce job times can increase revenue without adding additional expense. Today's best business practices are vastly different from 2004 and successful companies realize that.
Increase managers' performance
Reviewing expense goes for your labor and administrative HR burden also. Your employees are your company's most important assets and you should review every employee's efficiency and performance. Company owners and managers owe employees the most efficiently operating company possible and employees know when a company is operating efficiently. You are responsible for operating the business at a profit and providing job security for employees, just don't put job security before profitability. That would be putting the horse before the cart, as they say.
Long-term loyal managers pose a particularly difficult challenge. Managers who have been with the company for many years are the highest paid employees and companies deserve a good return on their investment. These managers must understand that the new business climate requires them to support the company and provide ever-increasing management services to sustain and grow the company.
Ask these managers to rate their previous year's performance effectiveness and give you a written report of their goals for this year with plans to achieve them. Fortune 500 companies and the largest green industry companies use an appraisal process. Managers complete a self-appraisal in advance of their annual performance review. You as the owner or supervising executive also complete the same appraisal form and review both the manager's self-appraisal and your appraisal together.
This is a fair way to communicate what the manager is doing positive and what they need to work on. By asking managers to rate themselves and state goals for the coming year, both you and the manager can agree and track progress moving forward. The goals are called Key Performance Indicators (KPI), kind of a scorecard of performance. Once the KPIs are agreed on, they can be reviewed periodically to insure they are achieved. By agreeing to the goals, managers better understand what the company expects of them and the importance placed on their contribution to the company's continued success.
Business is getting more competitive and more expensive to operate, and this will continue. Don't expect business to return to the way it was five or six years ago; it's not going to happen. Now is the time to focus on reducing the costs of operations, especially your labor burden, so you can compete, profit and sleep better this year.
Rick Cuddihe is president of Lafayette Consulting Co., and works with green industry companies to improve their businesses. He is also a PLANET Trailblazer and a Vistage Chair. Contact him at email@example.com.