Document Control to Business Control
This post will show you how to create a simple spreadsheet to track this data. The great news is that you are producing all this information anyway. All you need to do is track it in a simple spreadsheet.
My previous post detailed how to establish a naming convention for your digital files. This naming convention created the foundation for a total document control system. A well-designed system is repeatable and scalable.
With the right system you will have the ability to start gathering data about your business. You can use this data to analyze trends in your business and make projections based on those trends.
This post will show you how to create a simple spreadsheet to track this data. The great news is that you are producing all this information anyway. All you need to do is track it in a simple spreadsheet. I will refer to this spreadsheet as the Project File List.
A QUICK REVIEW OF THE NAMING CONVENTION
I used the file name below as an example in the previous post:
17-115 Smith LEGACY BUILDERS Int Trim
Here’s a description of that format:
XX-YYY Project Name Customer Description Additional Info
XX-YYY – Project Number – the primary unique identifier
Project Name – Owner’s name or location of project – the secondary project identifier
Customer – For specialty contractors this is the general contractor’s name. General contractors may not need to use a customer name.
Description – the project type or income stream
Additional Info – this is used for describing specific files within a folder
The folder and file format start with the project number. Let’s start with the project number for the Project File List.
EVERY PROJECT GETS A NUMBER
There are two types of projects in your business – potential projects and actual projects.
All actual projects start as potential projects. Not all potential projects become actual projects.
Since all actual projects start as potential projects, you want to assign all your potential projects a project number.
Assign the first project of 2017* with a project number of “17-101.” The next project will receive the project number “17-102.”
*NOTE: The reason I recommend starting your project numbers with 101 is because I reserve 0 to 100 for miscellaneous or special projects. These projects I track separately from the standard system. They might be internal company projects or categories like Warranty, Administration, or Charity.
Continue with this sequencing of project numbers. You will be able to see the number of total projects about which your company has received inquires. All you have to do is look at the last number(s) in the project number.
A project number of “-115” means that you have seen fifteen projects. A project number of “-209” means that you have seen one hundred nine projects. You will use this number in determining your closing rate.
You need to create a database to track your closing rates before you can calculate them.
BUILDING THE PROJECT FILE LIST
The Project File List will contain information you will need to track your closing rate, marketing efforts, and budgetary projections.
The example below shows a Project File List for a general contractor. This general contractor performs various services as listed.
The first column lists the project number. The second column lists the project name. You may also want to list the client’s name in its own column. (I did not show the client information for clarity and space reasons.) Now that you have this information listed, you are ready to start collecting some data.
DATA COLLECTION PER INCOME STREAM
Identify the income streams within your business for this system to be effective. Once you have your income streams identified, then you can start tracking the amount of each income stream for each project.
In the example above, this general contractor has four Income Streams: New Construction, Renovation/Remodel, Service & Maintenance, and Special Projects/Commercial.
Once you qualify the potential project, you will produce an estimate or proposal. Enter the amount of the estimate or proposal into the spreadsheet according to the project number and income stream.
You don’t want to include the “price-shoppers” and “tire-kickers” in your Project Files List. They will throw off your numbers. Eliminate them quickly.
Input the estimate or proposal amount in your spreadsheet for each project.
As the year progresses, you will track the number of projects and the type of projects. The file name already contains this information. So, tracking this data does not take extra time.
You might advertise as remodeling company. You may find that most of your projects are Service and Maintenance projects. You will want to adjust your marketing efforts based on this information. You may need to adjust your pricing strategy and schedule to manage those parts of your business.
SIMPLE CALCULATIONS FOR POWERFUL RESULTS
Having all this information will help you analyze your business and set goals for the future. The analysis required is not complicated. You can perform these calculations with ease in the Project File List spreadsheet.
Sum the income streams for each project and put it in the “SUM” column. Using the sum from each project, calculate the “RUNNING TOTAL.” Add the sum of the previous project line to the current project line sum.
The “RUNNING TOTAL” will give you the value of all projects to date at-a-glance.
In the example above, this general contractor received project inquires that total $577,869.25 through the fifth project of the year.
Create a column for the actual projects. The “TOTAL AWARDED” column lists the value of the actual projects.
Now that you know the total number of projects, the value of each project per income stream, and the total of the awarded projects, you can start calculating closing rates for various aspects of your business.
The Closing Rate is one the most basic and powerful tools that can help you in growing your business.
The Closing Rate equation is quite simple:
Actual Projects x 100% = CLOSING RATE %
The Actual Projects are the number of projects awarded to your company. You divide the Actual Projects by the Total Projects and multiply by 100% to get your Closing Rate.
In the example above:
This general contractor has closed on six of the ten projects. These actual projects are indicated by an amount listed in the “TOTAL AWARDED” column (Smith, Jones, Matthews, O’Brien, Reynolds, and Hodges).
The Closing Rate for this general contractor based on the number of projects is 60%.
6 Actual Projects x 100% = 60%
10 Total Projects
You may find that determining a Closing Rate based on the number of projects alone does not reflect your sales effort. You also need to calculate your closing rate based on the actual project value and the total project value.
In the example above:
The general contractor estimated or proposed a total value $775,032.37. This general contractor received $511,681.35 in awarded value.
The Closing Rate for this general contractor based on the dollar value of the work is 66%
$511,681.35 Awarded Projects x 100% = 66%
$775,032.37 Total Projects
You should also determine these two Closing Rates per income stream (number of projects and value of projects). This will provide you with the information you will need to make adjustments to your marketing efforts. When you receive a call for a potential project, make sure to ask how they heard of your company. You can create a column in the Project File List to track this as well.
You will be able to make projects for the next month and quarter and year with the Closing Rate information.
Let’s assume the following:
- You had a goal of $1,000,000 of revenue for this year.
- You have a Closing Rate based on value of work at 45%
- Your average project value is $24,000.
We can determine the total value of all the projects for which we need to provide proposals. We want to look at enough projects so that when we close on 45% of them, our revenue is at least $1,000,000.
Here’s the equation:
$1M = $2.2M Total Projects
If the average value of the project we propose is $24,000, then we can determine the total number of projects that we need to process to meet the projected revenue goal.
$2.2M = 92 Potential Projects
We need to process 92 potential projects per year. We can set a goal of about 23 potential projects per quarter or eight projects per month.
You can further break these numbers down by income stream. This can direct your specific efforts in the areas of your business development.
Are you hitting your sales goals for the month or quarter?
Are you receiving enough potential project inquires to meet your goals for the week/month/quarter/year?
What’s your current closing rate, and how does that inform your actions for the remainder of the quarter/year?
These are questions you should be asking and answering as you go throughout the year.
When you track this information in this way you will be able to spot trends and make adjustments in your business. The ability to spot trends and make adjustments is the difference between a proactive, healthy business and a reactive, unstable business.
HOW TO GET TO THE NEXT LEVEL
Implementing systems that maximize your productivity and your time are key to building a legacy business – a business that outlives the owner. Many business systems require human and capital investment.
This system is simple and should cost you almost nothing.
You can build this system on the information you are already producing. You only need to track it in an organized way.
Start with the file and folder naming convention. This will cut costly communication errors.
Follow that naming convention with a project tracking system. This system will tell you everything you need to know about your various closing rates.
Use those closing rates to adjust your tactics throughout the year. Build this system to make projections, set goals, and track your progress.
When you track your progress toward your goals, then you stop doing the things that don’t make you money. You stay focused on the things that do make you money.
In the end, that’s the real formula for success for your construction business.