Howard Partridge Part 1 | Why You Should Create a Scoreboard for Your Business
Josh Smith (00:03):
Hello, everyone. Welcome back to the sharpest tool where we take the sting out of marketing. And my name is Josh Smith. I am your host, and today we're welcoming back into the booth. Well, the virtual booth, I should say this is international business coach. And number one, best-selling amazon.com author conference speakers as well. Leadership, extraordinary Howard Partridge. Welcome back to the sharpest tool. Howard's going to have you, man.
Howard Partridge (00:27):
Thank you, Josh. I'm glad to be here as good to be back with you again.
Josh Smith (00:31):
Yeah. And for those who don't know, Howard started his first business out of the trunk of his car and it turned into a multimillion dollar turnkey enterprise. He's on nine small businesses and helped other business owners for over two decades. And if you miss it, you'll definitely want to check out our last episode where we featured Howard and Ellen Rohr, zoom drain, and discussed acquisitions. It's a big, big topic, especially today and today, we're going to focus on key performance indicators, otherwise known as KPIs. This is a really important topic for a business owner to understand when it comes to their business. So generally speaking, let's go ahead and kick this off with a punch here, Howard, generally speaking, what's a KPI and why are they important for home service business owners to understand?
Howard Partridge (01:14):
Well, like you said, there are key performance indicators. So in your business, you need to have a scoreboard and the game of business, you have a scoreboard. All right. And so there are a number of things that we'll talk about today that you have to track. How do you know if you're winning, imagine playing any sport and there's no score. How do you know when you won the game? How do you know how you're doing in that game? You wouldn't. So KPIs really are the stats really like in a game you have stats and the better those stats are, the better your score has got to be at the end.
Josh Smith (01:55):
Yeah. And there's so many things you can track too, right? And sometimes you get, I've been in that place where you get overwhelmed with data. Maybe you got somebody who's presenting you all this data. You don't know how to think with it. You don't know how to make decisions with it. You're trying to figure out the different angles that you can dissect it. So it can be pretty overwhelming from your perspective, owning a service business. What should you be tracking? What's most important.
Howard Partridge (02:18):
I'm going to give you a handful of things that are really important. And before I do that, I want to give you the one thing that you should be tracking in your business. Ellen Rohr. And I went to visit with the folks from the great game of business in January, before the shutdown. And they have a program called get in the game and they talk about, and by the way, Jack stack is like this internationally known business guru who, uh, wrote the great game of business. It was a runaway bestselling book many, many years ago. Fact, when we met him, he had just come back. He had been hosted by the president of Spain for the last three days, just got back. It's like, you know, we're so happy, but they talk about the critical number. And at any time in your business, any season in your business, there may be a critical number that you need to focus on.
Howard Partridge (03:21):
Maybe you're trying to increase profits. Maybe you're trying to increase sales, which should increase profits, but maybe you're trying to get your labor rate down. Maybe you're trying to generate more referrals. And so there may be, you know, 1, 2, 3, 4 focus areas for a season and maybe one specific critical number that you need to focus on beyond that. Uh, so I want to just, I want everybody to be thinking about that. And here's the next thing. If you don't know your numbers, if you don't know how to read your financials, then you need to understand how to do that. But I'm going to share with you what I do, what I learned from really Ellen Rohr. That was a time when we were doing over $2 million a year, but we're spending a lot more than that. If you know, and line of credit was maxed out.
Howard Partridge (04:12):
We had credit cards with high interest rates and I brought Ellen in to implement her financial systems. And I realized that we just weren't charging enough. And there were some other factors as well. And by taking that and really understand the numbers and get into what Ellen calls KFP, we're going to give you a lot of Ks today. I KFC a known financial position. You got to know your numbers because if you don't know how to measure, then how do you know how to move those numbers? They don't move by themselves, right? So first of all, is your income statement, understanding the five numbers on an income statement, your income, your cost of goods sold. And for home service companies, let's just keep that as direct labor that's people in the field and materials, cost of goods sold. Then you've got your gross profit. Then you have your overhead.
Howard Partridge (05:09):
That's your staff in the office that your, your rent, that's your truck payments, all that. And then you have your, your net and hopefully that's a net income. And now wherever you put your salary, whether you put it in overhead or put in profit or a combination, you gotta factor that too. So know those five numbers also know how to read your balance sheet. All right? So those two documents right there, when you just understand how simple they are and you get Eleanor's book, where did the money go? That she'll walk you through that process. So what you need to do is track your PNL, your income statement on a weekly basis. All right, because here's the thing. If your accountant, does it get your books back to you until after the month is over with you can't do anything about it. So you want to even have your accountant.
Howard Partridge (06:05):
Does it have your accountant do it where you can get updated or see it every single week. That way when you get toward the end of the month, then you can see if you need to have a push. If you know how you're doing, if you need to hold off on some expenses. So many business owners go by their bank account, and that is not the way to do it. What you want to do is you want to review your profit loss every single week. And there's two ways to look at those, to, to understand how you're progressing. All right, one is what is your break even point? What is your profit margin? And so you need to set up a 12 month budget so that you can see how you're doing according to your budget. You want to make sure that you know what those numbers need to be.
Howard Partridge (06:56):
Just those five numbers, what those five numbers need to be to be profitable. And you gotta pay yourself. You gotta pay taxes. You got to have some money in the bank to reinvest and those kinds of things. So you need to get a good picture of that. Well, in a service company, you want to really watch your, your biggest cost is your labor, right? So you need to figure out what that percentage is. Really watch that every single week, then you come over here to the top line and you look at pricing, okay, are you pricing profitably? And you need to look at marketing. How much is it costing you to acquire a client? Are you implementing the right marketing processes? For example, I really believe then marketing to your existing clients. The number one, the biggest mistake is not marketing to your past existing clients for most home service companies.
Howard Partridge (07:57):
Now, there may be exceptions to that. I mean, you don't get a roof every day, but do you want to get a referrals? So you probably need to market for a period of time after right after you have the roof installed to generate referrals, are you marketing to referral sources? And so you want to track your marketing too. So every week you want to look at every weekend, every month, you want to look at your PNL and you want to look at your marketing stats. All right. So how much did we generate and repeat those? How much did we generate in referrals and how much did we generate through direct advertising? All right, then you want to look at your ROI on anything that you're spending money on, that you're investing money on. I should say, hopefully on what's your dollar for dollar return on that advertising finally get your team in the game by tracking your sales and posting your sales every single day.
Howard Partridge (09:03):
And that includes upsells. So we do it. Our service company is the first thing that happens every single day. We've got real time software where the numbers update continuously throughout the day on the software. You have a budget or a goal for the month and we update it every day. And we changed that number according to how much we've done and reset the goal per truck every single day. So the whole team knows what the score is. We know if we need to rally, we know sometimes we hit it real, real quick in the month. And we actually raised the goal and we increased the bonuses. I love that. Yeah. Daily sales, weekly PNL, weekly and monthly P and L and your marketing results. Yeah.
Josh Smith (09:53):
For anybody listening, you're going to play that back because there was so much goodness, in what you just said, Howard, I'm kind of curious, you know, you mentioned tracking ROI as it pertains to specifically marketing. So there's other ROI things that you could look at when it comes to like, uh, you know, your labor investments and certain things, but how deep do you go when it comes to that level of tracking, do you want, from a marketing perspective, do you look at your marketing as a whole? And you look at the ROI on the whole number. Do you dive into like really my new channels when you're looking at that, I'm curious of your philosophy on that.
Howard Partridge (10:29):
Sure. Yeah. And so the way I look at this as first of all, you want to create an annual projection. Some people call it a pharma, some people call it a budget, whatever you want to call it, a financial forecast for the year. All right. Been in business for a while. You can go back and you can look at, you know, what was our revenue in October of last year? Okay. What are the trends? And almost every company that you look at, you're going to have high and low months. Typically, if they've been established based on certain times of the year, like, you know, when summer comes, the HPAC companies are busy because air conditioning units are breaking down and odd and all that stuff. And then again, in the winter time, so you want to know your cycles. So what you want to do is you want to create a 12 month financial forecast, not hard to do.
Howard Partridge (11:27):
You can do it in QuickBooks. You can get an accountant to do it. You can learn how to do it through Eleanor's books, but you set up that 12 month budget. And what you're looking for is you want to decide in advance. How much are we going to invest in marketing? All right, are we gonna invest 10%? Are we gonna invest 20%? How mature the company is, whether you do direct advertising or not, but you got to put some in there, right? How much profit do you want to make? Now, when we first started this process, as I mentioned, in the other episode, I have my company, a lot of debt and our labor rate was super high. We had a good sales. We just, our labor rate was super high. The three owners were taking big salaries. We weren't charging enough. And so going through that process, we realized that, so where are you going to need to do is create a budget that works and you're going to then stick to that budget.
Howard Partridge (12:26):
So when you get to the marketing piece of it was your question. I like to look at three big buckets, repeat business, referral business, and in that referral bucket. So when someone calls our company, the first question we ask is, have you used our service before? Yes. Great. They go on the repeat bucket. Haven't used your service before. Well, how are you referring? One of our clients referred. So we're going to tag that as referred by a client. And we're going to list who that client is because we have a referral reward program. And then if there's a referral source, like another company, we're going to list referred by this particular type of source. And we're going to record that company in there. So bucket one is repeat bucket. Two is referral bucket three is direct advertising right now in the direct advertising bucket. I'm going to look at each and every ad that I'm paying for.
Howard Partridge (13:28):
And I personally, the way that we do it as we look at the dollar for dollar return. Okay. So let me give you an example. Let's say that my cost of doing business is 50%. In other words, my cost of goods sold is 50% and I run an ad. So I have to get at least a two to one return just to break either. Does that make sense? Yeah. Okay. Now, if I get a three to one return or four to one return, then everything that goes to that contribution margin or that gross profit, those rights of the overhead. So if I don't have to increase my overhead while I got to paying for the ad, okay. There's the other factors. So let's, you gotta factor the cost of the ad and there are two, so two to one, actually, won't get you there. You got to figure the cost of the ad. Yeah. You got to look at that ROI, understand what ROI target you're looking for. And that's important because that's different for everybody. Yeah. If I'm in growth mode and all I want to do is build my list or minimum. I want to build my list. There are some companies that will go negative depending on what you sell and how profitable it is. You need to know what your client acquisition cost and the way you do that is in the ROI. That's how I do it. I love that. You said that client
Josh Smith (14:51):
Acquisition costs, that's a key metric. I think that a lot of, a lot of businesses miss, because it's so focused sometimes on cost per lead, and you can get a lot of leads or you can get a lot of clicks or you can get a lot of impressions or a lot of people seeing your billboard. But at the end of the day, if you don't know how much cost to actually acquire a client, then you're not going to be able to be as effective in making smart decisions with where you're placing your marketing investments. So that's powerful.
Howard Partridge (15:17):
Yeah. There's an old quote out there that CEO purportedly said that we know that 90% of our marketing does at work. We just don't know what the 10% is. That does Small business owners. We can't afford that.
Josh Smith (15:35):
Yeah. That's so true. So true. So you mentioned a number of things that you potentially share with your team. What do you typically keep private or something that you share with just your leadership
Howard Partridge (15:45):
Salaries? Okay. Yeah. Salaries will, we might share those five numbers typically for the rank and file. We really don't even share those five numbers, but you know, the sales department, they're going to understand everybody knows what the sales goal is. And so everybody has that. The sales department knows that here's where we're at. Here's how many calls we've taken and that sort of thing, what their personal production is. The operations manager needs to keep an eye on fuel and repairs. I mean, if you're not maintaining your vehicles, then that's going to show up eventually. And those kinds of things. So everybody has a budget, so to speak, uh, in the company, but everybody, our critical number really now that we're super profitable. And my administration manager is, and my operations manager really keeping a close eye on the labor rate. We've really worked to get that down. I've done such a great job with that. Now it's really just about the sales number, because we know that every dollar that we bill is going to have a certain amount of profit or gross profit, at least attached to it. And we share, we do a nice bonus for our whole team. If we hit our goal in that month, we pass out checks, you know,
Josh Smith (17:11):
Got to celebrate. Yeah.
Howard Partridge (17:14):
Hey, you got to keep them in the game. Yeah.
Josh Smith (17:15):
Yeah. That's it. Well, this has been really, really powerful. Howard, is there anything you want to mention, just kind of wrapping this up with a nice bow, any tips to make it even more realistic for somebody who maybe hasn't been tracking things as closely as you should.
Howard Partridge (17:28):
Absolutely. I just ask a question. I know how hard you work. I started my service company out of the trunk of my car. I worked in the field 12 hours a day, seven days a week, thought about my business, 24 hours a day. Sometimes I worked 24 hours in a day. I know how hard you work one of these days and it's going to be over. And my question to you is, do you want to do all this work and not have anything to show for it? Do you know what the score is? I mean, some people are working seven days a week, 24 hours a day for the privilege to lose money. If you're like me and you hate the numbers, do yourself a favor, get some help, get somebody to help you understand those numbers because the way to win the game is through profit. And if you don't know your numbers, you don't know whether you're profitable or not. Period. Yeah.
Josh Smith (18:30):
Yeah. Good advice, Howard. And you know, what, if somebody in that position, I know you're one of the big guys to go talk to about getting those things in order. So where can people find out a bit more about you Howard go to Howard
Howard Partridge (18:41):
Partridge.com opt in and we will guide you along the path of building a, not just a phenomenal business, but also a phenomenal life.
Josh Smith (18:53):
I love it. Thank you so much for your time. I would really appreciate having you back on the show. We'll have you again soon.
Howard Partridge (18:58):
My pleasure. It was great to be here.
Josh Smith (18:59):
Awesome. For everybody listening, definitely hit the like button wherever you might be listening at hit that subscribe button. So you can continue to get more of this and content from the sharpest tool. And if you heard something that was interesting to you today, definitely share it around with your friends. And if you have any questions, don't hesitate to reach out to us and reach out to Howard as well from all of us here at the sharps tool. We'll talk to you again soon. Thanks. [inaudible].