This begs the question: “How do I effectively manage my Contribution Margin”? Fortunately, there are many ways to do this. We will focus on three of them in this article: 1) Define Your Profit Goal: How profitable do you want to be? This is a question only you can answer. However, it’s important to determine if you want your business to produce a fixed dollar profit or a percentage. In other words, do you want to make $100,000 profit, or 15 percent? The choice is yours and it’s important that amount is determined as most action plans are built around it. Work with your Franchise Consultant to determine this number. 2) Manage Pricing: When was the last time you determined your Menu Pricing Factor (MPF)? If it’s been more than a year, it’s time to recalculate! Why? Because your costs may have increased, this means that your MPF should also increase to maintain your desired profit. Your P&L is a valuable tool that should be evaluated at least on a monthly basis. One of the things it can do is determine how much you should charge per labor hour. Think about shop number three in the previous scenario. A one percent decrease in Contribution Margin meant at least a two percent increase in revenue to make up for the profit difference! Your Franchise Consultant can help you determine what your MPF should be as well as how to effectively mark up your materials to produce sufficient profit. 3) Manage Discounting: Discounting is a very effective tool to get customers to make a purchase decision. Providing discounts is a great way to show appreciation to First Responders, the Military, or any customer group you want to use. Providing coupons can be
an effective way to help customers decide to contact your shop when they otherwise may not have. However, discounting can be used ineffectively if used at the time of purchase to get the customer to say “yes” to the Tech’s offer. In other words, if the Tech wants to give a ‘standard’ $25 coupon to help them make the decision, those coupons will add up! What is the impact of those coupons? The answer is simple: take the total discount amount and divide by your Contribution Margin. See FIG.1 for an example. In this example, the total coupon values were 2.4 percent of annual sales. At a 48 percent Contribution Margin, this shop has to generate an additional $70,347 in sales to make up the discount. This is a five percent sales increase to make up a 2.4 percent discount! The point is, it is imperative to evaluate the effectiveness of any discounting/coupons you are providing and understand the impact to your Contribution Margin and your profitability. If discounts are given as a means to get every customer to say “yes”, then look at how effective your Technicians are at executing the 14 steps and providing value to the customer as opposed to a price. Coupons are generally designed to give to potential customers to help them make the decision to call for service. They are not generally designed to give to every customer. You can download the ‘Revenue by SKU’ report in ServiceTitan into Excel and sort it by ‘Revenue’ to determine the value of your coupons. You can also use this report to see what prices are being charged versus what they are posted as in your Price Book. In other words, you can see if the SKUs are being discounted or not. Your Franchise Consultant stands ready to assist you with profitability and action steps to improve and/or maintain the profit your business deserves! Let’s use 2018 as the starting point for effective profitability!
24 PIPELINE® | EDITION 2 2017
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