How Do I Turn This Mess Around? - Part 2A
by Kevin Lister, Paradigm Strategies
In article one I spoke about the initial aspects of turning around a struggling remodeling company. Starting with business analysis, we determined the six key business issues, we then created four turnaround objectives for the coming year, we next determined breakeven, and lastly, we created a 2009 budget based on our breakeven analysis.
Thus the next step in this process was to create simple yet effective strategies and tactics that would allow us to meet our predetermined 2009 turnaround objectives. Although we had initially created four objectives, continued discussion led us to revise our thoughts and as a result we created five SMART (Specific, Measureable, Attainable, Relevant and Time-bound) turnaround objectives for the coming year. These goals were:
- Hit $2.5 million in revenue in 2009
- In 2009 achieve a 20% or better gross margin on all projects
- Realize a 3% net profit in 2009
- In 2009 improve customer satisfaction by 10%
- Enhance employee satisfaction by 10% in 2009
To address turnaround objective one, our first strategy was to create and implement an aggressive yet cost-effective marketing program. And since our marketing budget was $50,000 we had to be sure we did not exceed this as well – under budget was acceptable though.
The initial step to creating our new marketing program was to review the company’s previous year’s marketing effort so that we would have a clear picture of their current marketing strengths as well as weaknesses. We looked at the three marketing areas that are relevant to a construction company which are price, product/service, and promotion (three of the four Ps of marketing).
In this review process we first assessed pricing. As I mentioned in my previous article the company was under-pricing its work. Due to this we decided to increase their pricing margin by 5% - from a 15% gross profit margin to an industry minimal 20% gross profit margin. I know many of you are thinking, “How can a company increase pricing in a down economy?” The simple answer is they can as long as they decrease their direct costs and do a great job with their messaging and service delivery (which will all be addressed in this four part article.)
The next area we examined was the product/service offering. We first evaluated project profitability. We reviewed all the various projects they completed over the past year to determine which were the most profitable. From this analysis it revealed that smaller projects, except bathrooms, were the most profitable and the larger design/build type projects were less profitable. Therefore we made the decision to make a concentrated effort on pursuing smaller projects (which are easier to sell in a down economy and would also improve field productivity as well) and do a much better job of pricing and producing larger projects.
We then turned our sights to the company’s marketing message. The message the company had been focusing on was “top quality and service.” Although these are two good themes, with the downturn in the economy, project cost has now become a very important factor to consumers. Thus with this in mind we decided to focus the marketing message on value (total project worth) and the benefits of this, not solely on just quality and service.
The third product/service area we studied was branding. Branding is a company’s visual image – logo, colors, look… After reviewing this area it was determined that they had been doing a good job at branding and thus we would continue with their current strategy.
-Kevin Lister, Paradigm Strategies
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