Consider this familiar story; a fresh-faced teenager decides they want to go into the trades, they sign up for college and complete their qualifications.
Before they know it they’re out in the field working as a plumber, electrician or other skilled professional. For a few years, they contentedly go about their work, but it’s not long before they realise they could make more working for themselves.
And so they decide to go it alone and set up their own business.
But there’s just one problem, in their years of training and experience, they’ve never before been taught how to run a business.
This is the reality for many tradespeople who start their own businesses. Though highly qualified in their own field, learning to run a business requires a whole other level of expertise.
The good news is, this article is here to help.
The first step in managing a successful business is putting in place the tools and systems to measure success, which means understanding your sales performance.
To make life easy for you we have broken down the key sales metrics you need to be tracking and measuring and how you can use these to develop your business.
If you want to attribute value to your leads, you first need to be able to quantify where any lead has come from.
Leads can be sourced from a number of different places. Some of the main channels are the following:
Each of these channels have a different financial cost associated with them, some of which are easier to quantify than others.
For those channels that are easy to price such as lead generation sites and paid ads, you can easily attribute a cost to those leads.
As a general rule, some lead generation channels are more cost-effective than others. While some channels tend to produce high-quality high-converting leads, others may not yield the same quality.
This goes to show why it’s important to measure the profitability of leads at each stage of the sales journey.
A lead might for example be inexpensive to purchase, but convert poorly into a paying customer. Other leads might cost more but produce high-value repeat customers. This is something we discuss later in this article.
To provide you with a guide to the different channels, here is a breakdown of some of the main lead production channels and how they tend to convert.
This is the gold standard for new leads. If someone comes to you recommended, then the cost is usually low or zero. They also are by nature prequalified, which means there is a high likelihood they’ll convert into received revenue.
Another high-value lead source.
If you manage your SEO and online visibility correctly then this channel will attract quality leads at a low cost. It is important to note that the quality of these leads is dependent on the quality and approach of your digital marketing and SEO.
For help with SEO, read SEO for plumbers (relevant even if you’re in another trade).
Gaining customers via social media can be a very cost-effective method for finding new customers. This can be done by running paid adverts but also at a minimal expense if you run your own social media campaigns.
Check out our plumbing-related tips you can use to develop leads via social media.
Lead gen sites can sometimes get a bad rep, however, they can be very effective.
This lead channel offers a good example of why you should measure profitability.
Customers contacted from lead generation sites incur an upfront cost but can be highly profitable down the line. It’s important to measure and record different sites and quantify how much value they bring.
Adverts can vary drastically in cost and in their reach. For this reason, there is a certain level of risk when running an ad campaign. However, if you carefully measure the success of your campaigns and quantify the long-term value of the jobs you win, then you can build a picture of what works and how profitable this channel can be.
It’s important to realise that one channel is unlikely to produce all your leads and, in fact, relying on a single source is probably not a good idea.
Having a mixture of diverse lead sources allows you to ensure you have a steady stream of customers and options for delivering new leads if one source goes quiet.
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When acquiring new leads you need to take the time to note down and track your lead and channel expenses. For example, if you pay for three leads from a lead generation site, you need to record costs against those leads.
It might be that out of 3 leads, only one converts into a paying customer.
You can then review these costs and see that for one new customer delivered via lead generation, it costs you 3 leads - an expense that should be factored into the profitability of that single new customer.
By tracking where your leads come from and how much they cost, you can get a better picture of the real value of a lead.
This approach can be applied across all your channels.
If you are tracking where your leads originate and how much you’re paying to create those leads as well as how they convert you will have a better financial picture of how effective your sales process is and where you need to focus your energy.
When you’ve got a lot of leads coming in from different channels, being able to track and organise them in a coherent way is important.
You could do this by setting up a spreadsheet and manually tracking them that way, but it’s far easier to do this using a CRM system.
If you use a solution like Payaca this process becomes much more straightforward as you can tag different leads or projects according to where that lead originated. You can then use tag analytics to quickly see how these leads are distributed and quantify how profitable they are.
You also have the option to build custom pipelines (an interface that shows the stages of a customer journey) populated by leads from specific channels. This makes it easier to see how different leads are doing according to the different channels they originate from.
Check Payaca out for yourself if you’re interested or if you’re new to CRMs have a read of our article on what is a CRM.
As we mentioned earlier, once you have more information about the origins of your leads you will be able to quantify how profitable that channel is. With this information, you can begin to build a picture of your total ROI.
But to do this properly you need to breakdown profitability at different stages of the sales process. This means tracking your quoted, secured and received revenue.
Your quoted revenue refers to the money you have quoted to a customer before any money has been paid. The secured value is the figure once the quote has been confirmed by the customer and the received revenue is the money you actually receive once the customer pays you.
It’s important to track profitability at each stage of this process as it allows you to see how effective you are at converting customers and can compare how leads produced from different sources convert as they progress through your sales pipeline.
This information will allow you to refine your process and reduce wasted expenditure. It also means you can build a more accurate picture of your total ROI.
Once you have a more complete picture of your costs you can use this new information to inform your prices.
Profitability is essential to running a sustainable business.
If you know how expensive each of your leads is and how reliant you are on each different channel with its associated costs then you can better understand what prices you need to charge.
Pricing a job accurately is impossible if you haven’t factored in these costs. It’s easy to forget the expense of lead generation, but if your invoiced work is your only source of income you need to ensure your prices are able to cover all your costs.
This is why it’s so important that you have an accurate understanding of your costs per lead, as without this you will find your margins are much shorter than you have accounted for.
If you need help deciding your prices then this article on how to price a job will help you.
For advice on how to increase your prices read “Why your service business should increase its prices”.
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