In Part 1 of this series, we outlined six key performance indicators (KPIs) that every HVAC and plumbing business should be tracking: average ticket size, gross profit margin, revenue per technician, customer acquisition cost, close rate, and call-back rate.

But knowing the numbers is only half the equation. The real value is decoding that data to make sense of what you should do next. The goal is a more efficient, effective, and profitable business.

Two important pieces of the puzzle:

The most important number is the trend

One month of data doesn't tell you very much. It’s vital to track these numbers over time. With three or six months of numbers, you can see the trend. That tells you much more than simply looking at a single month.

Pair every number with three questions

Say you have three to six months of metrics in all of the KPIs we mentioned. Now it’s time to start asking:

• What changed?
• Why did it change?
• What are we going to do about it?
  

With that in mind, let’s look at each KPI and delve into what those numbers might mean.

Average Ticket Size: Is it rising or falling?

Track ticket size over a period of months. What trends are you seeing? Is it inching upward or downward? Look deeper for the reason behind the change.

If your average ticket is falling:

• Are techs identifying all of the customer’s needs?
• Are maintenance agreements or add-on services being offered?
• Are estimates being presented clearly?
• Are technicians uncomfortable recommending repairs or replacements?
• Has your service mix changed?
  

If it’s rising:

• What are your techs doing differently?
• Is the customer being upsold before or during the visit?
  

Once you have a clear picture of your ticket size trend, you can make adjustments and tweaks to ensure it keeps inching upward.

Gross Profit Margin: Is this revenue actually making you money?

A business can have a great revenue month and still not be getting anywhere in terms of profit.

If your gross profit margin (GPM) is shrinking, start looking at what, if anything, has changed. The usual suspects include:

• Material costs
• Equipment costs
• Labor – not how much you’re paying per hour, but how many hours it takes to get the job done
• Warranty work
• Discounts
• Excessive overtime
  

One way to boost your gross profit margin is to take note of the different types of work your techs are doing on a low-GPM month. Are certain services less profitable? Are you underpricing for those services? You may also find that material costs, including fuel, have gone up (everyone’s feeling it) but your pricing has stayed the same. When you get clear on the “why” behind your GPM, you can tweak pricing and job mix to boost that margin.

Revenue Per Technician: How productive are your individual techs?

As we said in Part 1 of this series, tracking revenue per technician isn’t about setting up a competition among your staff. It’s about knowing who is consistently pulling in better numbers, and why.

What are they doing right? Is it superior knowledge? More training? Faster speed at getting the job done? Skills in upselling?  Whatever it is, this is the opportunity to have your best people become trainers and mentors.

But for those who don’t bring in top revenue, don’t assume they’re not doing the job. Reasons include:

• Too much windshield time due to poor scheduling
• Excessive callbacks
• Too many low-value jobs
• Seasonal demand changes
  

The key is to find the sweet spot between revenue per tech, billable hours, average ticket price, and callback rate.

Remember, the goal isn't to start a competition. It’s to discover and remove the factors preventing good technicians from doing more profitable work, and to see what your best people are doing right, and replicate that.

Customer Acquisition Cost: Is your marketing spend worth it?

You spent $5,000 on marketing and brought in 100 new customers. Great! The next step is to drill down and look at which marketing channels — direct mail, online ads, print or TV ads, and more — are producing the most bang for your buck.

It’s a simple matter of tracking where new customers come from.

• Google
• Local Service Ads
• Referrals
• Social media
• Direct mail
• Home shows
• Paid advertising
  

But, that’s not the whole story. The next step is tracking how much those new customers actually spend.

And about that tracking. Do it over time, not just the first call. A new customer might need a simple repair the first time, but down the line, they may buy a maintenance agreement, a new HVAC system or new pipes.

Close Rate: How often do you get the job?

How often do you walk away from that initial call with a ticket on the books? If your closing rate has seen better days, here are some factors to consider:

• Are your estimates consistent and on par with your competition?
• Who is answering that initial call?
• If the estimate is on site, are certain techs closing more than others? If so, why?
• Are you giving customers options they might not have considered but could benefit from?
• Are your people clearly explaining the problem and the solution you can provide?
  

It’s tempting to blame pricing when your close rate is low, but it might be something like unclear explanations of the problem and how you can fix it. Training your people on sales and communication techniques might turn the tide.

Callback Rate: How often do your techs have to go back to finish the job?

A high callback rate can be a profit shrinker. You‘ve been tracking these numbers, so what have you learned?

• Is one technician having more callbacks than others?
• What is the reason for the callbacks?
• Are customers clear up front on what the job is going to entail?
  

If it’s one or two technicians, this is a skills and training problem. You may need to spend some time upskilling those folks. If it’s companywide, it’s time to look at how jobs are communicated, what customers are expecting, and what you’re actually delivering.

Bottom line: You don't have to be a math whiz to run a profitable company. But understanding the numbers behind your business can help you improve operations and efficiency, satisfy more customers, and increase profits.