Replacement Gross Margin (too low): Part 2

Valued Contributor

Well as the week ends let's look at the final five potential management actions that may need to be taken to achieve an industry standard KPI if your replacement gross margin is to low.  We need to remember that CASH the residential home service industry is KING. The only way to accumulate that cash is to make sure our gross margins meet or exceed what the industry standards are. So, what are those final five areas:

1. Your company has inventory control problems.

2. Your company is experiencing too many call-backs.

3. Your company is experiencing too many warranty calls.

4. Your company has too many returns and allowances.

5. You’re using improper accounting practices.

Examine your inventory control.

  • Examine your purchase order (P.O.) procedures.  Establish if you’re buying too much of a certain type of part or material and it’s sitting in your warehouse.  Also determine if certain materials are being wasted or stolen.
  • Increase the level of security in your warehouse.  Only certain key managers should have keys.  Contemplate adding cameras, alarms, and other devices to reduce the likelihood of equipment and materials being stolen.
  • Examine your truck restocking procedures.  You may have installation vehicles with excessive amounts of certain materials.  You’re continually ordering these items when it’s unnecessary.

Take advantage of any vendor incentive programs that are available to you.  You may be able to save money on materials and supplies your company regularly uses.

 Reduce the number of call backs your company receives.

  • Examine how many call-backs the company receives.  Call-backs should be minimized.  Determine if certain installers need additional technical training or if your entire team does.
  • Develop a quality checklist that must be checked by your installers on every installation.  It will ensure that your installers are taking all of the steps necessary to have the system working properly and reduce call backs.

Reduce the number of warranty calls your company receives.

  • Process returns quickly.
  • Track your warranty calls and determine if you’re experiencing a recurring issue with a particular piece of equipment or material.  If so, contact the manufacturer to see if a recall has been issued. 
  • Keep a record of any warranty issues, and if the problem persists, look into using another brand.

  Assess your returns and allowances.

  • Review how much you’re given in the form of advertised discounts.  If it’s excessive, you may want to temper your discounts on future offers.
  • Review how much you’ve paid in the form of financing discounts.  If it’s excessive, explore additional financing options.
  • Examine the quality of work performed by your installers.  If you receive a high level of call-backs, determine if certain installers need additional technical training or if your entire team does.

Evaluate your accounting practices.

  • Your accounting should be accrued.  Your revenues and expenses from each month should be matched.

Replacement gross margin is something you can lose control of quickly so you want to make sure you are proactive at all times in monitoring this area and reacting.

A little tease for next week we will be looking at your call taker KPI and making sure we continue to fuel the engine that runs our businesses.



Former Titan

thanks for posting these tips, @wpowers11!