Your 2014 Operating Plan

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Operating Plan SnippetI know, 2013 isn’t over yet. It’s not too early, however, to consider some as-in-baseball, as-in-life wisdom. Now, he might not have been talking about residential contracting businesses, but Yogi Berra said “If you don’t know where you’re going, you might not get there.”1

While I’m quoting old guys, we’ve also got Ben Franklin’s “If you fail to plan, you are planning to fail!” and Winston Churchill with  “Plans are of little importance, but planning is essential.”

It doesn’t seem that most residential contractors have embraced the concept. You should. To position yourself for success, I’m encouraging you to build an Annual Operating Plan. Think of this as a combination of your 2014 budget along with the strategy and tactics you’ll use to get there. It’s also the benchmark you’ll use in the coming year to frequently check that you’re on track or not on track as the case may be.

Let’s start with the budget. If you’ve been in business at least a year, you’ve got a great starting point. You can see what your numbers have been—marketing costs, sales numbers, production costs and margins, overhead and more. If not, you still should have plan, but your guesses likely won’t be as good.

If you’re planning to grow—and I hope you are—how are you going to do it? Amp up the marketing to increase market share? Hit new areas? Add new products or services?  If so, you’ve got to bake the costs and revenue opportunities into the plan that also includes your existing operation.

Now, there’s nothing wrong with stating the big picture goals. “We’re on track to finish this year at $2.1 million, and next year we want to hit $2.5 million.” That would be a very strong 20% growth. Great! Go for it.

But you can’t stop there. Let’s break that number down a bit. If you want to install $2.5M how are you going to get there. Let’s say you average sale is $10,000, and you expect it to remain there. That means you need to sell 250 jobs. Let’s say your two sales advisors close at 40%. To sell 250 jobs, you need to generate and run 625 leads. Can you do that? What will it take in terms of marketing?

Or if you think you can increase your average ticket to $12,500, you’d need 200 jobs and only 500 leads. Or sticking with 250 jobs @$10,000/job, if you can increase your close rate to 45%, you would only need 556 leads. These are the scenarios you have to work through so you can begin to see that pathway to your goal.

You’re not done yet. Sticking with the first example, knowing you need 625 leads during the year isn’t enough. If you get 625 leads in January, you won’t be able to run them, and many will evaporate. And getting 100 in July doesn’t help you in June if you only got three leads in June and you didn’t have the chance to sell. You’ve got to break that annual down into bite-sized chunks, into at least monthly and weekly figures. In some cases daily would be better. I don’t recommend just dividing by 12 and calling it good. Not all months are equal. Some have more working days (whether you’re a Mon-Fri or a Mon-Sat business) because of the way weekends and holidays hit. And there are often seasonal differences which you need to plan for.

While home performance really helps mitigate seasonality issues, you have to be deliberate about it. Knowing the phone rings too much in August but not enough in March, you may want to allocate your marketing spend accordingly.

You also want to run through assumptions that consider when you get money in the door and when you pay staff and vendors. Net profit is important, but you can’t ignore cash flow or you risk having to close up shop before you get a chance to see the profits!

Back to the simple example for a moment. Let’s say you know you’ve crunched the numbers and applied the secret sauce and you know you need 50 leads in April. You’re still not done. Now you’ve got to let everyone in the company know. They need to know what success looks like. This will provide the foundation for sharing the results over time to help motivate action and accountability. People see how their pieces fit into the whole. The plan you build now becomes benchmark you measure against. And as you refine your plan over time, you can also see quite accurately how the numbers change Informing your coworkers of the required measurable units and constantly sharing the results will motivate your coworkers to take action in helping to achieving the numbers.

When you’ve got a plan, you and the rest of the team have something that you can manage against. Don’t worry. The plan will probably be wrong. But that doesn’t mean planning isn’t important. If gives you the framework to define success and prioritize your actions to achieve it.  If you have some idea where you’re going, you’ve got a better chance of getting there.

Addendum: See a couple of example tools to help you get started preparing your plan.

1Some cite Mr. Berra’s quote as “If you don’t know where you are going, you’ll end up someplace else.” I prefer first version rather than this one. It fits better both with my premise and with the mythological Yogi. But who know’s whether there’s a definitive version? Maybe he said it both ways? I suspect he was up to the challenge of mangling his own quote.

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About the Author:

Mike Rogers is the President of OmStout Consulting. A nationally recognized expert in residential energy-efficiency, he works with contractors and programs to scale sustainable market approaches to improving homes. More on Google+


  1. Chandler  October 30, 2013

    Good piece Mike… Advice on business planning is so needed and so often overlooked. Not easy for a any company to stop and plan forward – much less the small mom n pop HP and HVAC shops – where the it is the business running the owners and not the other way around.


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