Branching Out and Starting Fresh
Need some help improving your electrical service business? Just ask Mister Sparky (AKA Patrick Kennedy). As the owner of Mister Sparky, Inc., in Atlanta and the president of Electricians' Success International in St. Louis, he knows a thing or two about the industry.
I've run a small company for the last 22 years that provides electrical and design-build services to a large industrial corporation. Rather than continue to place all my eggs in one basket, I want to break into the residential and commercial markets. Any tips on how to do that?
It's a wise move to diversify your client base, and setting up a service division will provide tremendous benefits you may not realize in your industrial design-build business. For instance, there is the improved cash flow, reduced accounts receivable, increased profitability, and a larger client base.
When starting a service company, develop goals and a plan to achieve them. For example, if your goal is to achieve $300,000 in service revenue at a profitability of 15%, you need to determine how many calls you'll need to run and at what average invoice amount. If you could achieve a $300 average invoice, you would need to run 1,000 calls. If you work 250 days per year, that is four calls per day. How many technicians will you need to hit that goal? Once you set that goal, you can create an entire business plan for the new service side of your business.
With a plan in place, you need to attract clients, which is where marketing comes into play. It all starts with having the right name, logo, and message for service. Most contractors do not take a scientific approach when choosing these, and they end up with something that is not consumer-friendly. You should work with a marketing professional to develop a dynamic, eye-catching message.
Since you're starting out with experience on the industrial side of the business, develop a referral program with your existing industrial clients. Most guys say word-of-mouth and referrals are the best form of advertising, but they don't have a written program to seek referrals. Write a letter to everyone you know — electrical contacts, friends, relatives, suppliers, etc. Announce your expansion plans and how you will now be able to meet their needs in this new area.
You'll also want to create a dynamic Yellow Pages ad to draw calls into your business. Focus your marketing on smaller areas at first, not on large geographic areas. Once the business starts to thrive, you can then look to expand to other areas. Newspaper advertising may also be effective, but remember to remain consistent with your sales message.
In the end, the most important point to stress is that your service division must be priced right to succeed. Without the right prices, you'll be stuck spinning your wheels, working round the clock with not much money to show for it. By setting up your service as a separate division of your well-established company, you're already on the right track.
Is there a generic electrical service company business plan out there that I could buy, borrow, or steal? I would like to start my own electrical service contracting company.
I applaud you for seeing the importance of relying on a business plan to start your company. A quality plan outlines how you will get from point A (start-up) to point B (successful, profitable service company). You can purchase business plans all over the Internet, but most of them are not tailored exactly to the electrical industry — or you can turn to an electrical service member organization for guidance.
You can develop your own plan using general rules of thumb from the electrical industry, but since most companies don't operate as retail service businesses, you'll probably find low profitability averages, poor cash flow, low gross margins, high receivables, and excessive expense amounts in most operating categories. I recommend not conforming to these so-called industry rules or standards because you could suffer from many of the struggles I had early on. I recommend your base plan be realistic, but aggressive. Base your plans on what the client is looking for. If you don't know what these are, don't be afraid to ask. Remember, you are in business to find and keep clients, not to perform electrical repairs and installations.
Usually a simple spreadsheet will suffice for developing a budget that helps you achieve your stated goals for the period. All the information you need to create this spreadsheet is your anticipated expenses in each category, how you will price your service (this will help you determine what your direct cost percentages will be), a written plan for getting the calls, and a training plan to help your techs reach their budgeted daily revenue goals. This will give you a great jumpstart into the world of business planning and electrical service.
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