Profitability is the key to business survival. Here are five activities you can do that will make a difference as you head into the New Year.

Track

What gets tracked gets improved. Here are the minimum activities to track:

Productivity. For every dollar you take in the door, how much do you spend on payroll and payroll taxes? This ratio includes all payroll — field, office and owners.

Don’t include any benefits in this calculation. Payroll taxes are FICA, Medicare, and unemployment. This percentage should be under 40 percent. The lower the better.

Overhead cost per hour. For each billable hour, how much overhead cost is there? To determine this number, take your department or company overhead and divide by billable, or revenue producing hours.

Net profit per hour (more on this later).

Average service ticket revenue. Also, average job revenue.

Maintenance plan enrollment percentage. For every opportunity you have to talk to a customer about your maintenance program, how many enroll? The national average is 30 percent.

Maintenance plan renewal rate. This should be higher than 90 percent.

Sales closing ratio. For maintenance customers and non-maintenance customers. Your maintenance customer closing ratio should be 80 percent or higher. Your non-maintenance closing percentage higher than 40 percent.

Job cost. You need to know that all of your jobs are profitable.

Manage by Net Profit Per Hour

The only number on the bottom line that matters is net profit per hour. This is how much your company earns for each billable hour. To calculate your net profit per hour divide total net operating profit by billable hours.

Percentages don’t matter because you can’t take a percentage to the bank.

Here’s why: I know of two companies, each with a 10 percent net. One has a net profit per hour of $10 per hour, The other has a net profit per hour of $50 per hour.

Percentages don’t tell the story. Net profit per hour does.

Reactivate Inactive Customers

Also, don’t forget expired maintenance plan customers.

One fairly easy way to increase revenues is to contact customers who haven’t used your company in the past 18 months to five years.

Call a few and find out why. Often you will hear, “We hadn’t heard from you and forgot about you” or “we thought you went out of business.”

Give them a reason to come back. You might create a $25-$100 coupon good on all services for previous customers only. Do this in the busy times of the year. Your reason to come back will usually be ignored in times where there isn’t a heating or cooling need.

Then reactivate expired maintenance customers. This requires a phone call. Many times people just forgot about it and will renew on the telephone when you call them.

If you reactivate them before the heating or cooling system, call the customer and say that it is time for their cooling/heating maintenance check.

Set up the appointment and say that the technician will renew their maintenance plan while he is at their home.

Establish a Bonus Program.

Bonuses should be given to everyone based on company productivity. Christmas bonuses should be eliminated in favor of productivity bonuses. In good years, the bonuses are higher than in bad years.

After the first year, when they got their first productivity bonus and the bonus program becomes real rather than just talked about, your employees will come up with great suggestions to be more profitable since they affect their pocketbooks.

After a few years, your employees will “weed out” unproductive hires. They see that this person who isn’t productive is affecting their pocketbook negatively.

My bonus structure includes both a Managers Bonus Plan and an Employee Profit Sharing Plan.

Bonuses and profit sharing plans are put in place to reward managers and employees for helping the company achieve profits. Company owners “share the wealth” with those who have helped create it.

Bonuses and profit sharing are distributed two months after the fiscal year ends. They are distributed according to the program described below for managers and a separate program for all other employees. They are not distributed at holiday time because if they are distributed at holiday time, then employees look at the distributions as gifts and expect them — whether the company has a good year or a loss.

You can download a copy of my Bonus and Profit Sharing Plans in the Resource Center on hvacrbusiness.com.

Say Thank You

Say it to your employees and to your customers.

Contractors say thank you to customers all the time — at the end of their phone call or after a replacement job. Sometimes it is said with cookies or some other thank you present.

Employees are often ignored. Saying thank you is important to them too because it shows that you are paying attention and appreciate them.

This can be accomplished through quick notes in paychecks, sending flowers to their spouses/significant others before a busy season (this works extremely well) appreciating the hard work that will be done in the next few months, a quick thank you as you pass an employee in the hall, at the end of service meetings, and more.

Do this often. It makes your employee and you feel good.

I wish you a prosperous and healthy 2018.