Build a Budget and Revenue Plan

Build a Budget and Revenue Plan

Jodi Peter
Nexstar Business Coach

In 1994, I was working for an air conditioning contractor in Las Vegas. They had their struggles, like many contractors do, but their sales grew year after year. Sometimes growth was everything we wanted, and sometimes, not so much. With revenue growth came profit. Sometimes profits were what we hoped for, and yes, you guessed it, sometimes, not so much.

The business changed over the years, including an ownership change. The new owner of the business had come up through the ranks in the company. We’ll call him Jack. Jack started as a service technician, then a service manager, and eventually, with will and determination, bought the company. Jack was determined to take this company to new heights, and declared, “We’re going to build a budget this year.” Notice, I didn’t say, “build a plan.” I’ll come back to that later.

What is a budget? Well, by Webster’s definition, a budget generally refers to a list of all planned revenue and expenses. It is a plan for saving and spending. This was textbook stuff. Jack built a budget, a plan for saving and spending. The company would compare its performance each month to the budget. Jack was halfway there. The company had a tool for measuring the expense side of the business, but no plan for achieving revenue and profitability goals.

A better approach

Build a revenue plan. Unlike a budget, a revenue plan is not a simple list of expenses. A revenue plan defines all of the activities and improvements to attain a desired budget. Start by identifying where the business is today. What is the total revenue, call counts, efficiency, etc.? Then identify the changes necessary to generate growth or improvement. Said a different way,

Prior Year + Actions = Budget. (PY + A = B) Ok, so I shamelessly stole the format from Jack Canfield.

How to plan for improved revenue — increasing call count

You might be saying to yourself, “Sounds easy, but where do I begin?” Call counts are usually a good place to start. Determine your call counts for the prior year by month. If you are in the air conditioning and heating business, the weather plays a large role. Did you experience an unusually hot summer or an exceptionally cold winter that drove call volume higher than normal? Make some reasonable assumptions or adjustments to your call counts from the prior year as necessary.

Think about the elements that create revenue. An increase in call counts generally correlate to a proportional increase in revenue. Consider increasing call counts when you create a revenue plan.

As consumers increasingly take to the internet to find service providers, many members’ advertising investments are following suit. Consider how your advertising changes will affect your call counts over the prior year. You might expect fewer calls from Yellow Page advertising and increased calls as a result of a Pay-Per-Click campaign. Will you start an outbound call program, implement a plan to increase Service Partner Plan sales, or start a direct mail campaign? Make some reasonable assumptions for call count changes and tie your tactics back to expected
revenue increases, as a result.

Operational and sales improvements

When building a revenue plan, it is easy to get caught up in how to increase call counts and acquire new customers. But what about the opportunities right in front of you? Always be on the lookout for areas to improve your current operations. We sometimes refer to this as picking the low-hanging fruit because it generates the greatest improvement to revenue for the lowest cost. Making the most of your customer base is vitally important in driving revenue. A revenue plan might include training of technicians to increase lead generation. Increased productivity, closing rate, and higher average sales are a result of fundamentals obtained through on-going Nexstar Service System training, weekly one-on-one technician coaching, and ride alongs. These activities will most likely be part of a revenue plan as well. Determine the additional revenue expected from achieving goals set in the revenue plan.

Price increases

Unfortunately, price increases are a result of the world that we live in. As we pay more for labor, material and operating expenses, so must our customers. Expenses and material costs should be reviewed at least twice per year. As a result, two planned price increases in a 12 month period will most likely become part of your annual revenue plan. Price Increases are generally one of the last steps in building a revenue plan as price increases will affect call count modifications.

Tracking

Now there is a budget for revenue and an action plan for achieving a revenue plan. The final step is simply executing the tactics to create revenue, right? Not quite. Tracking the results of your efforts is as important as the plan itself. Tracking is the way to keep score of the game. Did the company win? Tracking will tell you. There is a side-benefit to tracking performance results. I learned about this when I studied the Hawthorne Effect. This is a study that was done in the 1920’s to determine the effects of lighting on worker productivity. As part of this study, additional lighting was installed in a work area and production improved. Then the lights were dimmed in the work area and production improved even more. To the surprise of researchers, the study showed a more significant factor for improved performance by humans when they are aware they are being studied rather than environmental changes. The shear act of tracking the business’ results will improve performance. What Key Performance Indicators will you track? Identify the most significant business KPI’s to use as key yardsticks to understand company performance against plan.

The leader in you

Great leaders visualize where they want to lead, but not all of them can implement action plans. If the business is not moving forward, it will go backwards and risk failure to sustain itself. Be honest with yourself. Since implementation is pivotal to success, is implementation inherent in you? If not, find someone with the required personality and temperament to get the job done. There are several instances within the Nexstar membership where owners have delegated responsibility for implementing their vision to other managers.

Closing

A budget is not a simple list of expenses. It’s not numbers you pluck out of the air. When compared against actual performance, it is a recipe for winning. As the end of the year approaches, so does the time to develop plans for the coming year. Will you have a plan…or will you be like Jack?