Welcome to Financial Series #8Benchmarking – Your KPI’s

Your Hosts for Today’s Conference are:Gary Elekes in Nashville, Tennessee

Gary Oetker in Plano, Texas

Conference Objectives: Review the significance of Benchmarks and

Key Performance Indicators (KPI’s).

Review key KPI’s by market segment

Review how to use Benchmarks and KPI’s to help evaluate financial performance.

Review why and how to use BenchmarksReview residential replacement & service commandmentsReview residential replacement/service/maintenance and IAQ Direct Cost ModelsReview other residential replacement/service and maintenance Key Performance IndicatorsReview other business segment benchmarks and Key Performance Indicators

Agenda for Conference

DefinitionsBenchmarking:The process of comparing a company’s performance against Industry Standards or Key Performance Indicators (KPI’s).

Key Performance Indicators (KPI’s):Critical performance measurements as modeled after successful companies in that particular market segment.

CommandmentsThe most important Key Performance Indicators.

They help you evaluate your company operationsThey allow you to “ASK” why do we do the way we do and to challenge the existing normsThey help quantity and identify what’s happening in operations to focus efforts on the “RIGHT” changesThey help a company to get focused on the task at hand, which is to get better in a given area? They help create validity to goals

Why Use Benchmarks?

Compare your company to double-digit model companies (by market segment)Focus priorities on what you want to changeDetermine what if anything needs to be reviewedOperations may need to be adjusted to attain certain goalsAlways look at KPI’s in groups. Never get focused too much on one number

How do You Use Benchmarks?

Initial Insights

Each market segment has its own set of KPI’sFor example: revenue,office support staffing & overhead matrix

No two companies are alike; each has its own Business Mix

For example: A 30% overhead structure will work for a residential service & replacement, but is

too high for Residential New ConstructionIf your company serves multiple market segments, combine KPI’s to evaluate office staffing and overhead

Residential Commandments

13 Commandments for Success in Residential Replacement/Service/Maintenance: Goals for 20% Pre-Tax

1. Ethics and ethics every day. 2. Equipment cost equal to or less than 25% or replacement sales 22% 3. Gross Margin Equal to or greater than 42 % of total company revenue 45% 4. Revenue per employee greater than $ 100,000 per employee $ 120,000

(Exclude outbound telemarketers) 5. Service Agreements greater than 500 per 1 million in Replacement Revenue 1000 SA’s 6. Service and Maintenance Equal to or greater than 25% or total revenue 30% 7. Field to office employee ratio equal to or greater than 2 to 1 3 to 1 8. All Replacements completed in 1 day Same 9. Replacement Sales Financed equal to or greater than 40% 70% 10. All Managers and direct reports know and understand the numbers. Every Employee 11. Accurate and timely departmental financial statements by 10th of the month. 5th of month 12. SG&A (Operating Expenses) less than or equal to 27% of Revenues Less than 25% 13. Excellence and Ethics every day.

Res. Replacement Direct Cost ModelDouble DigetCompanies

Parts/Materials 7% or lessLabor 9% or lessEquipment 25% or lessSubcontract 0% to 1%Permits .5% or lessExtended Warranty 1.0%Buydown 0.5%Equipment Rental 0.0%Warranty 2.0%Allocated Fringe Benefits 3% to 4%Sales Commissions 4% to 8%Sales Salaries 3% to 4%

Total Cost of Sales 55% to 61%

Gross Margin 42% to 45%

Note – Also watch grossMargin dollars per crew-dayIn conjunction with the Gross Margin Percentage

Other Residential Replacement KPI’s

Revenue per Sales Person

Minimum $600,000, Target $1 million or more

Revenue per installation crew per year (2 man crew)

Minimum $500,000, Target $750,000 or more

Average sale $3,800 or higher

Gross Margin Dollars per crew day (2 man crew)

Minimum $1,200

Target $1,500 and greater

Res. Service Direct Cost ModelDouble DigetCompanies

Parts/Materials 13% or lessLabor 22% or lessEquipment 0%Subcontract 0.5% or lessPermits 0.00%Extended Warranty 0%Buydown 0%Equipment Rental 0.00%Warranty -4%Allocated Fringe Benefits 5.5% - 7%Sales Commissions 1Sales Salaries 0%

Total Cost of Sales 38% to 39.5%

Gross Margin 60 to 65%

Other Residential Service KPI’sRevenue per service technician

Minimum $100,000 , Target $125,000 or more

Average ticket - $150 or more (total sales divided by total tickets)

Gross Margin Dollars per technician per day

Minimum $185, Target $300 or more

Service Agreement sales – 25% or more of all eligible (less warranty, callbacks and Service Agreement calls

Accessory sale or equipment lead – 20% or more of all eligible calls

First time solution rate – 85% to 90%

Res. Maintenance Direct Cost ModelDouble DigetCompanies

Parts/Materials 6% or lessLabor 34% or lessEquipment 0%Subcontract 0%Permits 0%Extended Warranty 0%Buydown 0%Equipment Rental 0%Warranty 0%Allocated Fringe Benefits 9%Sales Commissions 4Sales Salaries 0%

Total Cost of Sales 53%

Gross Margin 47%

Pricing Strategy affects GM% range. Should range from 45% to 60% depending on strategy.

Other Residential Maintenance KPI’sRevenue per maintenance technician

Minimum $65,000 per maintenance technician per year

Gross Margin Dollars per technician per day

Minimum $150

Service Agreement sales – 63% or more of Precision Tune-Ups

Service Agreement renewal rate 90%

Accessory sale or equipment lead – 20% or more of all eligible calls

Residential Overhead KPI’sDouble DigetCompanies

Total Marketing/Advertizing Expenses Target 3% - less than 4%

Employee Related Expenses Target 13% less than 15%

Vehicle Ralated Expenses Target 3% less than 4%

Plant & Equipment Expenses Target 3% less than 4%

Administration Expenses Target 2.5% less than 3%

Total Overhead Expenses Target 27% or less,no more than 30%

Other Department KPI’sGross Overhead Support to Revenue GM $ /

Margin % Production Per Crew/Tech Crew DayPer Year or Month

Min $100K Min $150Target $120K Per Tech

Or More Per DayMin $350K

Target $500KOr More

Min $350KTarget $500K

Or More$200K $500 or more

Or More Per TechCommercial Plan & Spec 12% to 14% $500K $9,000 Per

Or Less Or More Crew / MonthCommercial Maintenance $80K $170 to $180

Or More Per TechCommercial Replacement $550K $6,500 Per

Or More Crew / MonthCommercial Design Build $250K $6,000 Per

Or More Crew / Month

Plumbing Replacement & Service 48% to 50% 30% to 35% 1 to 2 or more

$450

Residential New Construction - Custom 34% to 35% 18% to 20% 1 to 3 or more $700

Residential New Construction -Track 22% to 32% 12% to 15% 1 to 4 or more

Commercial Service 45% to 50% 31% to 35% 1 to 3 or more

20% to 22% 1 to 4 or more

32% to 35% 1 to 3 or more

30% to 39% 1 to 3 or more

26% to 30% 15% to 18% 1 to 3 or more

Consider Business Mix When Evaluating Overhead KPI’s

Residential Residential Replacement New Construction

- Track -

OverheadRange

Revenue $500,000 $500,000 $1,000,000

Total Company

27% to 30% 12% to 15% 19.5% to 22.5%

Compare your company to the KPI’sMake assessmentDecide on a list of issues that are creating the poor company performancePrioritize this listConsider meeting with key managers and employees before making changesMake the list public and allow for commentaryAttain buy-inMake the changes happen

Now What?

Questions

&

Answers