How to Achieve A 20% Operating Profit

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How to Achieve A 20 Operating Profit

• International Alert Users Association Conference
• November 14, 2008
• Tom Ross

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My Background

• Leo Burnett, 1964-1997
• EVP, Account Management
• Retirement/Consulting, 1997-2003
• Golf/Boating
• Increasing consulting, including Alert
  (1999-2003)
  
• Alert Management Systems, 2004-
• Chairman, CEO

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Agenda

• Importance of profitability
• Ten practices of highly profitable rental
  companies
  
• Step by Step illustrations of how to construct a
  20 profit business plan
  
• Dozens of examples of how to increase revenues
  and reduce expenses

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Profit

• Definition?
• Literally, Yes
• Profit revenue less all expenses
• Whats Left Over

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Profit

• Too Important to be Whats Left Over
• Responsible for
• Not just owner reward
• Raises
• Promotions
• Training opportunities
• Growing the business
• Owners equity

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Profit Analogy

• Its like Breathing
• Not the Reason to Exist, but
• try Living Very Long Without It

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Profit

• Need to turn things around
• Treat profit as a given
• Let expenses be Whats Left Over

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Ten Steps to Creating a High Profit Business Plan
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I. Assessing the Competitive Marketplace
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Leadership Principles

• Superior Products/Services
• Fair Premium Prices
• Tell Folks

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How do we Stack Up?

• Location
• Facilities
• Rental inventory
• Sales items
• Pricing
• Marketing

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Assessing the Competition Best Sources

• Websites
• Yellow Pages
• Advertising
• On site visits
• Secret shoppers
• Current customers
• Competitive customers

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II. Assemble and Motivate A Great Team
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Hiring A Great Team

• Good people are critical, especially in key
  roles
  
• Behavioral interviewing techniques can reduce our
  hiring mistakes
  
• More on this subject at the Behavioral
  Interviewing Presentation on Sat. at 200 pm

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What Employees Want

• Equity--Salary/bonus, just treatment (respect
  trust)
  
• Achievement Pride in getting something done plus
  recognition
  
• Camaraderie With other employees

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Recognize Employers Responsibilities

• Superior pay for superior performance
• Opportunity to increase employability
• NOT guaranteed employment

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Establish A Bonus System

• At Alert Profit/Bonus Pool
• Everyone participates proportionate to
  contribution

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Other Recognition

• On-going, special recognition for great ideas and
  contributions
  
• Promotions and training opportunities for
  outstanding performers

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Make Expectations Clear

• Company mission/vision
• Company values/attitudes
• Model the behavior you expect

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Guess Who?

• Respect We treat others as we would like to be
  treated ourselves. We do not tolerate abusive or
  disrespectful treatment.
  
• Integrity We work with customers and prospects
  openly, honestly, and sincerely.
  
• Communication We have an obligation to
  communicate. Here we take the time to talk with
  one another and to listen.
  
• Excellence We are satisfied with nothing less
  than the very best in everything we do. We will
  continue to raise the bar for everyone. The
  great fun here will be for all of us to discover
  just how good we can really be.

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ENRON

• Respect We treat others as we would like to be
  treated ourselves. We do not tolerate abusive or
  disrespectful treatment.
  
• Integrity We work with customers and prospects
  openly, honestly, and sincerely.
  
• Communication We have an obligation to
  communicate. Here we take the time to talk with
  one another and to listen.
  
• Excellence We are satisfied with nothing less
  than the very best in everything we do. We will
  continue to raise the bar for everyone. The
  great fun here will be for all of us to discover
  just how good we can really be.

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Moral?

• We have to walk our talk.
• Words alone are meaningless.
• We have to mean it.

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What About our Non-performers?
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Lay off Non-performers

• Hard. Requires real courage
• Everyone will mourn
• No one will be surprised
• Energizing impact on whole company
• (Often has positive effect on person laid off)

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Engage your People in Planning Executing Your
Plan

• Challenge them to help create new revenue ideas
• Utilize their knowledge of the business --they
  know where the bodies are buried
  
• Review results monthly

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III. Start With the Profit Goal in Mind
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Profitability A DecisionNot Whats Left
Over

• Need to decide to make a fair profit
• Let expenses be whats left over
• Minimum goal top 25 of rental companies

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Start With the Profit Goal in Mind
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Start With the Profit Goal in Mind
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IV. Create Growth Plans Forecast Conservatively
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Revenue Strategies

• What new programs can we implement to grow the
  business?
  

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Revenue Strategies

• Physical facilities
• Pricing
• Inventory
• Maintenance/repair
• Customer service
• Marketing

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Revenue Strategies Physical Facilities

• Number of locations
• More display space
• More walking space
• Fresh paint/inviting decor

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Revenue StrategiesPricing

• Increase rental rates
• Increase delivery rates
• Weekend/flex/shift rental rates
• Cycle billing/Smart billing
• Create overtime/weekend repair rates
• (Jeff Knoepke Rental Rates, Sat. 1000 AM)

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Revenue Strategies Pricing

• Increase damage waiver
• Switch to FTV waiver
• Fuel Surcharge
• Environmental Fees
• Where appropriate consider including labor fees,
  change fees, cleaning, etc.

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Revenue Strategies Inventory

• Missed rental reports increase inventory
• Track sub rentals increase inventory
• Opportunity categories
• e.g., full line of masonry products
• Niche opportunities
• Everything for sale
• Increase inventory of related and impulse items

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Revenue Strategies Maintenance Repair

• Ready to rent program
• Preventive maintenance module
• GPS Systems
• Customer repair service
• Service what you sell

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Revenue Strategies Customer Service

• Where do we stand?
• Customer surveys
• Calls to key customers
• Calls to former customers
• How do we improve?
• Employee training and coaching
• Motivators

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Revenue Strategies Marketing

• Three critical priorities
• Yellow Pages
• Your Website
• Direct Marketing
• Current customer needs
• Potential customer needs

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Revenue StrategiesWebsites

• Search for your own site
• Hire an expert
• Hosting issues
• SEO (Search Engine Optimization)

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Revenue StrategiesWebsites

• Add material
• Pay per click
• Online reservations
• Include pricing

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Example 2008 Plan Assumptions

• Additional inventory
• New category of inventory
• Additional related items
• Additional impulse items
• Expanded, improved show room
• New marketing initiatives

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Example 2008 Plan, Other Factors

• Revenue growth this year 3
• Population growth 3
• New residential construction -4-5

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Conservative Forecast
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Conservative Forecast

• Whats a Good, Conservative Forecast?
• Lets say 6

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6 Revenue Growth
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• Whats the Next Step?

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Profit Decision
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Expenses Become Whats Left Over
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Remaining Requirements

• Reduce expenses by 52.3k
• Without jeopardizing 57.5K revenue increase

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V. Using A Success Formula
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Using A Success Formula

• Possible Sources
• Trade associations
• Peer group
• Other
• Modified by Personal Experience

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Great Source ARAs Cost of Doing Business Survey

• Complete data by type of rental company
• Includes data on mix
• All companies average vs. top 25

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Using A Success Formula

• Rearrange company data to easily compare with ARA
  categorization
  
• Compare your results to Top 25
• Find ways to emulate success of Top 25
• (Participate in the CODB Survey!)

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Using A Success Formula General Tool
Rearrange company data to easily compare with ARA
categorization, e.g., General Tool (30.59)
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Using A Success Formula General Tool
Rearrange company data to easily compare with ARA
categorization, e.g., General Tool (30.59)
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V. Using A Success Formula General Tool
Rearrange company data to easily compare with ARA
categorization, e.g., General Tool (30.59)
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Using A Success Formula

• Increase Owner Comp 49,400
• Reduce Expenses
• Direct -42,100
• Other people -50,800
• Other -8,700
• Without jeopardizing 57.5k revenue increase

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Using A Success Formula

• Easy to say. Harder to do
• but definitely doable
• 25 of the Rental Companies are already doing
  It.
  
• We can learn to be just as smart

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VI. Look for Obvious, Big-Return Expense Cuts
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Look for Obvious, Big-Return Expense Cuts

• Twelve Expense
• Reduction Strategies

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Direct Costs

• Reduce/Eliminate Sub-Rental
• Emphasize Sales of Used Rental Equipment
• Newer fleet, lower maintenance, lower
  depreciation, higher resale margins

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Direct Costs

• 3. Improve Merchandise Margins
• Find lower cost suppliers
• Discontinue unprofitable items
• Raise prices on convenience impulse items

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People Expenses

• Cut Staff to Meet Lowest Level of Annual Demand
• Use Temporary Labor to Fill Seasonal Needs
• Sources Teachers, College Freshman, other?

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People Expenses

• Eliminate Out-dated Processes and Other Dumb
  Work
  
• 7. Greater Use of Technology
• Current rental/sales software/hardware
• Software training

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People ExpensesGreater Use of Technology

• 7. New advanced profitability tools
• Executive Dashboard
• Web Order Processing
• Import/Export
• Commission Management system Recurring Credit
  Card Billing
  
• Advanced Purchase Order
• Email Requisition/P.O. Approval
• Collection Letters System

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People ExpensesGreater Use of Technology

• 7. Additional profitability tools
• Integrated Fax and Email
• Integrated Credit/Debit Card Processing
• EasyVault Data Restore System
• Signature Capture
• Drivers License Scanning
• GlobalTRACS GPS system
• GL Interface
• Etc.

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Other Operating Expenses

• 8. Run Equipment Earnings Summary Report Excess
  Inventory Report
  
• Sell underutilized equipment
• Purchase high utilization equipment
• Reduce maintenance

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Other Operating Expenses

• 9. Discontinue Rental/Sales Areas that are
  Unprofitable
  
• 10. Lease or Sublease Unused Parts of your
  Buildings

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Other Operating Expenses

• 11. Outsource Payroll and Insurance Coverage
  Needs
  
• 12. More Technology, e.g.
• Cut Sheet Printing
• Phone System

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VII. Record Every Expense in Detail (who spent
what?)
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VII. Record Expenses in Great Detail

• Lots of Discrete Categories
• Eliminate Miscellaneous Category
• Add Extra Categories Later, if Absolutely
  Necessary
  
• Involve Key People in Monthly Reviews

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VII. Record Expenses in Great Detail

• Two Examples
• Household Budget
• Job Cost Category

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VIII. Business Building Initiatives
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VIII. Business Building Initiatives

• A Business that Fails to Grow is Destined to
  Fail
  
• What are the new ideas we will test next?
• Test in off season, expand successes

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IX. Be Experimental
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IX. Be Experimental

• Analyze your Best Customers Behavior
• Study/copy your Competitors
• Compare Notes with Peers
• Dont be Afraid to take Risks
• Start Small and Test in your Down Season

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X. Monitor Measure Everything

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X. Monitor Measure Everything

• The act of measuring alone will improve
  profitability
  
• Dump your failures early
• Build on your proven successes

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Summary

• Know Your Competition
• Build Motivate a Great Team
• Start With Profit Goal in Mind
• Implement Growth Plans Forecast Revenue
  Conservatively
  
• Use A Success Formula

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Summary

• VI. Let Expenses be Whats left Over
• Record Expenses Visibly and in Great Detail
• VIII. Constantly Test Business Building
  Initiatives
  
• IX. Be Experimental
• X. Monitor Measure Everything

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Questions? Discussion? Comments?
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Thank You