Welcome to our reality. The U.S. economy is suffering: GDP shrunk 5.5% in Q1 2009 and unemployment rose to 9.5% in June ’09. No one can predict how deep or how long it might last, but some guesstimates have 10% unemployment by year’s end and 3-5 years before GDP growth returns to normalcy.
The Hit to Facility Service Contractors
An obvious casualty for service contractors was their bottom line . This was brought about by three types of customers.
These customers were in declining industries (not their fault), or through their performance (their fault), have given up the ghost and are no longer with us.
Once these customers go under, contractors have lost both top and bottom line.
Many customers (the collaborative ones) are working with contractors to lower their price so customers can stay in business (hopefully this means lower scope too).
Contractors who are flexible and creative enough are retaining their business, but with much smaller profit margins.
However, many more customers are bidding out contracts looking for immediate savings.
These customers may never have developed a partnership with their service contractor, or hadn’t received the expected value for their spend.
Either way, there are exponentially more opportunistic customers than collaborative and expired customers.
Crisis Breeds Opportunities
Service contractors can forget those profit margins from the past (and some would say they were always skinny), and accept the near-term future as profit anorexic.
With that said, contractors should do everything ethically and legally possible to bolster their bottom line. But it ain’t coming back to what it was, not any time soon. So it’s time to adapt.
This current economic climate does provide an opportunity: that of growing the top line.
The Business Strategy – Customer Grab Now
A business strategy for these recessionary times is to gain many new customers now (below normal profit levels) – then hold them until the economy comes around.
When the rising tide starts lifting customers’ profits, so will service contractors’.
That’s anywhere from 1 – 5 years, but it won’t happen all at one time, it’s likely to be a gradual incline over years.
Better to be the incumbent at that time (with the opportunity to turn opportunistic customers into collaborative ones) than trying to to get in from the outside.
Things That Must Be Done
For this strategy to work, all of the following must be done.
* Sales efforts must be more than the normal, pre-recession selling and marketing – use more resources & effort
* Go after as many legitimate bids as possible
* Get used to very lean, low profit contract pricing (make it up on non-contract work)
* Get hyper-precise estimating job costs & pricing
* Understand market pricing intimately
* Once you have the work – manage costs rigorously
* DELIVER EXPECTED VALUE (combination of desired results & process quality, see The Service Ecosystem)
* DELIVER EXPECTED VALUE
* DELIVER EXPECTED VALUE
* DELIVER EXPECTED VALUE (no, these are not typos – it’s that important to deliver the expected value)
* Once you have the work – work to make opportunistic customers collaborative ones
* Work profit margins back up as customers recover, using your performance history as bedrock
Opportunities are time based, they have their own window.
Bringing on many new customers now, AND DELIVERING EXPECTED VALUE, will provide you more opportunities for rising profit when the economy rebounds.