We speak with Jeff Prager – Backroom Management Services www.BackroomManagement.com
Jeff Prager is a CPA turned entrepreneur. In fact, he owned and ran one of the largest homebuilding companies in Denver. As you can imagine, keeping an eye on the money might be second nature for an accountant, but Jeff has developed a system of metrics for measuring and managing businesses that he calls the Seven Numbers Framework. As he explains, it’s not just about the money – it’s about all the other numbers that lead to a profit… or the lack thereof.
Listen to the audio to get the full interview with Jeff, or review our notes below:
After retiring from my homebuilding business in 2007, I got to thinking: There has to be an easier way for a business owners and builders to quickly get the data they need to be more profitable. So, we created the Seven Numbers Framework. By focusing on seven key numbers, five of which have nothing to do with accounting, you’re able to run a business very quickly. It completely focuses on what’s important and what I need to do to drive business further.
The Seven Numbers Framework
The objective is to learn the story the numbers are telling you and to concentrate on that to drive your business. The Seven Numbers are what I call a business funnel. They start with how many leads you’ve generated. Tracking the number of leads and whether or not you’re meeting your goals and using the right strategies and you’re evaluating your marketing dollars is extremely important. Are you getting the kind of leads that you need? Are they qualified leads?
Secondly is what good is the lead if you can’t convert them into a sale. So where is your conversion. Where are? In our system I have it to where you can measure where your sales are breaking down. Are they failing in prospecting, in finding the problem, in closing, in meeting the objections? You want to know where your sales process is working and where it’s not.
Numbers can be both positive and negative, not just negative. If you’re doing something right, then you want to do more of it. If you’re doing it wrong, you want to fail frequently. What I mean is that the faster you realize you’re doing something wrong, the less money it’s going to cost you to correct it. Think of a sail boat that’s moving through the sea. It never gets where it’s going in a straight line, it has to zig and zag.
The third number is customer retention, especially for remodelers. Are you creating a customer journey that will give you money over and over again. Will it get you referrals?
The fourth is your average price per transaction. Are you getting the right price per transaction and for some the number of transactions per customer? In the home building business we have a very slow turnover rate, but you want to make sure that you’re capturing those customers as they move up from one type of house to another.
The fifth number to watch is the number of transactions per customer. How many times do you do new business with existing buyers? If the average family moves into a new home every 5 years, you have multiple opportunities, over time, to make repeat sales. You have to plan for this by having strong customer service and referral policies.
Now we get into accounting. What are the variable costs involved in producing your product? Are you on schedule? You have three resources as an owner: Time, Energy and Money. You want to maximize all three resources. Are you getting the most efficiency out of your vendors and employees; are they creating value and doing things when they’re supposed to? Are your production managers getting the vendors in when they’re supposed to be there in a timely basis?
Lastly is fixed costs – are you managing those correctly? The number one fixed cost on your budget should be your salary. It’s amazing to me how many people do not budget their business to create a salary.
That’s an overview of the seven numbers.
The emphasis is on how to manage your business profitably, not how to create numbers to give to your accountant at the end of the year. Start by figuring out what your ‘sales mountain’ is. In other words, how do you go from a lead to a closed sale? Then, how do you follow up? You need to have benchmarks along the way: How do you develop trust and rapport? How do you develop an upfront contract? How do you identify what they really want? What is their budget? What’s their decision-making process? How do they close and post-close? You can actually create variables so you can pinpoint where the sales process is breaking down.
Learning to Watch the Numbers
Running a company is very different from accounting for a company, and that’s the distinction that really makes our approach unique. Even if you don’t use the software, we have manual that helps you use the seven numbers. For example, we’ve have documented 76 different lead generation strategies that you can use. It’s not all encompassing; but at least it gets the thought process going.
We try to use an easy method. Fill in the blank or check a box to get where you need to be. It’s about efficiency for the builder or remodeler. It’s about how we can get you to the point where all your time is productive and making money.
What good are numbers if you don’t know how to use them? It has to be simple. I’m a firm believer that if you can’t convey your thoughts on the back of a napkin, then it’s too complicated. Business is not that complicated.
We have this little worksheet that we walk people through to set up their seven goals. It only takes about one hour. Everyone has different strengths and weaknesses. We try to compensate for the weaknesses and magnify the strengths. And, coming up with the seven numbers that will drive your business will also drive the other things that you need to be successful.
Once understand where you are right now, then you can ask, ‘What are the one or two changes that are going to change the trajectory of my business the fastest and the easiest?’ It’s not about concentrating on 30 different goals. It’s just coming up with the one or two that will have the most significant impact on the organization. Once we understand that, we go through the seven numbers again and say, ‘What’s the next thing that will improve the organization and increase cash flow?’
It’s a learning curve, but we’re doing a knowledge transfer with our customers so that they understand, learn and have these tools available to them for the rest of their lives. When you simplify the process so that you understand it, you can tap into all the latent knowledge you already have and can then start capitalizing on it.