Know Your Target and Set Expectations for Your Team to Hit It
Contractor tip of the month
By Damian Lang
Have you ever searched for something, not knowing what you were looking for, and found it? No? Me neither.
That question would seem silly to a lot of people, but it’s not silly to contractors. Unfortunately, most contractors have their team aiming for an unidentified target — expecting them to hit it without first setting clear expectations of what the target is.
How about your team members? Do they know and — better yet — understand the targets you set in order to achieve your goals? Or are you allowing them to just do the best they can?
If it’s the latter, you have a problem, but it’s a fairly common one.
A contractor recently asked me if I would help him design an incentive plan for his team. I agreed, and the first thing I asked was what his total sales goal for the year was. He answered that it was around $10 million per year. My next question regarded his gross and net profit goals, and he had no clue as to an answer. In fact, his response was, “If I could figure that out, I could tell my people what I expect. However, I just don’t know what I want. What should a construction company earn as a net profit?”
That might be the problem, right?
I continued by probing into what his net profit is currently. “We work on really tight margins. I think it’s somewhere around 1 percent,” he replied. I went on to explain that construction companies doing under $100 million in sales per year average around 2.5 percent net profit, which I don’t believe is enough. Then I asked him why any of us would risk everything we have, year in and year out, for that or less.
I could see from his expression that my points were starting to sink in.
I told him I could relate to his situation. In all honesty, his situation sounded a lot like my own several years ago. I would cheer my people on, telling them that we just needed to do the best we can. And guess what? They gave me about 1 percent net profit on average, just like this man was getting now.
Luckily, I hired a consultant back then who asked me some of these kinds of questions. I explained to him that I never knew my net profit goals, but between all of the companies I ran, I generally earned around 1 percent. “Aren’t meager earnings okay when you are growing as fast as I am?” I asked in excitement.
The consultant then asked me, “Really? Growth with little to no margins is what you’re looking for? Why would you risk everything you have, year in and year out, for virtually no return?” After thinking long and hard about it, I decided I would no longer do that.
Later that year, I hired that same consultant to facilitate our annual retreat. What I came away with was nothing short of astounding. Instead of setting only total annual sales goals (without taking gross and net profit into the equation), I drew a line in the sand.
I explained to my team that no manager in any of our companies would be allowed to set total sales goals without tying them to a minimum 6 percent net profit. The gross profit goal would also be set at the percentage it took to hit the net profit goal. The bottom line, I explained, was that from then on, each of our companies must earn 6 percent net profit per year, or we would have to change management or strongly consider shutting the company down.
Sounds easy enough, right? Wrong.
After the retreat, I found that I had frustrated some of the managers with such a high target compared to what we had been used to. In fact, the general manager of one of my companies came to me and asked why I was requiring his division to deliver 6 percent net profit, when I had a couple companies that were actually losing money. I told him that all companies were now required to hit 6 percent or face changes, as I could no longer risk everything I have for such narrow margins.
I could sense his continued frustration, but remained true to my recent convictions. Guess what happened next?
The next year (and for the first time in the five-year history of that division), his company was pushing up against 6 percent net profit and has averaged more than that ever since. As for the companies that he was referring to that were losing money? Well, two of them were shut down when they didn’t hit the new 6 percent threshold. And the other two companies just got better, both averaging over 6 percent net profit over the last few years.
It’s amazing what happened psychologically to my team when they knew exactly the target they were expected to hit. They changed bidding strategies, they changed delivery methods and they changed their expectations of their own reports in order to hit the desired target. They lived and breathed by the expectations that had been placed upon them.
So, what are your expectations?
Decide, and set your target now! More importantly, ensure that your people know what the target is. With a target to aim for, and expectations set to hit it, you’ll be surprised at how much your team can achieve.
About the Author
Damian Lang is a mason contractor in southeast Ohio and inventor of many labor saving masonry systems and products. Lang has served as the Marketing Committee Chairman for the Mason Contractors Association of America. He is also author of the book Rewarding and Challenging Employees for Profits in Masonry. To network with Damian on contractor tips or tips you have and would like published, contact him at email@example.com or 740-749-3512.