Can data help electrical contractors make more profit? Here are 3 examples.
Most people assume “big data” is reserved for larger, tech-based companies. However, data is useful for any business. At Arani, data drives most of our decisions and helps us provide a better service to our customers. Data helps us forecast inventory better, find opportunities to help our customers more effectively, and allocate resources more efficiently. A few years ago, we implemented IBM Cognos, a data visualization software that allows us to better use the data in our ERP; as of 2019, IBM has recognized our VP Operations as an IBM Champion.
Here are 3 examples how an electrical contractor can use data analysis to improve their performance and make more profit.
1) Data can help contractors retain their existing customers and better forecast revenues and required manhours. Contractors often receive service calls. By nature, these calls are unannounced, and sometimes interruptive to the electrical contractor’s planned work. However, they don’t have to be unpredictable. By tracking service calls’ frequency, an electrical contractor can discover repetitive patterns and plan in advance. Instead of waiting for the call, an electrician can call their customer in advance, to remind them of the potential upcoming service required, ensuring they don’t lose the sale to another contractor, as well as allocate time to it proactively instead of reactively.
2) Data can help contractors win more projects and identify if they need a new material supplier. While most electrical contractors already have an idea of their win/loss record for quotes becoming projects, what about going a layer deeper? Which material supplier leads to the highest number of quotes becoming projects? What types of jobs have a higher chance of winning a bid: lighting, heating, completely new build, etc.? Or specifically jobs that do not require material? This last one is probably the best indicator of a contractor’s competitiveness, since the factor of material costs is removed. In combination with looking at the job type, we can get a good idea of how competitive a contractor is in each job category. Of course, we can then focus on the type of jobs that we are the most competitive at, instead of spending resources trying to win projects that we are less likely to win! In addition, if a contractor wins more jobs that do not require material than jobs that require material, it may be time to look for a new material supplier…
3) Data can help contractors increase margins. By tracking profitability, either by customer or by employee involved in a job, a contractor can identify profitable/unprofitable customers and profitable/unprofitable employees. How many times has an electrician done work for someone and realized they made no money on the job, or felt a customer was “cheap”? These scenarios are the most extreme and obvious ones, but what about the profitable/unprofitable projects that we don’t see easily? Once we identify the most profitable customers, we can ensure our limited resources are focused on servicing those customers. As a bonus, by tracking profitability per job done by every employee, we can identify employees that need further training, as those would be the ones that consistently and repeatedly lead to the lowest margins, and are not as efficient as the rest of the team.
In most cases, these are nothing new to the average electrical contractor – nobody knows a business better than the electrician themselves! The drawback is that most of this data is managed in peoples’ heads; people may be biased, memories may be forgotten, and the data is not stored in a centralized location. By tracking it systematically, these human errors can be eliminated.
What tools do I need?
No special software is required for tracking data. Microsoft Excel / Google Sheets are a good way to start. Of course, as the information gets bigger, better software makes lives easier.
Here are 3 main points to remember when using data:
1) It is never too late to start collecting data, and the first step is just to start collecting it! Even if right now we don’t have time to look at it, collecting data now will help us make better decisions later. Make sure all your information is in a consistent format, and stored in an organized manner.
2) Only the aggregates matter - remove any outliers! Numbers that are obviously out of the usual range of the data should be taken out of the data set, and we shouldn’t obsess over one or two incidents but only ever consider the data as a compiled number. It is too easy to give a knee jerk reaction to one-off freak incidents, but those incidents are unlikely to repeat themselves.
3) The numbers themselves don’t matter as much as the trend and how our actions affect them. By setting intelligent, actionable, and measurable goals, we can track our progress in affecting our numbers, and then use our experience to set better goals!
At Arani we track information such as on time shipping, profit per customer, inventory turns per SKU, cash cycle in days, and many more. Our VP Operations, Dennis Daoust, spends over half of his time looking at and managing our data, and this is why he has become a master of using IBM Cognos to the point of becoming an IBM Champion. I find it extremely useful for us, if you do start using data or already doing it, I would love to hear your stories!
P.S. A special mention here goes to Newintelligence, our IBM partner, for sponsoring Dennis with IBM, and for all they do to help our data management.