Running the Business · Part 6
KPIs: average ticket, close rate, gross margin, and the three numbers that predict failure
A plumbing business fails with a full calendar more often than with an empty one, because the owner watched revenue and never watched the four numbers that revenue hides. This lesson defines the ones worth computing every month from the books you already keep: average ticket, close rate, gross margin (and why it is a margin, not a markup, again), and billable-hour utilization; then the three that predict failure early enough to fix: cash days on hand, receivables over 30 days, and the tax and renewal set-asides actually in the bank. A worked month for a two-truck shop shows how a "good month" reads when the numbers are computed.
What the full lesson covers
- Average ticket = revenue divided by completed jobs; close rate = jobs sold divided by options presented; gross margin = (revenue minus direct labor, materials, and pass-throughs) divided by revenue; utilization = billable hours divided by paid hours. Compute all four monthly from the categorized books.
- Gross margin is a margin: profit over price. A shop pricing at a 30 percent markup that believes it has a 30 percent margin will see the difference in this number first.
- The three that predict failure: cash days on hand below 30; receivables over 30 days above 15 percent of monthly revenue; and the tax and renewal accounts holding less than what is owed by the next due date.
- A full calendar with a low average ticket and a low margin is a business working hard to lose money; the price book and the options ladder fix the ticket, the worksheet fixes the margin, and dispatch fixes utilization.
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More lessons in Growing the Business
- 1Hiring under AB 5: the ABC test, why a 1099 helper is a lawsuit unless they hold their own license, and the construction subcontract exemption
- 2Employees: wage and hour, overtime, meal and rest periods, final-pay rules, and the workers' compensation class code
- 3Apprentices and the Division of Apprenticeship Standards: how a small shop trains its next plumber lawfully
- 4Adding classifications: when to add the B, the C-20, or a second specialty, and how the exam waiver works