Since different offerings have different profit levels, it’s important to use a product mix tool to ensure sales are not only focused on the lower margin offerings. For example, a residential installer may focus 80% of their business on shingle replacements with an effective gross margin of 35%. At $1mm in shingle reroof business, that drops $350k to the overhead and profit column. The other 20% of sales could be made up of accessories; insulation, skylights, gutters, ventilation, etc. If the accessory items have a gross margin of 70%, that’s $175k in additional overhead and profit on $250k in sales, a 50% spike overall.
Now, imagine the sales team started getting lazy and stopped offering accessories. Perhaps they were worried that by offering the accessories it would jeopardize the sale. It happens a lot more than you think. If product mix is not watched, this could equate to a 33% drop in overhead and profit and a loss for the company that year.
To be clear, I’m a huge fan in focusing on a specific area and dominating in it. Roofing is what we do and we dominate at it. But that doesn’t mean we can’t offer accessories directly related to roofing. Consider your primary offering and what other products you can offer. Service is another area that is often passed on. If you replace roofs, why not service them too? When times are bad, and people can’t afford a complete replacement, they will look to repair and maintain the roof they have. This is a great opportunity for your company to bring in profitable work, even in the tough times. The service division can also handle small reroofs, cleaning, coatings and accessories. This frees up your production crews to do what they do best. And a service division great for keeping on an aging workforce with years of experience and loads of talent.
For a copy of the product mix matrix we use, please email me at Ken@KellyRoofing.com.
Ken Kelly is President of Kelly Roofing, Naples, Florida. See his full bio here.