Complete Story
05/22/2019
Improving a 15% Hit Ratio
Source: Bob Lindgren, PIA SD’s Bulletin Board, May 22, 2019
A printer has a hit ratio of 15%. Simply put, 85% of the time that they talked to a prospect and learned enough about their needs to give them a quote, they didn't get the order. They also operate a single shift and thus have ample room to handle more work without increasing their overhead. These two facts present real opportunity.
The first step in the realization of this opportunity was to rethink the estimating system which was the source of the quotes given to customers. It had always been internally focused, using rates which were supposed to include all of the costs of running the business in each job. As a result, it said that the press cost $400/hour even though the press crew only earned $50/hour. It also added mark-ups of 10% or 15% to paper and outside purchases even though no check had to be written for those mark-ups.
The rethink began by externally focusing the system. The owner and the key people who worked in outside sales came together and made their best guess as to the rates prevailing in the market for each of the cost centers in the system including the mark-ups. Then, they thought carefully about their customers and prospects. Some were very close and treated the printer like a sole source. Others (government agencies and the like), got multiple quotes and bought only on price. They then established a mark-up on the system prices for the first group of 5% and a mark-down of 5% for the second.
Most importantly, they enthusiastically adopted the principle that every quote should not leave money on the table but should also get the order. Their objective was to raise the hit ratio from 15% to at least 40%.
If this was accomplished, what would happen? First, sales would double. Of course, as that came into being, they would have to hire more people and staff up for a full second shift. It would also increase their need for working capital, but fortunately increased sales kept their bank happy. But, best of all, profits would explode. Why? Because doubling the sales didn't double the overhead. They didn't need more machinery or a bigger plant, just some more CSRs. It's true that many of the new sales were at lower prices, but they were now new sales and not just lost orders.
