Starting Out? What Early-Year Habits Reveal About Plumbing Business Growth
Key Highlights
- Monitoring KPIs such as cash flow, lead quality, and profit margins is crucial in the early years to build a strong foundation for growth
- Implementing rolling 90-day budgets helps manage cash flow proactively, especially during slower seasons, by planning expenses and work schedules
- Accurate forecasting of labor and material needs prevents margin erosion caused by over- or under-ordering and helps avoid excessive overtime
- Pricing strategies must keep pace with rising costs to ensure revenue quality and maintain healthy profit margins
Nate Agentis is the VP of Plumbing Vertical. He is a third-generation plumber, author, public speaker, and founder of Hope for the Trades (hopeforthetrades.com), a nonprofit peer advisory community that helps tradespeople lead their business, balance their family time, and find their life's purpose.
Agentis holds multiple business degrees, a Master Plumbing License, and certifications in Management and Marketing. He lives, works and raises his family in Bethlehem, PA.
Agentis spoke with CONTRACTOR about fledgling plumbing companies, and key considerations for new owners looking to grow their businesses.
CONTRACTOR: Which KPIs matter most in the first few years of a plumbing business, and why?
Nate Agentis: I like to look at these metrics early because if you can master them it will give you a really great head start, and will be foundational principles the rest of your years in business.
Cash Flow - This is so important to manage early on because it costs you cash to grow before it will pay you back. That means inventory, payroll, trucks and marketing.
Lead Quality and Demand - Are you getting the right amount of demand in order to get the leads needed to keep the team busy and build up a reserve. Let’s say your closing rate on a lead is 50% (which would be pretty good) and you have two techs that need 3-4 jobs a day to stay busy. That means you need 80 quality leads a week to close and schedule 40 jobs. So, demand needs to be there, but quality of lead to get good closing rates also has to be priority. This needs to be monitored closely every week and requires good strategy. There’s no “set it and forget it” mentality here, especially in the early years.
Conversion and Margin - What is my closing rate? What is my average call ticket? What are my Gross profit margins on jobs within different departments? So many times we see contractors doing unprofitable work or running around on calls they shouldn’t be just to stay busy. If this metric isn’t monitored you will see your first KPI “cash flow” greatly diminish over time. Many young in business contractors fail because they don’t manage cash and they do jobs at margins that sustain company health.
CONTRACTOR: How does budgeting help prevent cash flow issues during slower months? What are some actionable steps to take now?
Agentis: First, let’s look at Budgeting Cash. What does rolling cash look like over the next 90 days? How much do I need to cover overhead on a monthly, weekly, daily basis. When you manage and know money in and money out with a 90-day timeline you are rarely caught off guard and you learn how to make the right decisions with money faster.
Many contractors are caught in the truck or putting out fires that lose focus on cash management. What's in the bank and what do I owe people is a shallow approach that can maybe work for a while but will hinder long term success if not mastered.
Next is Budgeting Work. Not every job has to be scheduled and completed ASAP. As you approach the slow and shoulder season be wise with your install work. Start adding extra value for customers who will wait to do the work in a slow month. This won’t work for every customer, but some will happily comply.
Another strategy is to take selling maintenance work / re-occurring revenue more seriously all year long so that it will provide some level of consistent and steady work in these months.
CONTRACTOR: How does forecasting labor and material needs protect margins? What are some warning signs the projections might be off?
Agentis: Forecasting is so important because it helps you avoid excessive OT, delayed material due to lack of planning and underpricing jobs because of outdated and unexpected material costs. Every one of these is a margin eater.
Managing labor is crucial. It's your most expensive, most valuable and most limited asset. Tech count, expected work and realistic billable hours is important to forecast. What work is backlogged (it's sold but not done yet)? What work is in the pipeline (quoted but not accepted yet)? These two forecasts along with the lagging metric of technician utilization will help you to start forecasting labor effectively.
Lastly, forecasting material cost, ordering / inventory levels and lead time is critical. Material costs can increase at any given time multiple times a year. Getting updates on increases and keeping your pricing accurate keeps margins healthy.
Another key element is inventory quantity. What level of material do I need on the trucks or in the warehouse? What's enough material or too little material for these jobs? If you don’t manage this element of material, you can easily over order which shrinks margin or you can under order, which in turn eats labor to go get material, again shrinking margin.
CONTRACTOR: Can you discuss common blind spots that stall growth despite strong demand? How can contractors avoid these?
Agentis: One I see all the time is when pricing isn’t keeping up with reality. You’re getting revenue, but it’s low-quality revenue, because quality of jobs and ability to sell value is low or pricing hasn’t kept up with the increased cost of labor and materials. Understanding and managing gross profit with net profit goals will help you see this pitfall quickly.
Another is when the owner is the bottleneck for growth. The need for control, the “I’ll do it myself” mentality can be very dangerous to growth. The art of delegating, building trust and developing others is key to building a stable organization. You can’t put out every fire, micro-manage every job, work out of a van, be the salesperson and the owner all at the same time for very long.
And one more is callbacks eating margin and capacity. Quality of labor and effective training programs often lack in organizations. We rush people out quickly and it slowly costs us customers that were expensive to acquire and margin. Labor is expensive!
Using a callback calculator will make you sick to your stomach when you see what a lost hour per tech per week costs you in a year, and some are losing a lot more than an hour a week. That sick to the stomach feeling shouldn’t leave you bent over the toilet, it should motivate you. Training your people, creating processes and procedures for jobs, and holding your team accountable to quality work is a worthwhile investment that will overcome this major pitfall in an organization—especially as it grows and adds more technicians.