RevOps, or Revenue Operations, is a discipline that integrates sales, marketing, and customer service to optimize revenue generation. Increased revenue usually means increased profits, but how often do you find your construction business at the end of yet another quarter, and profits have yet to materialize into real cash?
Revenue vs. Profit
Cash flow is king no matter what type of construction business you run.
Your business’s accountant does a lot for you, but as a business owner, you quickly learn that your accountant’s application of GAAP rules benefits your tax bill more than your bank balance. Simply, your accountant focuses on a simple equation when determining profit for your construction company:
Sales - Expenses = Profit
However, most businesses use accrual accounting methods, meaning income (sales) reports at invoicing. Recording income before receiving payment leads to deceiving balance sheets and P&L reports where income is overstated. Just because you have invoiced a customer doesn’t mean they have paid.
Accrual accounting methods also prioritize expenses, realizing profit only when enough money is left from paying all the bills.
Your accountant’s way of doing business is excellent at year-end and for taxes, but it shouldn’t be how you run your built environment business. Instead, consider a profit-first mentality.
Sales - Profit = Expenses
By removing profit before committing to expenses, you preserve the margin. This profit-before-expenses mentality preserves cash. Accrual accounting does not.
How does it work for your business or a large publicly traded company? Let's dive into a case study of NVR, Inc.
Profit before expenses
NVR, inc. is a home construction business that runs adjacent title and mortgage companies. While other home-building and construction companies see significant swings in profitability, NVR consistently maintains or exceeds a target 15% net profit margin since 2018.
Some builders exceed that 15% profit target. However, they also have years of no or low profits reported. How does NVR maintain profitability at a steady rate?
NVR is unique because revenue operations are at the heart of their business. Anyone who has interacted with or worked at NVR knows:
- Transparency in numbers: NVR is a publicly traded company, so a level of transparency is a requirement that private companies are not held accountable to. However, NVR communicates and measures revenue numbers transparently with employees.
- Target margin: NVR has a profit-first mentality. The profit comes first, then expenses. If profitability doesn’t pencil out, the deal isn’t done.
- The clarity in offering: Most home builders begin as developers or enter the land development business. NVR sticks strictly to home-building and exercises options to tie up land deals, executing only when demand shows a clear profitable proforma.
- The clarity in customer: NVR has successfully developed business lines for each type of buyer, with Simply Ryan serving entry-level markets, Ryan serving mid, and NVR Homes serving high-end. As a regional builder, they know the market east of the Mississippi and concentrate on market share instead of spreading their resources too thin across the US.
Using RevOps to Increase Profits
Increasing profits requires taking profitability before expenses. But what about growth - growing profits? RevOps can help construction businesses increase revenue and decrease costs by aligning marketing, sales, and operational functions.
RevOps = More Revenue
Once you take a profit-first approach to your business, you stop sacrificing profitability for expenses. But what about increasing profits through revenue?
RevOps can help your business add more income to the top of your Profit and Loss report by:
- Increasing lead generation: RevOps can help construction businesses to identify and qualify more leads by sharing data between sales and marketing. Shared data leads to a more efficient and effective sales process and more closed deals.
- Improving sales conversion rates: RevOps can help construction businesses to improve their sales conversion rates by providing sales reps with the correct information at the right time. Achieve real-time data for sales by creating a single view of the customer, which allows sales reps to see all of the customer's interactions with the company. This single view is accomplished by implementing the right CRM for your business and aligning your company’s technology.
- Increasing customer lifetime value: RevOps can help construction businesses to improve customer lifetime value by upselling and cross-selling products and services to existing customers. Creating a customer profile that tracks a customer's purchase history and interests allows marketing to resell to existing customers. Too often, the story of the customer ends after the initial purchase. By aligning sales, service, and marketing efforts, marketing can re-engage customers for future purchases.
RevOps = Decreased Expenses
Often as businesses, we focus on increasing sales to cover expenses. With a profit-first approach to your built environment business, you align costs to what is left after profit is removed from revenue. Sticking to this new expense budget can take time and effort. RevOps not only helps increase profits, but it can also decrease costs.
RevOps can help construction businesses decrease expenses by:
- Optimizing the sales process: RevOps can help construction businesses to optimize their sales process by identifying and eliminating bottlenecks. Less friction can lead to a more efficient sales process, saving your business money in terms of time and resources.
- Automating tasks: RevOps can help construction businesses automate many tasks in generating and closing deals. Automation allows employees to do more with less, freeing your business's employees to focus on more strategic activities, saving money.
- Reducing customer churn: RevOps can help construction businesses to reduce customer churn by providing excellent customer service. Excellent service requires creating a customer-centric culture enabled by technology. When customer service has access to the same information as sales and marketing, they can better serve the customers' needs. Alignment with operations allows customer service to develop a process for resolving customer issues quickly and efficiently, saving your business money in terms of lost sales and the cost of acquiring new customers.
- Use data to make decisions: RevOps can help construction businesses use data to decide how to optimize their sales process and customer service. Relying on accurate, real-time, cross-organizational data can help your company to make better use of its resources and to avoid unnecessary expenses.
Get Started Implementing RevOps in Your Construction Business
The road to more profits starts with taking profit first. Getting your expenses in line and revenue increased to achieve those profits begins with RevOps. Here are some tips for construction business owners looking to increase profits with RevOps:
- Start by defining your goals: What do you want to achieve with RevOps? Do you want to increase lead generation, improve sales conversion rates, or reduce customer churn? Once you know your goals, you can develop a RevOps strategy to help you achieve them.
- Get buy-in from top management: RevOps is a cross-functional initiative that requires the support of top management. Ensure the CEO and other senior executives are on board with the RevOps strategy before you start implementing it.
- Create a single view of the customer: One of the critical benefits of RevOps is that it can help you to create a single view of the customer. A single view of the customer means that all of your data about your customers is in one place. This single view can be helpful for sales reps, customer service representatives, and marketing professionals. Illumine8 can help you choose the right CRM and integrate your existing technologies to create a single view of your customers.
- Automate tasks: RevOps can help you automate many tasks in generating and closing deals. Automation can free up your team to focus on more strategic activities. Don’t know how to uncover redundancies and build automation? Illumine8 can help you save hundreds of staff hours through sales and marketing automation.
- Measure and report: It's essential to track the results of your RevOps initiatives to see what's working and what's not. Reporting will help you to make necessary adjustments to your strategy over time. Illumine8 can help you identify measurable goal KPIs and create real-time digital dashboards.
RevOps is a complex discipline, but it can be a valuable tool for construction businesses looking to boost and maintain their profits. By following the tips above, you can start implementing a profit-first approach with RevOps in your business and see the benefits for yourself.