Targeting Psychographics over Demographics
Certified Project Management Professional Randal DeHart is sharing with us today on how he turns his clients’ stressful businesses into profitable, passive streams of income for them with his business accounting system. He also discusses finding a niche for your business and importance of focusing on psychographics over demographics.
In this Interview Learn:
The M.A.P. System for improving your business
Why production shouldn’t be your main focus
How finding the right niche can increase profitability
Why you need to focus on Psychographics over demographics
Tell us your background story?
Growing up in a construction family, I helped with the family business since the sixth grade. I worked hard after school, weekends, and most summers. After graduating High School, I was determined to go to college and major in Accounting so I would never have to spend another minute in construction.
Went to college to get a degree in Accounting and married my high school sweetheart during undergrad. After finishing college, worked in accounting for a short time.
But construction gets in your blood so I had a yearning to go back into construction and after considerable research on different construction trades, decided to pursue a specialty in plumbing. After getting a plumbing license, we started a construction business. We did fairly well, sold it, started larger ones, sold those, until we got up to a fairly large size with about 30 employees.
All the while we were getting lots of requests from friends to help with their accounting and bookkeeping. So in 1991 we started doing accounting and bookkeeping on the side for other businesses. We worked with a few health professionals, retail operations, car lots, and other clients. We kept growing our accounting business, and contractors kept seeking our help as accounting for contracting is different and difficult.
In 2000 we decided to sell our large construction business and focus purely on construction accounting. By 2011 we had expanded nationwide. We opened up our business online to do accounting for other home builders and contractors. Our clients can access us from anywhere in the world.
How do you help others?
We provide a Holistic approach to mentoring and guiding clients with our M.A.P. System.
M.A.P. helps businesses with their operations to be highly profitable. The end goal is to develop a system of passive income, turning their business into a cash cow, or an asset that can be sold and the money be reinvested.
Contractors live, breathe, and work in the “Tangible World.” Everything is judged and perceived through our five senses and what we know comes from our perception.
The theme we’ve observed over the years, borrowing from Michael Gerber of E-Myth, is that most small businesses are run by Technicians who are caught in entrepreneurial seizures.
The technician, be it an engineer, cook, or graphic designer has the fatal assumption that because they are skilled at a certain task, they can turn their skill into a business. The cook starts a restaurant, the graphic designers starts a graphic design business. They venture out onto their own to free themselves from a boss, but become their own boss. Now they’re working to produce more than they ever have at a crazy pace, without understanding how a business works.
True entrepreneurs invent businesses or cash cows, that work without them. The technician becomes a slave to their business, as nothing can be produced or done without them. Of all the businesses in the US, 81% employ no people beside the owner, the sole proprietorship.
Most contractors and other services firms are started by technicians with highly developed skill sets in a particular area. The carpenter opens a Home Builder Company, the electrician opens an Electrical Company, the plumber opens a Plumbing & Mechanical Company, etc.
All learning is based upon connecting things that are known to things that are unknown. This means the technician only thinks that working hands on and production are the most important aspects of a business. If they’re not producing, their not making any money.
They usually run their business through the concept of what I call P.A.M.
Production – Main focus is to work as many jobs as possible
Accounting – Important only when it’s time to file taxes, get a line of credit, or when something goes wrong with taxes.
Marketing – Largely ignored until they run out of referrals, friends, relatives, and when the phone lines dry up.
So they go down the path of P.A.M. instead of M.A.P. which is the opposite.
They must shift their Paradigm and discover the “Intangible World” of M.A.P.
However, a lot of my clients have a hard time shifting their paradigm due to their fight or flight instinct from the Amygdala. For them to become highly successful, and earn more than just a paycheck, they need to open their mind to the possibility that there is more to it than just doing the actual work. They need to focus on M.A.P.
Marketing First: Find the intersection of what they do best and who is willing to pay for it.
Accounting Second: Focus on the Five Key Performance Indicators:
- Profit & Loss
- Balance Sheet
Production Third: Continually growing and improving the processes that deliver results.
Finding your Niche
We help our clients to narrow and focus their broad general services into a sub specialty for them to stand out and compete.
One or our long term clients remodels homes. He did a lot of higher end remodels for smaller homes. So we helped him to dial down and focus specifically only on higher end remodels. We marketed to this target demographic to establish his niche.
One day, he came storming into our office, madder than a wet hen. He cried,
“You SOB, I just got my income tax bill and I paid more in taxes last year, than I ever made on homes before you came along and screwed things up!”
To which I replied, “I can’t hear you over the hum of your new Escalade, how does your wife like her new white BMW? Tell me about your rental properties. You’re making 5x more than you ever used to make and your sniveling over taxes?”
He stopped in his tracks, and you could see it in his eyes, it was complete paradigm shift for him for the first time.
What are the biggest problems and frustrations you see in your industry?
Typically there are three major accounting nightmares for any business:
- Calculating & processing Payroll
- Calculating & filing various different Tax Returns
- Finding Customers & Clients and knowing who to avoid like the plague.
Our industry is accounting, and our niche is construction accounting.
We have a wide range of clients making $30,000 a year to over $1,000,000 a year. About 80% of contractors do all of their own bookkeeping. The biggest headaches are filing taxes, calculating and processing payroll, doing the paperwork, keeping track of bills, receipts, and documents.
Lots of construction business owners don’t keep track of their accounts payable, accounts receivable, and P&L. They don’t have a system to maximize profits. Typically they deposit their final check after building a home and wonder where all the money went. They overpay on labor, material, and subcontractors.
The size of a company and revenue is not as important as the net take home profits. A properly run company with annual revenue between $500,000 – $5 million can actually net more profit and equity than most companies that produce between $5-$10 million.
It has everything to do with strategic planning, understanding, and using the correct QuickBooks reports the proper way. There are thousands of different QuickBooks reports and hundreds of add-on software to generate reports; however there are only five Key Performance Reports and a few Job Costing and Job Profitability Reports that will provide what you really need to achieve your goals.
People also need to understand the different categories of accounting.
There is a world of difference between construction accounting and regular accounting.
Generally speaking, about 80% of the accounting pie is retail: dental offices, restaurants, and small businesses.
They only have a few simple buckets.
- Cost of Goods Sold
- Expenses and Overhead
15% is construction accounting.
5% is manufacturing: buying raw material and converting it to a finished product.
A lot of trouble arises when construction companies hire regular accountants and bookkeepers that think they know how to do construction accounting, when they don’t. They have an illusion of knowledge they don’t have.
The main difference with construction accounting is that the Cost of Goods Sold section is huge. There can be dozens, if not hundreds of different sub sections in this accounting category. There are direct costs: labor fees, materials, permit costs, etc. Then there are indirect costs such as office supplies, fuel, insurance, etc.
Expenses and overhead must be properly accounted for. If they put materials in the cost of goods sold, and everything else in expenses, they can’t properly do the analysis because everything is jumbled in there.
The biggest problem is setting up QuickBooks correctly, pulling up reports to analyze and applying them to the business properly.
We help our clients keep track of all their papers, receipts and documents through our paperless server. We do their bookkeeping and accounting. We help them to focus on eliminating their non profitable customers, and focus on their top clients, and help them to develop their own unique niche as they continually improve their business systems.
Tell us about a client you’ve helped — a before and after case.
We helped this one client focus on his target market. He was struggling and we looked at all his customers and clients. The top 20% of his revenue came from clients that were loyal, repeat customers that never give him any trouble.
The other 80% provided very little revenue and caused a great deal of stress and headache as he had to spend a lot of time with them, redo work, and were just difficult to satisfy. We helped him to analyze and focus on his top 20% clients.
One day, I sat down with him and generated a Job Profitability Report. We pulled up the bottom 20% which he loses money on every time. We found that they all consisted of his friends and family.
These people cost him a lot. So I told him, “For this year, why don’t you give them $30,000 to split up among themselves and have them hire somebody else. This way you’ll save yourself a lot of time, headache, and money. He was angry at this comment. I told him to take a few days to process this.
After he had cooled down, we sat down and pulled up the top 20% of his most profitable clients. These are the people that never bothered him. They’re not squeaky wheels.
The bottom 20% are the squeaky wheels that gave him trouble all the time. So we did some geographic and psychographic study reports on the top 20% of his clients. We narrowed it down and figured out his niche. After dropping the bottom 20% and targeting his niche, his profits went through the roof. It was insane, his banker couldn’t believe it, nobody could believe what happened.
There’s Demographics: age, ethnicity, location, etc. The psychographic is determining the psychological profile of a person.
You can go online to InfoUSA.com and pull up a list of all the people in Scottsdale, Az that have high income, drive luxury cars, have golf memberships, etc.
Take a look at what potential clients are doing. Do an analysis of a neighborhood and see what they have in common. Now we reverse it to see who the people are that will fit this psychographic profile.
Then you can find who the customers and clients are.
A customer will say, “I need to have it done exactly this way! This is how I want you to do it. How much?”
A client will ask,
“What do you advise about this situation? What is the best way to approach this?”
With my years of market research, I’ve discovered that there are Clients and Customers.
Customers are always looking for a product or service and treat you like a commodity. They want the lowest possible price. If you have the lowest price today, you have their loyalty, until somebody else has a lower price.
With these demographics and psychographics, we are looking for clients.
Continue to – “Why You want Clients instead of Customers“
Got a question for Randal? Ask him below!
Randal DeHart, PMP, QPA
Randal DeHart is a Certified Project Management Professional with several years of construction project management experience. His expertise is in construction accounting systems engineering and process development. His exhaustive study of several leading experts including the work of Dr. W. Edward Deming, Michael Gerber, Walter A. Shewhart, James Lewis and dozens of others.
He is the co-founder of Business Consulting and Accounting in Lynnwood, Washington. He is the leading expert in outsourced construction bookkeeping and accounting services for construction companies across the USA. He is experienced as a Contractor, Project Management Professional, Construction Accountant, Intuit ProAdvisor, QuickBooks For Contractors Expert and Xero Accounting Specialist and Bill.Com Certified Guru.
This combination of experience and skill sets provides a unique perspective which allows him to see the world through the eyes of a contractor, Project Manager, Accountant and construction accountant. This quadruple understanding is what sets him apart from other Intuit ProAdvisors and Xero accountants to the benefit of all of the construction contractors he serves across the USA.