This year is looking to be another strong year for the landscape industry. Contractors I speak with are busy, customers seem to be spending, and opportunities are out there for companies of all sizes.
But anyone in this industry knows that nothing comes easy. Challenges crop up, even when times are good. Here are 3 ways great landscape companies are rising up to meet these new challenges – or steer around them – to maximize their profit this year.
Reduce Your Dependence on Labor: Do More With Equipment + Technology
Despite some landscape contractors considering themselves ‘equipment junkies,’ most of the contractors I meet are underequipped. The idea of having monthly payments scares off a lot of companies. Despite once-in-a-lifetime type of interest rates, many companies won’t invest in equipment until they can purchase it with their own capital. Or they keep equipment past its prime, because it doesn’t have any ‘payments.’
In a busy economy, it’s never more important than to be properly equipped. The right equipment and work tools allow your crews to do more work in less time. This is extremely important for two reasons:
- With a shortage of labor supply, we must get creative with ways we can do more work with less staff
- We need to capitalize on as many of the opportunities (jobs) that we can while they are available. Equipment allows us to complete jobs in less time, adding a few days – or even weeks – of extra opportunity in the season.
Beyond even these reasons, being well-equipped gives us some other powerful tools to outsmart and out-manage our competitors.
- When we complete our jobs in less time (labor hours), we lower our costs of production. Now we’ve got more control when pricing work competitively (or not); we can choose to improve profit or we can reduce our price
- By reducing time to complete jobs, we can finish more work in a season (or a week, if we’re in maintenance). It’s highly likely we can grow our revenue without increasing overhead expenses (*authors note: I treat equipment as a job-cost, not overhead). Growing sales without growing overhead is an effective way to either grow our profits, or reduce our overhead markups – which makes our prices more competitive.
And while we’re on the topic of equipment, here’s a few key tips I’ve learned in my business over the years:
- Don’t be cheap on equipment. Focus on the productivity gains you’ll get from your equipment. Savings on labor can easily outweigh a few hundred dollars in equipment payments. If you can use an $800/mo skid steer 3 days a week, it’s only costing you $8.33/hr, plus fuel and repairs. Even if good labor wasn’t in short supply, you’d never find labor that will work for that cheap and get that much done!
- Standardize your equipment – equipping crews with same models and brands makes it easier/cheaper to stock spare parts, filters, etc. It’s also easier to train employees on the use and care of your equipment and tools.
- In the age-old debate of whether you should own equipment, or lease/finance it, remember that the biggest cost of equipment is production downtime when it breaks down. Lost revenue due to lost productivity is like the bottom of the iceberg – you don’t see it as easily, but it dwarfs the costs that you can see.
- Think of software or technology like equipment for the office. If your company is still paperwork heavy – you’ve got too much overhead, too many mistakes, and your spending too much time tracking these mistakes instead of planning your work so you avoid them!
Spend More on Key Staff (and Attract Better Staff While Doing it!)
My experience is that too many contractors try hire the wrong kind of staff. They try to increase profits by keeping payroll costs low. For some companies this can work, but it’s not for everyone.
Established, system-driven companies that perform repeatable work can get the best of (cheaper) employees who aren’t independent, motivated thinkers. The company’s systems, supervision, and procedures drive the correct behaviors and with repeatable work, there’s little opportunity for major mistakes.
Unfortunately, many smaller or less-systemized contractors try to hire the same type of staff, but they lack the necessary systems, procedures or even supervision to keep these staff productive. Left to make decisions in a complex environment (e.g. more complicated/variable jobs), cheap staff cost companies tens of thousands of dollars in lost revenue through mistakes, poor decisions, or just lack of motivation.
The average 3-person landscape install crew generates around $2,500/day of revenue (finished work). Losing a half day to a mistake, forgotten material, poor productivity, or poor planning costs your company over a thousand dollars in missed revenue opportunity! If a more skilled (and more highly paid) foreman can help you avoid just a few mistakes a year, they can contribute to more profit – even if they increase your payroll. They can help justify their wages with less supervision (less demands on your time!), better training and development (of their laborers), and better company culture.
The 3 R’s of Unbillable Time – Reduce, Reduce, Reduce
Average companies work hard, but they accept problems as a normal part of doing business. They’re happy when things go right and frustrated when things go wrong – but they’re “too busy” to truly spend time to eliminate problems that cause waste and inefficiency.
It’s easy when sales are good to ignore small problems, but ignoring those problems is extremely costly! Pay extreme attention to your company’s unbillable time. These are hours that are spent working (i.e. on payroll) but they don’t complete any revenue-generating work. These hours are extremely expensive.
Learn the true cost of your unbillable time and teach all your key staff. Teach them not just the costs of payroll, but the real cost of waste and problems by using lost revenue as the metric. Brainstorm a list of daily/weekly obstacles that cost valuable production time.
I’ve based the following sample on a single 3 person crew. For each mistake we estimate how many crew hours are lost per week, and per year (based on a 36 week season) due to the waste. Then we look how much potential revenue is lost due to these mistakes (assuming the average 3-person design-build crew completes $2,500/day of finished work).
Start with simple, avoidable problems in the table at bottom left.
The list of simple mistakes can go on and on, but just those 4 items alone represents over $30,000 in lost potential revenue for each and every 3 man crew you have!!! Smart companies that grow revenue through reduced unbillable time not only have higher profits, but they lower their overhead (as a percentage of their sales), which helps them compete against just about anyone.
Exhaust that list and then have the ‘big thinkers’ in your company brainstorm more strategic ways to reduce unbillable time:
- Could you contract out the washing/cleaning of your trucks – and keep your crews on the jobs longer?
- Could you use vendors for deliveries more often – and keep your crews on-site and producing revenue?
- Could you use technology to reduce paperwork and keep better track of on-time job performance?
There are hundreds of ways you can reduce unbillable time in your company and keep your crews focused on what they come to work to do every day – to generate value for the customer and revenue for the company.
Mark Bradley’s Corner is an occasional advertorial series sponsored by LMN. For more information, visit their website at www.golmn.com.