Travels with Jim follows Jim Huston around the country as he visits with landscapers and helps them understand their numbers to make smarter decisions.
The primary responsibility of a CEO/entrepreneur is to achieve the agreed upon objectives and profitability of the organization. In order to do so, he or she has to constantly evaluate organizational threats and opportunities.
Put another way, the CEO is constantly thinking in terms of risk-analysis as he or she attempts to achieve consistent profitability (or certainty).
The organization’s annual budget is the primary document that a business uses to quantify and measure its objectives and its progress in achieving its goals. Just as a doctor uses vital signs to measure the health of the human body, so does a CEO use critical numbers to measure the health of a business. These critical numbers are often referred to as key performance indicators (KPIs). Not all numbers are critical and not all performance indicators are key. Hence, a CEO has to separate the wheat from the chaff, so to speak, and focus on that which is key. What follows are the KPIs that I’ve developed over my 35 years of working with green industry entrepreneurs.
How KPIs work in the field.
I’ve worked with thousands of green industry entrepreneurs during those years. The most important thing that I do for my clients is to show them how to calculate and establish daily revenue goals for all of their projects and services, including installation; maintenance and tree care crews; chemical applicators; irrigation service technicians; and so forth. Once this is done, they can measure daily production and know if they are on track or not.
Daily KPIs: KPIs need to be quantifiable and timeable. Once the annual budget is in place and pricing for services and crews are calculated, daily KPIs can be established. For instance, the KPI for a lawn care technician is often a minimum of $1,000 in revenue per day. This translates to $5,000 per week or $21,000 per month.
This KPI is easy to measure, and it has a time deadline. A company with a seven-month lawn care season could set a revenue goal per technician at roughly $150,000 annually (7 months x 21.7 days per month x $1,000) minus a day or two for holidays.
The daily KPI for a two-man mowing crew might be $800 per crew-day. This would translate to $4,000 per week or just over $17,000 per month ($4,000 x 4.333 weeks per month). This crew should bill roughly $119,000 over a seven-month season.
Not all numbers are key performance indicators, so CEOs need to figure out which metrics are best.
The annual average revenue KPI that I’ve calculated over the years for a maintenance crew member is between $55,000 to $65,000. Our sample crew falls right in line with my KPI at $59,500 ($119,000 ÷ 2 crew members).
This KPI methodology could easily be adapted to a general tree work crew, a gardening crew, an irrigation technician and so forth. It’s also easily applied to use with smaller landscape or irrigation installation projects. For instance, most residential irrigation installation jobs take one or two days. A four-person crew with a machine would usually bill about $600 per man per day or $2,400 per day (without parts). With parts this crew would bill about $4,000 per crew-day, which is easily trackable.
Project KPIs: Risk management for green industry entrepreneurs is all about field labor. I claim that 90% of a contractor’s risk is tied to field labor. If you are going to make or lose money on a project, it’s whether you bring the job in on budget for field-labor hours. While materials, weather, subcontractors, etc. do pose some risk, they are overshadowed by field-labor hours budget-to-actual performance. Therefore, the critical numbers for monitoring project performance are the budgeted-to-actual field-labor hours.
I’d break this figure down and track such performance for the various phases of a project. For instance, I’d possibly have a budgeted-to-actual field-labor hour KPI for demolition, site prep, grading, soil prep, planting, irrigation, general conditions and so forth.
Achieving budgeted profitability for a green industry company is all about risk management. Risk management is all about hitting (or beating) your budgeted field-labor hours for your projects and services. KPIs can provide a critical tool for measuring your progress toward achieving not only your daily field production goals but also your annual budgeted revenue and profitability objectives. They also provide simple, bite-size objectives that a contractor and/or manager can easily wrap his or her head around and know on a daily basis if their work is being profitable. And keeping it simple while keeping it profitable is a pretty good combination that most contractors welcome.