Super Profit – How to Run a Profitable Landscape Company

Super Profit… A Daily Mantra for Running a Profitable Landscape Company

Could there actually be a way to sell more work, at a higher profit, for a lower cost than you’re selling today?   There is, and from Day 1 of next year make sure the idea of Super Profit is burned in the front of everyone’s mind all year long.

What is Super Profit?  Super-profit is earning much larger profit margins on your work than anything that the industry finds “normally” competitive.  Our industry operates at somewhere between 2% and 10% profit.  Companies that make super-profit find ways to earn profit margins of 30%, 40, even 50% net profit.  On all jobs?  Unfortunately no, but you can earn super-profit on a portion of your work.  Super-profit is how your company will make the leap from average  5-10% margins to earning 10% – 25% profit margins –doubling (or more!) the average industry profit.

Selling work at 25% net profit is very difficult… and now more than ever.  Changes in the economy mean that every government and commercial sector is trying to run leaner, with tighter budgets.  Changes in mortgage rules have spelled the end of cash-back mortgages and low down payments – slowing the flow of “upgrade” money that has been used to enhance homes’ exteriors and interiors.

It’s rare to find a profitable landscape company that gets there by building big profit margins into their jobs.  Landscaping is a highly competitive market.  Super-profit is not about selling work at prices above the norm.  Super-profit is generated through efficiency and productivity.  Super-profit happens by making the most of every hour, eliminating waste and generating more total revenue per man hour.

I recommend you sit down with your foremen early this spring and brainstorm a list of problems, issues, or lack resources that cause wasted time.  Better yet, let your foremen develop the list while you help steer the conversation.  Start by identifying the problem/waste, then ask them to make their best guess at how many man hours per week (not crew hours, but man hours) are spent on each waste.  Here are some examples to get you started…

	Man Hrs/Week	Working Weeks/Yr	Chargeout Rate/Hr	Total Revenue
Talking on cell phones, texting	2.5
Loading/unloading open trailers every day	2.5
Stopping to pickup miscellaneous small materials/tools etc.	3
Floating equipment between sites	4

 

I won’t be surprised if you and your staff come up with 50 reasons in less than 15 minutes.  Warranty, re-work, fueling, work done incorrectly, moving and re-moving materials around on site, equipment breakdowns due to lack of care, working without the proper tools and equipment, waiting for materials or information that should have been better organized, employees showing up late, getting lost, lack of trained labor… this list gets big in a hurry.

Now go through that same list, but this time add the following:

• The average number of weeks in your working year
• Your average charge-out (billing) rate per man hour

Then multiply the man hours per week by the working weeks per year to get the total hours per year lost to each waste.  Multiply that total by the charge-out rate you normally bill your customers and that’s how much revenue is lost this year to each of these wastes…

	Man Hrs/Week	Working Weeks/Yr	Chargeout Rate/Hr	Total Revenue
Talking on cell phones, texting	2.5	38	$50.00	$4,750.00
Loading/unloading open trailers	2.5	38	$50.00	$4,750.00
Stopping to pickup miscellaneous small materials/tools etc.	3	38	$50.00	$5,700.00
Floating equipment between sites	4	38	$50.00	$7,600.00

 

Just looking at one of these, the real cost of moving a piece of equipment isn’t the fuel, or the wage you pay the driver to load and move it.  If an employee spends 1 hr inspecting a truck and trailer and driving to the site with the equipment, 1 hr loading down, strapping, and inspecting the loaded equipment, 1 hr driving to the next site and unloading the equipment and 1 hr getting back to the shop and disconnecting the trailer, we’ve lost 4 hours of billable opportunity.  If your typical charge-out rate was $50.00/hr, you’ve really lost $200.00 of potential revenue.

Think about it this way… if you hadn’t had to move that equipment, your employee could have been working on billable work.  Installing pavers, planting shrubs, building a deck… anything that helped complete a job 4 hours sooner.  And if we finished that job sooner, we’d have 4 hours of extra capacity to do another job before the end of the year.

When you add up all the extra capacity opened up by eliminating waste and staying focused on billable work, it’s not hard to see how each crew can complete an additional $50,000 – $100,000 billable work in a season!

And this is exactly where the idea of super-profit comes in.  When you can take wasted/non-billable hours and turn them into billable, production hours you hit super-profit.  Your costs on this extra work are minimal and the profit is through the roof.  Assume the crew in the example managed to identify, and eliminate, $50,000 worth of waste and inefficiency.  (Note:  many companies find it easy to identify $25,000 worth of waste before they leave the yard in the morning!!!)

The net profit margin on that extra $50,000 is your super-profit.  Let’s break it down…

Normal Profit:  We’ll assume you charge a fair profit on all your work, so you if you complete an extra $50K in work, its fair to assume you also earned an extra 10% in net profit.

Labor costs:  Would you have any extra labor costs to do that extra $50,000 in work?  Yes, you’d have labor costs, but they’re not additional costs.  You are paying wages for the waste time anyway!  All we’re doing is exchanging non-billable (waste) hours for billable (productive) hours.  What would normally be labor costs on this extra work (field labor costs are typically 20 – 35% of sales) is now net profit!

Equipment costs:  Your leases and insurance do not increase because your sales went up.  Fuel and maintenance costs may increase slightly.  Equipment costs are typically 10-15% of sales, and since they increase only slightly with the extra work, you’ve likely found another 10% net profit.

Materials costs:  If you’re installing materials, these costs will increase with additional work.  No extra profit to be found here.

Overhead costs:  Your overhead costs don’t increase with a few extra jobs.  Rent, utilities, memberships, your accountant’s fees, your office manager’s salary… none of these costs need to increase because your crew improved productivity.  Overhead costs typically range from 15% to 35% of a company’s sales, meaning the average company generates an extra 25% net profit here as well!

If you really look at that extra $50,000 in work the crew generated, the net profit margin on that extra work is incredibly high.  Because labor, equipment, and overhead costs don’t significantly increase, you can expect to return net profit margins of 50% or more on this extra $50,000 of sales.  Now you’ve got a very profitable company with some bonus capital available around to reward those employees who made it happen.  While most of your sales will be in the “normal” 10% profit range, the extra sales generated through increased productivity can help your company more than double its total profit in a very small window of time.

Worried about finding the extra work to sell?  Super-profit helps here too.  When your crews are productive and efficient, you reduce the time it takes to complete work, and therefore lower your job costs.  With lower labor costs (and lower overhead as a percentage of sales), your costs (and prices) can come down without sacrificing net profit.

At the end of the day, staff and owners want the same thing.  We may have a passion for the industry, the outdoors, or for creating outdoor environments, but I think we can all agree that we’d all like to earn more for the hard work we invest in creating and maintaining the world’s outdoor living spaces.  How can we earn more?  Introduce the concept of waste, productivity and super-profit to your company and make it your daily mantra for 2013 and beyond.

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