When Georgia faced one of the worst droughts in its history, Jim McCutcheon started a program to audit irrigation systems. Bob Grover has used a noise ordinance in Portland, Ore., to showcase what his company is doing to have less of an impact on the environment. And Benton Foret takes a proactive approach to contractor licensing laws in Louisiana.
As you click through this month’s magazine, you’ll find some new departments and features. We’ve updated some areas and introduced new ones to bring you the best information possible.
Why do you disagree with the MORS (multiple overhead recovery system) estimating method for pricing landscape and irrigation work?
At a recent ANLA webinar, Marcus vandeVliet of MV Consulting stressed the importance of knowing your numbers. If you don’t know what jobs are profitable, or how much revenue each of your salespeople is bringing in each week, it’s difficult to know where to go.
But what if each of your projects is profitable, and you still see red?
The author is editor of Lawn & Landscape. Send him an e-mail at firstname.lastname@example.org.
Photo: The Grounds GuysAt a recent ANLA webinar Marcus vandeVliet of MV Consulting stressed the importance of knowing your numbers. If you don’t know what jobs are profitable or how much revenue each of your salespeople is bringing in each week, it’s difficult to know where to go.
Here are his tips on what to measure, and how to ensure you go after the right jobs.
Profit by Project
This, vandeVliet says, is the single most-important metric an owner must watch. It gives you real-time data on how your company is performing. Profit-and-loss statements have good information, but it’s typically a month old, and is static.
“We don’t manage based on that information,” vandeVliet says. “I can combine profit-by-project (reports) to better manage the business. This is not for accountants. It’s for managers; it’s for supervisors.”
He stressed the difference between an estimate (the cost of a job) and a bid (that cost, plus mark-up for profit), and that profit should be built in to every job first, not as an afterthought.
“Don’t just hope for profits,” he says. “Bids can be lowered by reducing profit, but estimates should not be lowered, because costs are costs.”
vandeVliet described five factors that determine profit:
- Need. How badly do you need this project?
- The marketplace. How competitive is it? Is the job a direct referral or a low-bid commercial project?
- The customer. Look at his personality and his expectations. A high-end residential customer might have different ideas about plant and material quality than a property manager.
- The size of the project. Smaller projects need a higher percentage of profit, because they bring in less revenue. Larger, big-ticket jobs can have smaller margins.
- Risk. What risk to you is associated with this job and how does it impact what you charge?
But what if each of your projects is profitable and you still see red?
vandeVliet says many companies have a high non-billable hour percentage and excessively high overhead, which eat up all the profits from those jobs.
“A trend in the last couple of years is that sales have declined, and overhead has not,” he says. “You must review overhead compared to sales when you review your budget.”
Find the Sweet Spot
Once you know how profitable each of your jobs is, you can find out what type of job brings you the most cash at the end of the day. Maybe you make the most when you do a residential hardscape in the $5,000 to $10,000 range. Maybe it’s a commercial installation for $30,000 or more.
Other data to consider when determining your company’s sweet spot are:
- The smallest project you should take on, and the largest;
- The most-efficient crew size;
- Strengths and weaknesses of your various crews and foremen;
- Equipment efficiency;
- Customer type;
- Leads generated from the job; and
- Distance from your facility.
Every salesperson should have a dollar-bid goal – how much work she proposes and presents to clients. By dividing that number by the total dollars sold each month, you can determine her closure rate, which you should monitor at least monthly, if not every week.
“It’s something tangible a sales manager can monitor,” he says. “Obviously closure rates in January are going to be different than what you’re going to see in April.”
Make sure the leads you’re pursuing are qualified. Referrals are better than open bids, but vandeVliet says companies must make an effort to pre-qualify any leads before sending a salesperson out on a call.
“A lot of people are trying to process too many leads. ... For every four leads that are not qualified, try and eliminate one before you make the appointment, then eliminate one more after you have the meeting,” he says. By focusing on the best leads, you can give them better service than if you chase down leads that won’t pay off.
“If you don’t have the time, a lot of people are doing a poorer job of getting back to clients, bids are rushed, designs aren’t done.”
You can calculate your direct referral percentage two ways: Divide the total dollar amount of projects generated by direct referrals by the total dollar amount of projects presented, or divide the number of projects directly referred by the number presented.
To boost direct referrals, consider offering personalized incentives – a small product or service that’s valuable to them. Maybe a homeowner had to cut a few trees from the project due to his budget; throw in a couple of maples if they refer two friends (who sign up for work themselves).
“Find out what’s important to them, because these referrals should absolutely be important to your company,” he says. “If you’re going to build your business, particularly on high-end residential, it’s important each job you get has the potential to get you more work.”
Don’t, he cautions, just drop your price. That has an immediate impact on your profit, and at the same time, devalues the work you’re doing.
“We need to protect the value of what we produce as an industry,” he says. “Every time we’re discounting, we reduce the value of what we do.”
vandeVliet advises owners to develop a Work In Progress (WIP) report to help track jobs that are currently underway.
The last day of each month, look at the percentage to completion for every in-progress project and compare that to the total revenue the project will bring in.
For example, a $10,000 job that’s 65 percent done has brought in $6,500 in revenue for the month. Add projects started and finished this month, as well as work started last month and completed this month.
He cautions that you “rely on field people who live in the real world” and not always your salespeople, who might have “more generous” numbers.
Once you have the number – or more importantly, the trend – share it with your employees.
“We can’t do anything about yesterday. Anything that’s happened up until today has happened,” vandeVliet says. “What really matters is what we’re going to do tomorrow.”
Contractors aren’t lawyers, and so can’t bill clients for the time their crews spend washing trucks, fixing equipment or driving to the supply yard. vandeVliet recommends you set up each item as its own project, then track it on a daily basis and assign hours to it.
For instance, one of his clients wanted his trucks to look good, and so his crews spent the last part of every day washing them. By tracking the overtime costs associated with this work, he found that it would be cheaper to hire a truck-washing firm to do it for him.
“While they can’t be eliminated, when you’re tracking anything, it can certainly be reduced,” he says.
Click here to view the PDF of the presentation "If you can't measure it, how can you manage it?".
The author is editor of Lawn & Landscape magazine. Send him an e-mail at email@example.com.