Profitability is the name of the game, and when it comes to landscaping projects it can be the difference between staying in residential and making the giant leap to commercial. The fact of the matter is, any business can be profitable if it’s run correctly. When it comes to residential versus commercial services, it’s about the bottom line.
If you’ve been tossing around the idea of getting more into the commercial side of landscape work (in this article commercial is defined as business parks, HOAs and other commercial properties), now may be your time to make that big step.
Look in the mirror.
First things first, know what you want. That’s the first step in making any type of decision, and according to Orlando, Fla.-based U.S. Lawns President Ken Hutcheson, it definitely should be considered here.
“Decide where you personally are more comfortable,” he says. “Are you most comfortable dealing with professionals, or are you uncomfortable and more comfortable dealing with a residential homeowner?”
Second, evaluate your mindset. What kind of mental situation do you feel most comfortable in?
“(Is) the way you think transactional?” Hutcheson says. “Do you like a beginning and an end to everything you do during the day? Because that’s what residential is. You go to a job site, you do your service and you leave.”
The third thing to consider is your management style. There is a large difference between managing a residential crew and managing a commercial crew.
“This is the most important,” Hutcheson says. “Are you a micro-manager that likes control, or are you willing to delegate? If you’re unwilling to give up control, have at it with residential, because it requires that. As the owner you have to be involved all the time. If you’re willing to give up and let your team grow and be successful, you may be willing to jump into commercial.
“Money and profits follow, but if you as a person can’t delegate and allow others around you to grow, if you think long term instead of thinking transaction to transaction, if you aren’t comfortable talking to professionals, then stay in residential.”
Another thing to consider is your equipment, according to Carly Rizor, enhancements account manager for Christy Webber Landscapes in Chicago. She says you’ll need larger equipment to get the job done in the commercial world.
“All these larger commercial sites require a different set of equipment,” Rizor says. “So sometimes making that leap from purely residential to commercial spaces, which are just wide open, you’ll want to take a closer look at your fleet to make sure it’s something that you’re capable of and that you’re doing it as efficiently as possible.”
There’s also the topic of certification.
“The guy on the homeowner end, he doesn’t care necessarily that you’ve got a lot of certifications,” says Chris Kujawa, executive vice president of sales and marketing for Kujawa Enterprises in Oak Creek, Wis. “He wants to know that you’re going to do a good job and he can trust you. The guy on the other end has a boss above him, and they’ve got corporate policies and so forth, that they want to see people with different certifications and professional degrees and those kinds of things.
“That’s an important distinction between the two. That’s way more important to a corporate property than a residential property.”
Build a customer portfolio.
If you’ve thought all of these points through and made the decision to make the jump, your next step is to find customers. But how?
“I’ve had the most success getting in front of commercial people by joining various real estate organizations where property managers and facility managers are meeting on a regular basis,” says Gib Durden, vice president of business development for HighGrove Partners. “Getting to network with those people puts a face to the name.”
Christy Webber, president of Christy Webber Landscapes, suggests looking into your current residential clientele and the relationships you’ve already developed.
“A lot of times when you really get to know your residential customers … they own businesses, or work for businesses, so a lot of times you have to leverage what you have,” she says. “Find that homeowner that just loves (you). That guy wants to see his landscaper succeed, he wants to be a part of helping.”
Unlike residential accounts, where you offer your services and customers either accept or decline, commercial landscaping can be more cutthroat. These businesses are required to get two or three proposals before making a decision, and that’s where the danger lies.
According to Tom Houghnon, chief operating officer for Reliable Property Services in St. Paul, Minn., commercial property managers price shop much more than residential clients.
“The relationship is still very important,” he says, “but customers are more cost-conscious on the commercial side.”
Hutcheson says most of the customers know as much about this industry, or more, than some contractors.
“Pricing must be accurate for you to get work,” he says. “I can tell you 100 stories of customers that throw out the high bid and low bid because they are inaccurate.”
Note that Hutcheson mentioned both the high and low bid. In this business, it’s not best to be the cheapest.
“I think one common mistake people make is they try to enter into a new type of business by being cheap,” says Bob Grover, president of Pacific Landscape Management. “People are working off of budgets … usually it’s a fine line in their expense. If you do it really cheap in year one, it’s going to be hard to raise that price.”
A way to make sure your bid is as accurate as possible is to have a good estimating process.
“There is an art and science to estimating,” Hutcheson says. “It can’t just be winging it. That process has to be consistent from job to job to job. It’s not competitive, it just requires accuracy.”
Kujawa says you need to know exactly what everyone wants from the project.
“Write down that they are in fact calling for edging, for mulching, whatever services there are, because your idea of a full-service program and their idea of a full-service program might be different,” he says. “You can’t include flowers in a program that takes it from $30,000 to $40,000 if they didn’t want flowers. You won’t get that company.”
Kujawa suggests creating a spreadsheet or matrix with one column being what the customer wants, and another column being marked off when you add that to your bid.
Know your numbers.
While it’s important to know what the client wants, Houghnon says it’s also important to know all your costs, so you can profit from the job.
“You really have to know what you need to be profitable on the site,” he says. “They’re typically bigger properties and have different demands and different ideas. We as an industry do a pretty good job knowing what our direct costs are, but we sometimes forget the other costs associated with doing the property, whether it’s insurance to equipment repair … that kind of gets put by the wayside. You have to make sure you’re covering all those costs or it’s just going to be a lost leader.” Tom Canete, president and CEO of Canete Landscape & Garden Center in New Jersey, says that because of costs and everything involved, you most likely won’t even see a profit until later in the season.
“(The commercial properties) give you a lump sum for a year, and usually break it into eight or nine payments,” he says. “So you’re very heavy in the spring with what you’re laying out. You may not even cover your out-of-pocket expense, so you have to be able to float that money until you start seeing a little bit of a profit after the summer. In the summer you skate by and come fall you start getting out of the red and get into the black.”
Sometimes, you are going to have a bid that’s too high, and if the property manager isn’t willing to negotiate, you may need to accept that and move onto a different job.
“You can’t go below what you can’t go below,” Webber says. “You just have to let it go. It’s like buying a car. You love that car, but if the guy isn’t willing to negotiate with you on the car, then screw it whether you love it or not. You’ve got to let it go. You’ve got to make money, and many of these companies that went out in the last five years are because they didn’t pay attention to that.”
“You’re going to have to be diligent with it,” Durden says. “A typical closing rate for commercial properties is 20 percent, so if you’re putting out 100 bids, 80 times you’re going to be told no, 20 times you’ll be told yes. Don’t be discouraged and keep plugging along. Be consistent and don’t get frustrated.”
So what happens if you’ve put in your bid and you realize it’s not working out?
“Be honest with yourself,” Durden says. “You’ve got to know what kind of product you want in your portfolio. Not every commercial job is perfect for every company. You’ve got to know what your niche is. Don’t be afraid to say no to somebody if you don’t feel it’s going to be a successful project. We always want to please people. We’re always the go-getters, we can do it, no job is too small … But sometimes a strategic decision to say no can pay better dividends.”