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At the mercy of data

Columns - Industry Voices

Jim Huston | March 17, 2014

Jim Huston

Early this year I presented a seminar at the Real Green Systems Marketing Symposium in Orlando, Fla. The topic covered benchmarks and critical numbers for the lawn care industry.

Benchmarks are universal units that are used for comparison purposes. For instance, the universal unit for comparing the human body temperature is 98.6 degrees Fahrenheit. However, not all benchmarks are created equal. Critical numbers are benchmarks that are especially prescient or foretelling. Such critical numbers for the human body (body temperature, blood pressure, pulse rate) when combined are referred to as “vital signs.” They are especially predictive regarding ones health. Critical numbers, in the context of a business, when understood and used properly can prognosticate its health both short term and long term.

Who in a company should use them? Just about everyone can make use of benchmarks and critical numbers if they know how to apply them. Here are a few examples.

Operations managers using production benchmarks can see which routes and technicians are the most efficient and/or most profitable. Human resource and safety managers can combine hiring, training, production and accident data into metrics that measure the effectiveness of training and safety programs. In particular, individual technicians can compare their daily production results to those of other technicians both within and without the company.

Common benchmarks and critical numbers. Benchmarks and critical numbers should be tied to risk in order to help measure and control it. The greatest risk in an installation or service company is labor. That is why we measure most items in relation to billable man-hours.

There are also relative and absolute benchmarks. A material to labor ratio can vary dramatically and still be within acceptable parameters. However, net profit per man-hour is an absolute metric. The higher the better, the lower the worse it is. A net profit per man-hour of $15 is always better than a net profit of $5 per man-hour. All benchmarks evolve over time but relative ones tend to do so more often. Here are common benchmarks you might find useful.


Revenue benchmarks

1. Sales per man-hour (SPH): Revenue ÷ man-hours
    $1,000 per man-day ÷  8.0 man-hours = $125 SPH

2. Sales per man-year: Total company revenue per year ÷ # of full-time field staff
    $1,050,000 per year  ÷  7.0  full-time field staff = $150,000

3. Sales per man-day: Revenue per man-year ÷ # of days per year
    $150,000 ÷ 150 days per year = $1,000 per man-day


Margin (man-hour) benchmarks
1. Net profit margin per man-hour (NPMPH):    Net profit margin ÷ Man-hours
    $1,000 per man-day x 20 percent  NPM = $200
    $200 ÷ 8 man-hours per day = $25

2. General and administrative (G&A) overhead per man-hour (OPH):
    G&A overhead for a lawn care company is usually 25 to 30 percent of sales
    $1,050,000 x .3 = $315,000
    Total billable field man-hours per year = 7 people x 7 months x 173 man-hours per mo. = 7 x 7 x 173 = 8,477
    G&A overhead per man-hour = $315,000 ÷ 8,477 = $37.16

3.   Gross profit margin per man-hour (GPMPH)   
    Net profit margin per man-hour + Gross profit margin per man-hour = GPMPH
    $25 + 37.16 = $62.15 GPMPH


Profit & Loss (P&L) benchmarks (as a percent of sales):

Direct costs

Materials 20 percent  (+/- 5 percent )
Field labor 25 percent  (+/- 5 percent )
Labor burden 30 percent  (+/- 5 percent ) (as a  percent  of labor)
 Labor burden 5 percent  (+/- 2 percent ) (as a  percent  of sales)
Equipment & trucks 10 percent  (+/- 2 percent )
Subcontractors 0 - 2 percent
Commissions 4 – 8 percent

 

General & Administrative Overhead - Indirect costs (as a percent of sales):

Total 25 – 30 percent
Marketing 3 percent  (+/- 2 percent )
Office salaries 6 percent  (+/- 2 percent )
Officer salaries (FMV) 6 percent  (+/- 2 percent ) (a fair market value salary minus dividends)
Total office and officer salaries 12 percent  (+/- 2 percent )
Rent 3 percent  (+/- 1 percent )

 

Marketing Benchmarks

Percentages:

Closing  percent 20 percent  (+/- 10 percent )
Retention  percent 80 percent  (+/- 10 percent )
Cancellations  percent 10 percent  (+/- 10 percent )
New sales  percent 20 percent  (+/- 10 percent )
Net annual growth  percent 10 percent  (+/- 5 percent )
Marketing as a percent of sales 3 percent  (+/- 2 percent) 3 percent  (+/- 2 percent )


Dollars:

Cost per new customer $100 (+/- $25)
Cost per customer (all) $15 (+/- $5)
Revenue per customer $400 (+/- $50)
Net + gross profit per customer $80 (+/- $20)
Annual revenue per truck / tech. $150K (+/-$20K)
Annual “up” sales per truck / tech. $10K (+/-$5K)


General:

Customers per truck 375 (+/- 50)
Customers per $100,000 revenue 250 (+/- 25)
Customers per $1 million revenue 2,500 (+/- 250)

 

Conclusion. Benchmarks and critical numbers are a “work-in-process.” They are constantly evolving. I’ve found that the benchmarks and critical numbers I’ve shared with you are fairly consistent throughout North America. They will vary primarily due to the customer density of individual service routes.

I’d recommend you calculate these benchmarks for your company. Then, compare your results to my benchmarks. Share them with your staff to set goals throughout your organization. Send me an email and tell me what you found and if your figures are close to mine. If they aren’t close, maybe mine need to evolve a little more.


 

JIM HUSTON runs J.R. Huston Consulting, a green industry consulting firm. See www.jrhuston.biz; mail jhuston@giemedia.com.

 

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