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Million-dollar puzzle

Columns - Industry Voices

Jim Huston | November 5, 2013

Jim Huston

A small number of landscape companies reach $1 million in annual sales. Why don’t more entrepreneurs in this industry build million dollar companies? One reason is that they do not have a clear plan for getting there. It’s like putting together a puzzle without having the puzzle box top.

I started working with a contractor in Idaho four years ago. He was making approximately $300,000 a year, but by implementing good pricing, job costing and marketing, he increased his sales dramatically and will be around $1.2 million in sales this year.

As important as pricing, job costing and marketing were, he built a high-performance team to include a construction manager, a maintenance manager and a landscape installation designer / sales person.

To build a $1 million landscape installation business, you need to have a road map (the puzzle box top) with mile markers, intersections and, most of all, a clear destination. We’ll use benchmarks, critical numbers and business pressure points to illustrate how to get there.


Benchmarks and critical numbers. There are three benchmarks that are critical for a landscape installation business developer to understand. The first critical number is that each crew member of an installation crew needs to generate at least $100,000 in revenue per year.

This includes materials, labor, labor burden and equipment costs but no costs for subcontractors. Second is crew size. The vast majority of installation crews contain three people – a crew leader and two laborers.

Combining the two critical numbers, this crew should generate at least $300,000 in annual revenue. They often will generate more but, if they are working a nine-month season, $300,000 is the minimum they should generate. Third is general and administrative (G&A) overhead. G&A overhead for any landscape company less than $5 million in annual sales should total no more than 25 percent of sales.


Stages of growth. To reach $1 million in installation sales, an entrepreneur has to grow through three stages. In other words, she has to reinvent herself three times. It’s a metamorphosis of sorts.

Stage 1 ($300,000+): At this stage, the entrepreneur is working in the field with two full-time crew members. She is marketing the company, designing and selling jobs, and doing the office work. Sales should be a minimum of $300,000 (3 x $100,000). G&A overhead should be roughly $75,000 ($300,000 x .25). Half of G&A overhead goes into the owner’s pocket as her salary for doing office work. At this stage, the entrepreneur is supervising two laborers.

Stage 2 ($600,000+): At stage two, the entrepreneur has to have two crew leaders running a three-man crew. Revenue should total at least $600,000. The crew leaders must be able to do their jobs with minimal supervision. Otherwise, the entrepreneur is creating a baby-sitting service. The entrepreneur cannot be one of the crew leaders for she has to market the company and sell enough work to keep two crews busy full time. It’s also essential that the entrepreneur hire a part-time office helper. G&A costs should be around $150,000, half of which go to pay for the office helper and entrepreneur’s office work.

Stage 3 ($1 million:) At stage 3, the entrepreneur has three, three-man crews. If she has crew leaders who can work with minimal supervision, she should be able to do $1 million in annual sales. Some (or all) of the design work will probably be subbed out and a full-time office manager will need to be in place. G&A overhead will be in the $250,000 range, of which, $125,000 goes to salaries for the office manager and the entrepreneur’s office work.


Pressure points. There are three pressure points where entrepreneurs need to focus their management zeal in order to reach the $1 million mark. First, the entrepreneur has to be able to build a team.

She has to be able to hire or train three crew leaders, and an office manager. These people will implement the systems. Systems are second. An entrepreneur has to build the systems to control the business (field production, accounting, estimating, job costing, etc.).

Third, she has to be able to increase company marketing efforts in order to keep three crews busy.


Conclusion. Understanding these benchmarks, critical numbers and pressure points won’t guarantee that you will reach the $1 million sales mark any more than memorizing a Rand McNallay atlas will guarantee you get to your destination and never get lost.

However, it should make the route easier to follow. It should also tell you when you are off course and how to get back on course. As someone once said, “Half of getting to your destination is knowing the right road to take to get there.”

 

 


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