2006 STATE OF THE INDUSTRY: Ready, Steady, Grow

Housing booms and impending busts. Rising interest rates. Skyrocketing fuel and health insurance costs. Price shoppers and the low-ball competitors that lure them away. Increasingly stressed out business owners. 

Yes, these issues have been on landscape contractors’ business plates for the past three years and, unfortunately, they aren’t going away. But what has changed is contractors’ reactions to these potentially business-limiting factors. 

Among the more than 20 contractors across the United States interviewed, none said they were embracing the aggressive growth that was so prevalent in the late 1990s and into 2000. In fact, the word “conservative” was used often, despite the fact that many contractors quoted 10 percent growth plans for 2006, which many business owners would consider quite impressive. 

“We’re conservative as we  don’t want to force ourselves  into growing for growth’s  sake,” says Bob Grover, owner, Pacific Landscape Management, Hillsboro, Ore., adding  that his business is set to grow  15 percent his year bringing it  to $4 million. 

Maurice Dowell, owner of Dowco Enterprises, Chesterfield, Mo., agrees. “We don’t want to grow too fast because growth gobbles cash,” he says, adding that his company is up 10 percent his year but originally planned for more, a move he calls unrealistic. “Sustained, controlled growth is what we’re all about.”

As Chris Davitt, president of Ruppert Nurseries, Laytonsville, Md., points out, growth doesn’t seem to be the problem – “it’s managing that growth.” Ruppert Nurseries budgeted and plans to meet a 35-percent increase this year, which Davitt admits is far from conservative. “We’re targeting 25 percent in 2007 so we can better keep up with our employee and equipment needs.”

Many contractors feel the same. Though the “economy has been surprisingly resilient,”  as John Ossa, president of Merin, Calif.-based Gardeners’ Guild points out, contractors are recognizing, operating cost increases and a changing or shrinking customer base as a result of a housing slowdown could affect  their future so they are planning accordingly.

BALANCING ACT. According  to August 2006 Lawn & Landscape research, the average  contractor’s growth remained consistent, but the average contractor’s revenue  dropped from $796,750 to $712,374, which means growth came from more smaller companies this year. And a 2 percent rise in net operating  costs from 14.4 percent  in 2005 to 16.3 percent in 2006 didn’t seem to affect net profit, which nudged upward  slightly at 11.2 percent this year compared to 11 percent  in 2005.

That doesn’t mean operating cost increases haven’t stung. “The biggest impact to our business is that our costs are rising more rapidly in recent years,” Grover explains.

However, this year contractors seem to be responding better to these now-expected escalating expenses – for instance, by implementing fuel surcharges to counter surging gas prices. “Our growth came from raising prices due to fuel, packaging services so they are more economical for the customer and efficient for us and focusing on full-service  vs. piecemeal servicing,” points out Joe Marcel, president,  Sunrise Lawn & Lansdale’s  Landscaping Services, Herndon, Va., adding that  his company is on track for 10 to 15 percent  growth this year. 

While some contractors were successful in passing a portion of these costs on to their customers, others say it only made lowball competitors’ prices look more attractive.  “Not all prospects are willing to pay for the level of service we provide even though they are constantly underwhelmed by the service low-ballers give,” Grover says. “The problem is compounded in the current climate of operating cost increases.” 

And “everything will get much more competitive than it is now with people vying for the same customers,” agrees Mike Russo, president, Russo Lawn & Landscape, Windsor Locks, Conn., adding that his company has a 2006 revenue budget of $3.1 million, a 10 to 15 percent increase over last year. “As a result, you have to be more competitive, creative and efficient.” 

KEEPING GROWTH IN GEAR. Once again, efficiency is the name of the growth game for many contractors looking to deal with rising costs while maintaining a profit.  However, while a majority of contractors maintained solid growth by improving  systems, there were some who reported  economic downturns despite their efforts to  keep this from happening.

Timothy Kilgallon, owner of CSI Landscaping in Scarsdale, N.Y., reports a 10 to 15 percent decrease this year from his original budgeted figure.  Roger Myers, owner of American Beauty Landscaping in Boardman, Ohio, also wasn’t too positive about his business year, saying he leveled off after three years of consistent 15 percent growth. Myers is trying to run his company fairly lean to make up for the lost growth and continue on track toward hitting $2 million this year. 

Mike Kowalski also had an interesting year. The owner of Ann Arbor, Mich.-based Great Outdoors says in 2005 he was down 10 to 15 percent, but is making that up this year. “Things seem to be picking up and we’re doing better this year than in years past, but you have to work a little bit harder for it,” he says. 

Whatever a contractor’s growth plans are in 2006 and into 2007,  “keeping perspective is important,” stresses Laurie Broccolo, calling her Rochester, N.Y.-based Broccolo Tree & Lawn Care business flat this year  at $2.5 million in revenue. “This is really a phenomenal, viable industry that contributes to the economy in a big way,” she says. “If we all keep raising the standards, it’s good for all of us.”  That contributes to the economy in a big way,” she says. “If we all keep raising the standards, it’s good for all of us.”