Extended Family: Add-On Services

The implications associated with adding a new department to the existing family of services are not always a bundle of joy.

"Before you add on you have to know how the service is going to fit within the current operating structure," advised Mark Fowlkes, president, Fowlkes, Norman and Associates, Fort Worth, Texas. In other words, will the new offering mesh into the household’s habits, or will it create chaos?

"The company has to know what its goals are - what it’s trying to achieve by adding on the service," Fowlkes explained. "And it needs to be totally committed to it. If not, it becomes more of a problem - more of a liability than an asset."

However, add-on advantages can outweigh planning, budgeting or training stumbling blocks that businesses often confront in early stages of integration. Many contractors find their youngest service extensions boosting the company’s overall financial health.

COUNTLESS CONSIDERATIONS. Swingle Tree wanted its employees to keep their jobs - even in the winter. The Denver, Colo.-based company knew the key to employee retention was offering workers full-time employment and job security. This motivated the company to add a holiday lighting department to its lawn-care loaded mix, explained Jeff Oxley, operations manager.

"We’re in a market that used to be very seasonal, and during that time from November to the end of February, you get those winter blahs," he described. "We were trying to provide a full-time position, and we achieved that through our holiday lighting add-on service."

Adding a holiday lighting franchise to its landscape enhancement division allowed the company to maintain an employee roster of 120 year-round technicians compared to the 95 employees that worked at Swingle four years ago. "We haven’t laid anyone off in years," Oxley added.

Swingle Tree’s lighting department grew 45 percent each year, exceeding the company’s 24 percent goal. Four years later, the company now pulls in close to $700,000 per year through this division, whichoffers full-time employment for technicians and a year-round service option for clients, Oxley said. Adding sales representatives in the company’s infrastructure created additional support for the service, which contributed to its rapid success.

Now, growth is the company’s primary dilemma, as demand for holiday lighting has increased sales and saturated its labor force, Oxley said. The interest in this service yields a hefty profit, but this bonus is not an advantage if quality suffers, he reminded. High standards outweigh high numbers.

"We want to make sure that we can service our customers, and we have such a limited service area that if holiday work continues to grow at a 45 percent rate, we’re going to be hanging holiday lights come July," he figured.

This is why creating a business plan before launching a new service is a crucial step, Oxley stressed, noting that contractors should consider start-up costs, labor, equipment and the goal for the new service. "Make sure that you’ve taken the steps," he added. "You have to set goals for yourself early on."

EXTRA CUSTOMER SERVICE. Fowlkes’ add-on objective centered on regaining control of scheduling construction jobs. Before adding an irrigation department, he relied on subcontractors to fill his clients’ irrigation needs. However, the inefficiency of arranging schedules around subcontractors’ availabilities strained his business, he said.

"We found that we were at the mercy of the subcontractors’ scheduling and backlog, and we were waiting on them to do the job, which was driving down our construction capabilities," Fowlkes explained. "Adding an irrigation department allowed us to be more efficient and it allowed us to be in control of our own destiny, so to speak."

The technical nature of irrigation requires knowledge and background, so hiring an additional employee to concentrate solely on this area ensured that the quality would match that of a specialized subcontractor. By networking with irrigation contractors, Fowlkes found a technician who was managing an irrigation department at another company and interested in heading a new division. "He wanted to build himself up, and we gave him that opportunity."

This specialist trained existing employees on irrigation installation and maintenance and addressed water-related issues on the company’s construction properties. This employee education fit into the business plan Fowlkes constructed before adding the service. "We looked closely at all of the start-up costs and the implication of expansion, and the cost requirements of hiring skilled, quality personnel upfront," he related.

All of this takes time, Fowlkes emphasized.

"Irrigation has benefited our clients, though, because now we are handling all areas of their landscape development and service management, and that has given them an opportunity to interface with us more," he added.

Client interaction can serve as a brainstorming session for add-on possibilities. Feedback from a customer survey prompted Mike Rorie, president, Groundmasters, Cincinnati, Ohio, to set up a parking lot clean-up service in his company in 1992. "We had a captive audience that had parking lots that collected debris, and we felt that it was an easy sell - for the most part it was," he said.

Groundmasters added the service as a separate option on the standard service agreement. A dedicated employee sold 80 percent of the initial parking lot clean-up work, contributing $100,000 to the company’s $3 million annual revenue, Rorie said.

The sparse competition and demand from existing commercial clients kept this portion of the business rolling, however, sales plateaued after the first year.

"It was a strange phenomenon where people viewed the service as a little bit foreboding," Rorie noted. To pull sales out of the rut, Groundmasters added parking lot clean-up to its line-item list of maintenance duties, allocating the service as an addition instead of a separate entity. This also guaranteed consistency throughout the accounts.

"Parking lot clean up is no different now than checking the beds for weeds," he said.

The low-maintenance service required little training and a relatively inexpensive equipment investment - both ideal qualities for an add-on service, Rorie noted. "It was a high-margin service, and it had a low cost to us against what it could generate in money."

Similar motivations influenced Chris Wagner, president, Superior Landscapes, Loretto, Minn., to enlarge his construction division. Pavers and lighting complemented his current service mix and extended his clients’ options for landscape features. Customer demand and an open market created a feasible climate for adding the services, he noted.

"Both pavers and lighting were experiencing a boom with our high-end accounts, they really liked it - it was unique," Wagner said. "There were less companies out there fighting for the market. It’s more specialty, so we found it was profitable."

Before adding the services, however, Wagner evaluated his company’s focus. He looked in the mirror, studying his market position, clientele, quality and operations.

What he saw was a company ready to grow.

"We still do landscape maintenance and a lot of landscape construction, but the landscape lighting and pavers were like the cream - a way to really capitalize on what we were doing without having to seek out new customers to do it," Wagner said.

When Superior Landscapes added these services in 1999, it completed 18 landscape construction projects. In 2000, the tally topped 100, and the company increased sales by 500 percent in one year, Wagner said. In 2000, pavers and lighting comprised 20 percent of the company’s construction sales.

Acquiring a larger, design/build company during this time, which boasted a revenue of more than $1 million compared to Wagner’s $600,000, further buffered the sales of these add-on services, he noted. Superior Landscape gained two full-time designers, state-of-the-art design technology, new construction clients who demanded pavers and lighting, as well as landscape maintenance.

"The base benefit was more sales per customer in a dollar amount," he explained. "By sheer numbers, we were selling more lighting and there was new construction. Yes, we added customers, but more importantly, we added more dollars per customer because we started doing more for the people we worked with. The new customers found out we were doing everything and responded to that."

REMEMBERING I.D. Moves like Wagner’s require planning - any move does, really, he insisted. A company may seek lateral growth through new clients, or vertically stretch its offerings by adding a rung to its service mix. Both goals call for self-evaluation.

Are current customers satisfied? Is there adequate labor to maintain quality service? Are all sales possibilities exhausted with current services? "I decided yes," Wagner replied, "and that’s why we figured we could earn more money by adding services."

Asking these questions assured Wagner that additional responsibilities would not crash operations. Wagner calls it "getting his house in order." Before extending his business, he researched necessary labor, training and equipment. Then, he considered his company’s focus.

Such an evaluation can convince a company to eliminate a service. When Swingle Tree focused its business vision in 1992, it left the mowing portion behind, Oxley noted. Price wars were cutting the business out of the "dog eat dog" competition, he said.

"We had a fair amount of infrastructure and an overhead where we weren’t able to compete with those who were running businesses out of their garages," he compared.

Fiscal figures also determine the success of a business expansion, Oxley added. He recommended that contractors approach add-on services with the same mentality they did when starting their core businesses. "To do it right, you’re looking at $100,000 to $125,000 in cash to get the new service off the ground with trucks and trailers, and you have to make sure you’ve hired the right person to run that division," he figured.

Fowlkes took his plan to the bank - literally - to ensure his budget figures matched the bank’s willingness to back his investment. This support was key to adding irrigation. Now, he and the bank review his business and growth plan annually.

Cost considerations also can include franchise agreement fees and the economy’s health, Oxley reminded. Today’s economic conditions do not forecast a boom, Oxley observed, adding that many companies lost money in the stock market last year, which also will affect buying decisions.

"We’re using our clients’ expendable income," he reasoned. "Where do they want to put their dollar?" Just as clients are tiptoeing into service agreements, companies also should proceed with caution when expanding their businesses, Oxley advised.

One way to do this is to stick with strengths, Oxley commented. "Obviously, we want to cross-penetrate and sell all of our services to our customers, but you need to stick with what you are good at," he said. "If a business came up tomorrow, someone would have to show me the golden egg to make we want to do it."

LABOR AND LEARNING. Ultimately, the people behind the project drive its success, which is why well-trained employees are the key to effectively gelling new services to the rest of a company’s mix. By expecting employees to perform new services without background knowledge, "You are taking them out of their element," Oxley explained. "You are putting the person and company at risk."

Training was an integral portion of Swingle Tree’s incorporation of holiday lighting, he noted. The company sent employees to educational seminars, while also holding on-site education sessions where equipment parts and electrical limitations were reviewed for technicians.

Wagner also was sure to deliver top-notch service, because the skilled designers who merged with his company after the acquisition were talented professionals, he said. However, before teaching other employees how to install pavers and lighting - his add-on services - he made sure they understood the basics of their existing services.

"Before I train guys on how to do lighting and pavers, I have to make sure they understand their plant material and how to install edging," Wagner said.

Then, he had to make sure there were enough technicians.

Wagner added more employees to handle extra work from new clients. An understaffed company will suffer, but an overstaffed business will suffer in profits, he said. Similarly, an uneducated staff can affect the bottom line. "It’s kind of scary to use a customer’s job as a learning experience," he acknowledged. "It’s ideal to hire someone who has some job experience."

ALWAYS THINKING. Adding on new services can seem as easy as purchasing a pre-made system. At the same time, contractors are exploring possibilities that reach beyond traditional green industry fare, including black tops, sports turf and lighting.

And, of course, there are always more. Add-on services seem to whet an appetite for second, third - even fourth - helpings, and many contractors are creatively coming up with new ways to serve their clients.

Rorie mulls over warehouse cleaning. Wagner considers garden maintenance. Both will proceed with caution.

"You don’t want to drop the ball on what you already have," Wagner remarked. "You have to keep asking yourself, ‘What business am I in?’ If you try to take on too much at once, then you don’t know the answer to that question. And if you don’t know, your customers certainly won’t."