Strength in numbers

Features - Cover Story: Benchmarking your Business

Benchmarking groups give contractors a safe outlet to share data, gauge their performance and become a whole lot stronger.

November 1, 2012
Lawn & Landscape

In 2009 when the recession was full-blown, 40-year-old Eichenlaub landscaping took a 25-percent revenue hit. But owner Dan Eichenlaub kept his team intact and reverted to a carefully laid plan that had been reviewed by his benchmarking group.

“We knew what to do when we realized the leads weren’t coming in,” he says. “

We began to make changes before we spent a lot of money – as soon as we knew we weren’t going to sell the volume, we said, ‘How do we control overhead and bring money to the bottom line so we can stay alive?’”

The next year, Eichenlaub recovered and the company began rebuilding its business. In 2011, the firm set a record, exceeding its highest revenues by 10 percent. “We’ll do that again this year,” Eichenlaub reports. Eichenlaub says today, “Having a plan allowed us to weather the storm – that was a hurricane. It’s knowing what to do and when, and that’s why benchmarking is so important.”

Any company that wants to go from good to great needs a solid plan, a timely and accurate set of numbers and a basis for comparison. “If you don’t have a bar set, you can’t raise the bar,” says Chris Angelo, president, Stay Green, Santa Clarita, Calif.

Set the bar.
“That’s our baseline and we push ourselves to exceed those while maintaining our core values and the integrity of our operating systems and processes,” Angelo says.

Stay Green participates in a peer group called Next Level Network, and Angelo has been active in similar groups. “Over the last half decade, we have gone through some pretty challenging times and the industry, in general, has had to get leaner and create more value for clients,” Angelo says.

“The landscape peer group has been particularly valuable during this downturn.”

Numbers talk. Stay Green has continued double-digit topline growth annually, increasing its bottom-line profitability by 100 percent year after year. Sales went up 10 percent in 2012, with 26 percent overall growth and an 89-percent increase in profits.

At ArborLawn in Lansing, Mich., Jerry Grossi shares how participating in structured and informal benchmarking groups over the years has done more than help him keep numbers on track. He has tried new products suggested by peers, and more significantly, transitioned the sales process from mainly direct telephone to Internet. “We are improving the efficiency of bidding work,” Grossi says.

The sharing is reciprocal. “We can move quicker by sharing information with others,” Grossi adds.

Benchmarking groups are helping businesses grow in the toughest economic times because they provide a network of professionals with similar goals and business structures. By comparing numbers, operational processes, marketing efforts, sales models and other business drivers, the groups’ participants drink from a rich brew of ideas. They learn what works and what doesn’t – they share lessons and avoid mistakes. Most of all, they hold themselves accountable to working their own business plans and reaching financial targets. “None of us is making a plan in a vacuum,” Eichenlaub says.

Building a group.
Constructive feedback and focused business discussions keep Eichenlaub on track when he creates his annual budget and engages in short- and long-term planning for his company. He knows he’s not alone in the process. “I can compare my plan to others,” he says. “Are my numbers in the right place? Was I dreaming when I said I was going to sell $10 million worth of work?

“Plus, we talk about issues that will impact the plan,” he continues. “What if we fall into another recession? How will fuel costs in 2013 impact the business. And it’s (about) trends – what’s happening out there. Is the housing market really recovering?”

This dialogue with peers has been especially beneficial – and that brings to light the importance of who those peers are in the group. Eichenlaub belongs to LandOpt, a group of regionally-based landscape firms with revenues of at least $1 million and a keen interest in improving all business practices. The total network is diverse in terms of commercial vs. residential clientele, service offering, etc. But Eichenlaub says the different groups within the network assure that participants are in like groups. For Eichenlaub, this means primarily residential, landscape management and renovation. “There are enough businesses that look like mine, so it works,” he says.

Grossi began benchmarking about four years ago when another landscape professional asked him if he was interested in sharing numbers. For some time, it was just the two of them and their key managers trading numbers and sharing ideas. Then, they invited others to join. Today, Grossi and six other firms meet several times a year and their sessions are guided by a facilitator. The geographic diversity of the companies involved assures no competition among members.

The same is true in the group Angelo belongs to, called Next Level Network. This select group of regional landscape firms is focused on innovation and high performance. Angelo says it’s a strategic alliance among six of the best privately owned businesses in the industry.

“Being geographically diverse allows us to feel less threatened,” Angelo says, adding that the group swears confidentiality. “We are not crossing boundaries or finding ourselves bidding against one another. We are not recruiting each others’ team members. So, that has allowed us to ‘get naked’ and be completely transparent – to put it all out there so we can be pushed, challenged and receive some proper feedback so we can grow as leaders and grow our businesses.”

Indeed, confidentiality is a key success factor for these peer/benchmarking groups. And so is company involvement. Peer learning is most effective when key managers are involved, too. Bringing in critical team members – sales, production, etc. – gets everyone on the same page. Angelo shares how Next Level Network holds its third annual Next Level University in early November. This year, 120 attendees from the six firms – from account managers to CFOs and managers on down the line – will come together for three days of workshops and peer training. “That is truly taking it to the next level because all of us as owners and CEOs of our organizations are believers, and now we are getting our people on board,” Angelo says.

Grossi and Eichenlaub also involve key team members in their peer benchmarking activities. “It’s not just one person at the top who is communicating – the lines are very open so with every role, we can figure out what are the best management and trade practices we should be utilizing to move forward,” Eichenlaub says.

By the numbers. You can’t change what you don’t measure. Eichenlaub says this fact is the crux of why benchmarking is so critical for business success. “Benchmarking is a tool – it’s a way for me to grow and compare my business and see where we’re at and how we should change,” he says.

By tracking his numbers carefully and comparing those with peers, he can gauge where he is on the roadmap. Is he headed toward the destination he outlined in his plan? Or, is he stalled at a dingy rest stop?

In order to properly benchmark with others, a standardized method of calculating numbers is absolutely necessary. “Some people put vehicles and equipment below the gross profit line so their gross profit might be 5 percent vs. someone who puts truck and equipment above the line and reports a gross profit of 40 percent,” he says.

In other words, where those numbers fall on the chart of accounts is critical. What line items are included matters. How the balance sheet is generated is a big deal. A standardized method helps groups compare apples to apples. How specific a group gets when sharing depends on its members preferences.

Grossi’s group uses PLANET’s Operating Cost Survey as a benchmarking tool. He says the group doesn’t necessarily swap numbers in terms of sharing pricing or dollars and cents on budget line items. They’re more concerned about hitting those percentages and margins.

Angelo, on the other hand, says his group really digs deep and gets down to the nitty-gritty of those numbers. They focus on sales, but then break that number down by service line. They aggressively study their balance sheets and cash flow statements. “I’d say that novices focus on the income statement – how big are your sales and bottom line. We really push ourselves on long-term solvency and reducing risk, so that is managed on the balance sheet.”

He focuses on debt-to-equity ratios and fixed assets, working capital.

“We all have very strict accounting rules and systems where we are getting all of our financial data within 10 days of the close of the prior month, or at the end of the prior month, so we are able to respond faster if there are any lagging indicators,” Angelo adds. “We keep leading indicators in front of us so there are no surprises at the end of the month when we review financial statements.”

Accurate information gathering is the foundation of these peer groups. Without the correct numbers, there’s nothing to compare. The numbers are meaningless.

Use the charts on pages 14-15 to measure your company against industry averages.

And having a peer group, or an industry mentor – another firm like yours willing to swap information and share ideas – can go a long way toward keeping your operation running smoothly regardless of the climate Mother Nature or Wall Street brings.

“Anyone who wants to take their company from good to great, or maybe even to just exist, needs to start figuring out their numbers and measuring them,” Eichenlaub emphasizes.

How we did it
Earlier this year, Lawn & Landscape editors – with the help of independent firm ABR Research – surveyed more than 600 of our readers and conducted dozens more personal interviews to pull together the 2011 Benchmarking Your Business Report. Read on to learn more about what companies across the country pay their employees, spend on equipment and how they’re budgeting for 2012.

Click the table above to view the full Industry Overview report.