Taking Control

rob johnson

Ask a landscape contractor how business is going in 2009 and you may be greeted with any number of answers ranging from “stagnant,” as Todd Felinczak, owner of Aspen Landscapes in Grayslake, Ill., calls it, to “encouraging,” according to Aaron Smith, general manager of Essex, Vt.-based S&D Landscapes.

It depends on a host of factors, from the services the company offers to the types of clients the company has to location. Yet the general consensus, according to the majority of the more than 600 landscape contractors we surveyed and 20 we interviewed for Lawn & Landscape’s annual State of the Industry Report, conducted by ABR Research, is that things could be a lot better.

“We’re pretty lucky,” shares Linda Grieve, owner of Perennial Gardens in Des Moines, Iowa, explaining that instead of a typical 10 percent growth rate her business is looking at a decline of 30 percent this year. “It’s a little bit of a slowdown, but it’s not being shot dead I guess.”

“Things aren’t like they were 18 months ago – we have been affected,” adds Jeff Berghoff, president of Jeff Berghoff Design Group in Scottsdale, Ariz. “We’re optimistic, but we’ve made significant changes to adjust with this economy and are still staying busy by the grace of God.”

Although companies are struggling – and likely will be for some time – others, like Grieve and Berghoff, are finding ways to adapt and remain stable. Business owners are working harder and longer, keeping a tight grip on the company purse strings, and boosting marketing efforts as much as possible to stay ahead of the game.

Unpredictable but Stable
This year “is a rollercoaster – you don’t know which way is up or where you’re going,” Berghoff says. It’s a sentiment shared by many.

What is going on out there? The average landscape company grew 2 percent this year, 8 percent down from last year’s 10 percent average. In addition to diminished growth, revenue per employee figures decreased this year from $46,378 on average to $41,193. So while contractors are focusing on improving efficiency, the decrease in growth happened fast enough that they couldn’t keep up with this pace.

That’s the bad news, which considering the number could have been in the red isn’t as bad as it could be, but it’s not making landscape business owners feel any better.

“We still maintained sales and number of customers but this is the first time in 10 years we haven’t been a little bit ahead,” Felinczak shares of his $1.3 million company.

Certain services performed worse than others. Those down included construction/design-build at negative 6.5 percent, and chemical lawn care and nursery/grower services both at negative 1.6 percent. But lawn mowing/maintenance net revenue was up an average of 6.3 percent, arbor/tree care was up 7 percent, snow and ice control was up 5.4 percent and irrigation services were up 4 percent. They aren’t enjoying the double digit growth of years past, but they are up.

Many are using this year as a chance to regain focus and improve business practices.

Larry Ryan, owner of Kansas City, Mo.’s Ryan Lawn & Tree refers to it as “a wake-up call.” We won’t grow 15 percent every year guaranteed – I needed to realize that,” he says, adding that this year he’s looking at about 5 percent growth to his $14.8 million business, which he considers flat due to inflation. 
 
Everett Hendrixon of Hico, W. Va.-based Artistrees agrees. “It’s do or die time – I’d say you’ve got to get with it or you’re gone,” he says, explaining that last year’s $400,000 revenue will be closer to $250,000 this year. “If you survived in 2009, you have to thrive in 2010.”

Here’s where the picture improves. Net profit only dropped 0.7 percent from last year to 9.6 on average. This means contractors held steady profit despite decreasing growth. Next year, the average contractor expects 11.1 percent net profit.

And to supplement this positive, average 2009 operating costs dropped dramatically, from an average of 16.2 percent per company to only 3.4 percent. When separating companies by the mean of $200,000 in revenue, average small companies had operating cost increases of only 1.8 percent and average larger businesses experienced 3.8 percent rises. For 2010, the average company overall expects this to be 7.3 percent, with large businesses expecting 10.4 percent and small businesses expecting only 4 percent.

With profits steady and costs down, overall growth declines don’t pinch as much. And this also is preventing contractors from what Jon Sternfels of Detroit-based Jonboy Landscaping calls “growing broke.” “Just because you’re growing doesn’t mean you’re growing in the right direction or are successful,” says the owner of the $445,000 company that is enjoying growth from $395,000 in 2008. Sternfels credits this to an office manager who measures profitability on each crew each day, alerting him as to whether the company is maintaining a certain ratio of overhead to revenue brought in so changes can be made to routes or jobs to continue operating profitably. “The focus needs to be on positive growth moving forward.”

Service Growth
A majority 42.3 percent of contractors reported that their fasted growing service this year was mowing/maintenance.
Design/build ranked next with 18 percent of contractors reporting, which might seem surprising considering trends to move out of that business due to home building market challenges. However, historically, contractors report design/build as a much more profitable industry service. 

For instance, Felinczak says he still has small- and medium-sized design/build jobs coming in where he’s maintaining, improving or redoing landscaping on existing home properties, but hasn’t had those two or three big new installation jobs that he usually gets every year. Another trend he’s noticed on the design/build side is that his business has shifted from 75 percent plantings and 25 percent hardscapes to the reverse. “A lot of people are putting more money into hardscapes and patios instead of plantings,” he says.

Next year, contractors expect a little bit more balance to restore to these two services. Thirty-seven percent predict mowing/maintenance will be their fastest growing service, while 22.2 percent put design/build in this spot.

While maintenance will remain in the top growth position with 13.2 percent net percent growth predicted on average in 2010, contractors predict second and third place will go to chemical lawn care at 11.9 percent and irrigation services at 11 percent.

Onward & Upward
According to Lawn & Landscape research, contractors are being very confident looking ahead to 2010 growth – predicting a net average of 16.5 percent.

Compared to the general small business community, this is extremely positive. Forty-one percent of small business owners say their top priority over the next six months is maintaining current revenue sources and only 26 percent say they are focused on growing their businesses, according to the American Express OPEN September Small Business Monitor.

While contractors certainly seem more confident of growth compared to other small businesses, many, like Berghoff, say 2010 is more about conservative vs. fast growth. “We’re not going to gear up and go zero to 60 in three seconds – we’re going to take time again and ramp back up,” he shares. “For so many years, we’ve sprinted. This year, we’ll pick up our pace and go for a nice jog before we sprint again; I think everybody has learned a lesson. You just have to keep your head down and keep your legs moving in forward motion so you don’t get run over.”