Time, the only real constraint to making as much money as we can possibly dream of, is intricately linked to profitability. Time is also a completely unrenewable resource – waste time and it’s gone forever.
Successful green industry business owners understand the fundamental connection between time and profitability. Landscape contractors who realize that profitability is limited by the efficient use of available man-hours in a season conduct business differently to ensure their long-term success.
The first step in doing business differently is understanding exactly how man-hours affect profitability. This applies to revenue tracking in particular. With revenue tracking, man-hours equal the number of production employees times the hours available to perform a given service. For example, if you have eight employees working 40 hours, 45 weeks a year, you have 14,400 hours of serviceable work (eight employees x 40 hours x 45 weeks = 14,400 hours per season). With only 14,400 hours available to make money, the most important piece of information you can learn is which of your clients can make you the most money. You don’t want to waste any of your essential work hours in unprofitable work. Unprofitable work is equivalent to taking one-and-a-half steps backward because you not only lose money on the job, you also lose money on time you could spend producing a profit.
Many contractors often are enticed by jobs with a bigger price tag — but don’t be fooled! Higher priced jobs might be more profitable, but they also might not. You have to know your costs, your "break even" point and the amount of time you need for the job in order to make your desired profit margin.
For example: client A brings in $100 per service and client B generates $50 per service. A requires 5.26 hours to do the job while B requires 1.39 hours. Assuming costs are the same per hour, now estimate which job will make more money: A is $19.01 per hour ($100/5.26 hours) and B is $35.97 ($50/1.39 hours = $35.97 per hour). If all your jobs are like A, your gross sales will be $273,744 ($19.01 x 14,400 hours).
If your business’s overall costs, however, are $372,000 annually, you’d be in the red $98,256. Not good.
If all your jobs are like B, however, your gross sales would be $517,968 (35.97 x 14,400 hours). A profit of $145,968 ($517,968 - $372,000 = $145,968) – or 28 percent – is not bad!
This example illustrates just how important it is to do a little simple math and not to automatically think that a bigger job is always a better job. You need to know which jobs make you the most money, and on which you are losing your shirt.
The only way to ensure you make your profit margin is through an accurate and consistent revenue tracking system. Here are some guidelines to ensure profitability:
- Track every dollar on every job
- Just say no to unprofitable jobs — no matter how tempting they appear
- Track all travel time and make sure travel time is part of your "dollar per hour" equation
- Don’t raise prices across the board —after careful consideration, raise just some clients’ fees
Carefully tracking revenue makes it more difficult to be unprofitable. It’s a lot harder to squander time when you know you’re throwing it away. Take the time to do the math and know on which jobs you’re losing money and wasting time.
The author is president, Sensible Software, Ijamsville,Md.;Phone:800/635-8485; Web site: www.clip.com.
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