TUCSON, Ariz. - Every job has its ups and downs, and convincing people that I “had to go” to ALCA’s (www.alca.org) 2001 Executive Forum, Feb. 1-4, 2001, in Tucson instead of spending five more days in Ohio in February is certainly one of the ups.
For those who haven’t attended before, the Forum is a three-and-a-half-day event that presents a focused discussion of key landscape business issues combined with a number of discussions where attendees are set up in smaller groups of similar businesses. In addition, the event offers a healthy amount of free time for attendees to network, relax or take in the local sights.
This year’s Forum was facilitated by Kevin Kehoe, an industry consultant with Kehoe & Co. (www.kehoeandco.com), Laguna Niguel, Calif. The event was titled “Winning at the Landscape Game,” and spanned from Thursday afternoon through Sunday afternoon.
Kehoe divided his presentation into three key areas to be addressed one day at a time: financial performance, customer experience and people commitment. “Don’t look for any silver bullet solutions,” he emphasized. “There aren’t any quick fixes, but there are a number of basic business fundamentals that you need to pay attention to if you want to succeed.”
Before arriving in Tucson, attendees were asked to fill out a survey regarding their companies’ financial performance. More than 100 of the attendees did so, and the results included the following key benchmarks:
| Net Profit By Annual Sales Volume | |
| SALES VOLUME | PROFITABILITY |
| Less than $750,000 | 16.3 percent |
| $750,000 to $2 million | 11.0 percent |
| $2 million to $3.5 million | 8.8 percent |
| $3.5 million to $5 million | 8.6 percent |
| $5 million to $7 million | 6.8 percent |
| More than $7 million | 6.3 percent |
“One thing that was interesting to note is that both high-profit and low-profit companies reported they are growing at approximately the same rate,” Kehoe added. “Overall, 40 percent of the respondents are what I would call high-profit companies with more than 10 percent net profit, and the other 60 percent are below that mark.”
| Net Profit By Sales Mix | |
| 100 percent maintenance | 9.3 percent |
| 75 percent maintenance/ 25 percent installation |
9.5 percent |
| 50 percent maintenance/ 50 percent installation |
7.6 percent |
| 25 percent maintenance/ 75 percent installation |
11.6 percent |
| 100 percent installation | 11.5 percent |
Kehoe also used the surveys to identify a host of key ratios for businesses to strive for depending on their annual sales. For example, contractors generating less than $750,000 in annual sales reported that their direct costs were typically 45 percent of sales. Gross profits for these companies were typically 55 percent of sales, which were then impacted by indirect costs (22 percent) and overhead (17 percent), which left a net operating profit of 16 percent.
Although he acknowledged that many contractors don’t understand their company’s financial performance at this in-depth level, he said this information is mandatory for contractors to make informed decisions about key issues, such as how much growth to budget for. Growth potential, for example, is a factor of a company’s profitability, based on Kehoe’s formula:
| Net Profit Sales |
x | Sales Assets |
= | Net Profit Assets |
“This formula means that high-profit companies can grow faster than low-profit companies because the more profitable companies have the requisite cash to invest back into the company in the form of capital expenditures,” Kehoe explained, adding that companies should always consider the level of new asset investment that any growth will require before they set budgets for a new year.
The author is Editor of Lawn & Landscape magazine.