A creative way to profit

Maintenance contracts may be a steady part of your income, but design/build can be a profitable addition to your bottom line. Customer demand is a big reason to offer the service. Existing clients know and trust you; it’s natural for them to ask if you can fix a soggy backyard or renovate a tired landscape. You become a problem-solver – and a superstar in your client’s eyes – when you create an outdoor space they actually love and use.

Design/build offers a fresh take on your core business. “You’re still in the service industry, but you have the opportunity to do something different every day and to use your creative side,” says Bill Nelson, president of The Nelson Team in the Birmingham, Alabama, area. His company, which employs 17 people, started with maintenance work 25 years ago, but Nelson discovered it wasn’t as profitable or enjoyable as design/build. Now, the company generates around $2 million in revenue with approximately $1.5 million in design/build work.

With training and some basic equipment, design/build can become a profitable business or add-on for your existing company. According to Lawn & Landscape’s Benchmarking your Business report, design/build contractors should have gross profit margin between 30 and 40 percent.

Get educated.

It’s never a bad idea to seek continuing education, no matter how long you’ve been in the industry. “We’re all about learning,” says Megan Gray, president of MGI Landscapes & Outdoor Living in Fargo, North Dakota. MGI, which employs 14 workers, grossed $850,000 last year with 90 percent being landscape installation, and 60 percent of that being design/build. “I have sent my people to a retaining walls class three years in a row to reinforce what they’ve already learned. Sometimes you pick up that one valuable tip you missed before.”

To stay current and hone your skills, attend trade shows and register for webinars through professional trade organizations. Look for design classes at junior colleges. Talk to nurseries and suppliers to learn about new plants. Get certified by the appropriate professional organizations. Go to a manufacturer’s class on the latest technology. “Learning new products keeps you energized about what you’re doing,” Gray says.

Building relationships with other contractors is another way to learn. “If you’re passionate about something, you can’t help but thirst for more knowledge,” Nelson says. “Seek out information. Pick up the phone, and ask questions from those you admire in the industry. Get a mentor, and then pay it forward someday.”

Know your limits.

Most contractors agree it’s a good idea to take on design/builds jobs slowly. Start out with smaller projects. Depending on your expertise and what you want to tackle, you also may need to subcontract portions of the project.

“We sub out high-voltage electric, wrought iron work and pools,” says Tom Garton, CEO and general manager of Paradise Designs in San Clemente, California. “We do everything else, but bring in people for these specialized tasks.”

Before offering design/build services, research local laws. In some states like Oregon, you may need different licensing, such as a contractor’s license, in order to build structures such as a covered patio or pergola.

MANAGE EQUIPMENT PURCHASES.

Consider leasing less frequently used items. “We still rent larger equipment,” says Tony DeFranco, manager of DeFranco Landscaping and Construction in the Greater Lake George, New York area.

The company has approximately 10 employees during peak season and earns about $500,000 in revenue with 30 percent of it coming from design/build services.

“It’s also sometimes necessary to lease when we need to add equipment and crew for big jobs,” he says. If possible, consider renting items for a month, which may be cheaper than by the day or week, and line up two to three jobs during that time frame.

If you lease the same piece of equipment regularly, say, more than twice a week, do the math, Nelson says. Figure out how long it’s going to take you to recoup purchase cost versus leasing.

“You do reach a point when owning is better,” Nelson says. “Labor is your most expensive cost, so consider how much more efficient and competitive you will be if you buy that piece of equipment to knock off labor hours.”

It’s also a timesaver not to have to send someone to pick up rentals every week.

Check insurance coverage.

Talk to your insurance agent about what types and amounts of insurance are recommended. “Carry it all,” Garton says. “People don’t understand the consequences if things go wrong. Do it by the books.”

While you already carry insurance such as general liability and worker’s compensation, you may need to increase your limits and add a professional liability or errors and omissions (often called “E & O”) endorsement when you add design/build services, DeFranco says.

This type of insurance protects against claims that are not covered by general liability, such as lawsuits resulting from a retaining wall that crumbles or a pergola that collapses.

Think about it as insurance for something going wrong with your design.

“It’s not that costly with about a million in coverage for about $1,000 a year,” says Loretta Waters, spokesperson for the Insurance Information Institute. “It’s tough when you’re trying to economize in a business, but consider what risks are inherent in your type of business and protect yourself accordingly.”

CONTROL YOUR backlog.

Most contractors have a design/build backlog that ranges from one to two months.

“We do a tremendous amount of planning,” Nelson says. The company plans down to thirty-minute increments three days in advance.

For example, Monday through Wednesday are scheduled the prior week. Details include who’s on each job, equipment needed and subcontractors.

“Our backlog is 10 days,” Garton says. “We look at it this way: You have a client who’s excited to spend $150,000 with you, but then you tell them they have to wait three weeks. People don’t want to wait that long.”

The best way to stay on schedule is to know how long it takes your crews to accomplish tasks. While some of that knowledge comes from field experience, look at industry standards from landscape associations, too.

“We have crews dedicated to specific tasks, and we track our crews closely so we have a real sense of how efficient we are,” DeFranco says.

Keep an eye on the numbers.

Know your expenses down to the smallest details. In your head, you may think you’re making money but on paper, you’re not.

“Every project we bid has a budget in every category from hardscape to below ground,” Garton says. “For example, I know what every tree costs, what concrete costs, and I know labor costs, which are your biggest expense.”

It’s also easy to get caught up in the excitement of bidding. Avoid wasting time by getting paid for your designs. “There’s always someone out there showing up for free,” DeFranco says.

“Factor in design costs so a client isn’t taking your work and having someone else build it. You should not be giving free advice as a professional.”

Most importantly, manage your growth conservatively.

“Don’t look at every bid as ‘I want to build that.’ Look at the business aspects,” Nelson says. “Ask yourself if you can make money. Can you survive to build another day? Spreading yourself too thin reduces the quality of your work and your integrity. And you can’t reclaim lost integrity.”