Notice your numbers

At a seminar that I was conducting in January a couple of years ago, I asked a young contractor sitting in the front row, “How did last year turn out for you?” He answered, “I don’t know. My CPA hasn’t gotten back to me yet to let me know.” I responded, “Well, if you need to make corrections, isn’t it a little too late to do so?” He got my point.

Too many green industry contractors charge into a new year with no means to track their progress and make corrections along the way if necessary. Worse yet, they have no objective targets to aim for. The budgeting and tracking process is all about risk management. Put another way, it’s all about achieving certainty and profitability in your business. If you budget to have $1 million in annual revenue with a 15% net profit, how certain are you that you will do so? I tell clients that my job is to help them make as much money as possible. Your CPA’s job is to make it look like you’re going broke and to keep you out of jail while doing so. What follows are some tracking methods and key performance indicators (KPIs) that should help you monitor your progress and keep you on track in 2024.

Tracking revenue progress

Let’s say that your landscape installation budget for in-house work is $1 million. You plan to install about 40 jobs averaging roughly $25,000 each with a 40% gross profit margin (GPM). I ask you at the end of October of that year, “How’s it going?” You reply, “Great! My completed jobs are averaging 45% GPM.” I then ask, “How many jobs have you completed?” You reply, “About 20.” Huston, we have a problem!

While this contractor’s GPM looks great, his volume doesn’t. His revenue is about half of what it should be and there’s too little time to make corrections. I’ve seen many contractors sell a lot of work. They then get totally immersed in completing it and so they stop selling more work to meet their annual budget. I use what I call the bid board to address this issue.

The Bid Board

I use the bid board (see the sample bid board at bit.ly/llextra) to track revenue progress, especially for installation work. With a few adjustments, it also works for tracking revenue maintenance and other services. I enter every viable lead, its estimated price and man-hours into it, and follow it through completion and final billing. Combined with a profit and loss (P&L) statement, this tool provides a report card for this division and its manager. It should be kept current daily so that it accurately reflects annual revenue progress. If monitored weekly (at least monthly) by top management, it should eliminate any surprises regarding revenue shortfalls.

Daily revenue goals

I like to track revenue goals for lawn maintenance, irrigation services, lawn care, pest control and so forth, on a daily basis. Remember my three-fold business success mantra: price it right, produce it right and produce enough of it. Once you accurately calculate your daily pricing for the aforementioned services, your next step is to ensure that every crew and technician achieves these goals each and every day. If your two-man lawn maintenance crew’s daily revenue goal is $1,000 per crew-day ($1,000 ÷ 18 MHrs = $55.55 per MHr), it should bill $5,000 per week and approximately $21,000 per month (21 days x $1,000). You or your division manager’s job is to ensure that these revenue goals are being achieved throughout the year. You don’t have to wait until January to ascertain if you’re on track or not. You should know if all is (or is not) going well on a daily, weekly and monthly basis.

Conclusion

Achieving and maintaining consistent profitability is all about risk management and analytically measuring the business process. It starts with a well-thought-out budget for your various divisions. Next, you need to accurately price all of your services and the amount of revenue each crew and/or technician should generate on a daily basis (without materials). Finally, you need to track your progress in achieving your annual revenue goals for each and every service. If a crew or technician isn’t achieving their daily revenue goals, the manager of that crew should investigate why it isn’t doing so and make the necessary corrections. There may be disappointments at the end of the year, but there really shouldn’t be any surprises. Risk management is all about “surprise control.” Come to think of it, there really isn’t any such thing as a “good” surprise in business. As management guru Philip Crosby was fond of saying, “Good things happen only when planned. Bad things happen on their own.” Plan for success, my fellow green industry professional!

NOTE: For a free copy of the Bid Board used in this article, send an email to the address below.

Travels with Jim follows Jim Huston around the country as he visits with landscapers and helps them understand their numbers to make smarter decisions. He can be reached at: jhuston@giemedia.com.