BUSINESS FORECAST Charting Growth

Feeling overworked? Feeling stressed? You’re not alone.
 
Each year, Lawn & Landscape asks landscape contractors to rank their top concerns for the coming year. And each year the number of contractors who give overworked/stressed a higher vote increases. In fact, this owner concern has increased from No. 5 on the list for 2005 to No. 3 on the list for 2007, rising above labor shortages and increasing health insurance costs. 

Why are industry business principals so overwhelmed? Because they worry too much about the things they cannot control, according to industry consultant Judy Guido of Guido & Associates, Moorpark, Calif. “A contractor can’t control the price of gasoline, rising interest rates or housing booms or busts,” she says. “But what he can control is how he understands those market dynamics and how he reacts to them as a business owner – whether he has strategies in place to be able to deal with them or seizes the opportunities they create.”
 
To reduce your stress, study these economic conditions and growth forecasts and then see what consultants and contractors suggest as the top four growth strategies in 2007.
 
ECONOMIC INSIGHT. Despite the majority of contractors ranking stress as one of their top three industry woes this year, it shouldn’t limit average business growth, according to Ed Laflamme, president, Grass Roots Consulting, Wilton, Conn., who predicts an average 10 percent increase for landscape companies. Guido concurs, forecasting an 8 to 10 percent average increase across the board, with some service categories pulling in more or less – maintenance being on the lower end, irrigation expecting to garner 9 to 12 percent growth and water feature and lighting installation services anticipating 17 to 18 percent increases.
 
Though different U.S. regions experience different market dynamics, how well a landscape company does this year might depend on how well it adapts to the 2007 economic influencers – namely housing and consumer spending trends.
 
Many contractors are concerned with the housing market, with some contractors reporting housing slowdowns in their regions already and others predicting delays this year. Timothy Kilgallon, owner of CSI Landscaping, Scarsdale, N.Y., worries specifically about changes in client spending. “The clients we target are spending less,” he says. “People are price shopping more and making buying decisions slowly.”
 
But the problem might not be as bad as contractors think. David Seiders, chief economist for the National Association of Home Builders, reports a 7.4 percent decline in total housing starts in 2006 and forecasts some further erosion in 2007, but says the residential remodeling market is doing well and projects modest to real growth this year. And, according to Dallas Federal Reserve President Richard Fisher, lower oil prices and a forecasted U.S. commercial property boom may help offset the problem of a cooling home market.
 
As far as interest rates are concerned, the Federal Reserve halted a two-year campaign of tightening credit costs in August 2006 and has kept rates on hold amid a slowing housing market, which had fueled rapid consumer spending, according to CNN. A Reuters poll of 60 economists in late November 2006 found the median expectation was for the Fed to cut benchmark rates to 5.0 percent by mid-2007, even though the housing slowdown may be nearing a trough. Fisher says the Fed was also trying to gauge how long it would take for past interest rate rises to fully impact the economy.
 
Seiders predicts interest rate stability in 2007. Guido agrees, forecasting that the rate may increase or decrease a quarter point here or there but that the industry shouldn’t see any major 2 or 3 percent changes.
 
While inflation/rising interest rates ranked No. 2 on landscape contractors’ top 2007 concerns, Seiders adds that “the worst of the housing contraction appears to be behind us, and the overall economy should strengthen in 2007 – steering clear of recession.”
 
However, Turfgrass Producers International President Arthur Milberger observes that even top economists are torn as to their predictions for 2007 housing. “In October 2006, USA Today reported that 55 percent of economists thought home prices would not decline in 2007, while 45 percent predicted a nationwide price drop,” he says. “Three-quarters of the economists expected inflation to fall in the next six months; the rest disagreed. Two-thirds thought interest rates were ‘just right,’ and the remaining third were evenly split between saying rates were too high or too low. The reality is you make your best projection based on available information, historic trends and your own knowledge and experience.”
 
Another rising cost contractors are worried about in 2007 is health insurance, which ranked No. 4 on contractors’ top concerns list and has remained in that spot for the past three years. Here, Guido says consolidation in the health care industry should limit huge 30- to 40-percent swings, but the industry should expect 5- to 15-percent changes. In terms of labor, the unemployment rate is expected to hold steady at around 4.6 percent.
 
And fuel costs, contractors’ No. 1 concern for the past three years, are also expected to stabilize. Though Guido predicts contractors won’t see prices as low as $1.50 per gallon of gas again, she says fuel prices should be similar to those in 2006 with 10 to 15 cent increases and/or decreases throughout the year.
 
When fuel prices are this high, the key is controlling costs, Laflamme says. “The problem isn’t the cost of fuel as much as controlling the use of it,” he says, offering a solution. “Figure out the actual miles each truck uses throughout the week and multiply that by four weeks, adding a 2 percent additional allowance in case of traffic or construction. Then give your crews a credit card that only has enough money on it for gas for the month. Tell them that they have to stick to the maintenance schedule and route and not deviate from it or they won’t have enough fuel to go to their jobs. This way you know up front what you’re spending on fuel and you can keep a cap on it.”
GROWTH GOAL NO. 1 – EFFICIENCY IS KING. When clients seem nervous to spend and housing seems shaky, being more productive is the top way landscape contractors find they can shave costs and increase profits.
 
Joe Markell, president, Sunrise Lawn & Landscaping Services, Herndon, Va., says though his business growth isn’t “breaking records,” he’s “steadily working,” which gives him a chance to refine his business systems. “Any way we can be more efficient – that’s what we’re looking at going forward into 2007.”
 
Mike Russo, president, Russo Lawn & Landscape, Windsor Locks, Conn., is also eyeing efficiency more closely. “We’ve got everything under the sun in terms of systems and processes, but it’s a matter of sticking to the plan,” he points out. “In 2007, I’d like our company utilizing more of the systems we have in place.”
 
Tom Del Conte, president, Del Conte’s Landscaping, Fremont, Calif., also sees a trend toward improved productivity. “It’s hit virtually every other industry up the food chain, including the automotive industry where manufacturers and suppliers have to compete and look as productive as possible – they look for every angle they can find to become more productive,” he says, pointing out that his company experienced 10 percent growth last year, bringing it to $9 million in revenue, and he’s hoping for the same in 2007. “That’s going to be the key to success in this industry – shaving a few cents here and there on our production costs.”
 
More focused schedule management is also a trend contractors pointed to as a means of controlling growth and improving efficiency. “We manage our schedule and monitor our backlog very closely,” Williams says. “We track our backlog every month and identify the holes in our work, filling these holes but not overfilling them. As a rule, we don’t take on more jobs than we can handle.”
 
GROWTH GOAL NO. 2 – UNDERSTAND YOUR CUSTOMER. Looking at how the average contractor obtains a customer, Guido says owners spend a good chunk of time visiting clients who they don’t qualify first, thereby wasting money and time on initial sales calls that don’t result in jobs sold. In fact, Guido says the average contractor only qualifies 25 percent of their clients. “Stop the madness right now,” she insists. “You should have a very fine-tuned qualification process where when you go on a sales call you have an 80 percent or greater chance of opening a relationship with a commercial or consumer customer.”
 
To do this, contractors must first understand who their customers are, addressing who in their region qualifies to buy their services, how they buy and how that may change in the future.
 
“Take your old glasses off and put on a new pair of clean lenses so you can allow yourself to look at your market dynamics in a new way,” Guido suggests. “What are your customers buying – what do they need? Ask yourself, ‘What are products and services that my commercial and consumer clients need and what smart partnerships with other service businesses can I create to meet these needs?’ Stop thinking like a technician. Start looking at the big picture and the huge business of exterior living.”
 
Guido points specifically to two markets that show the most potential moving forward – women over the age of 45 and Baby Boomers. “These two groups make up the wealthiest people in the world today, meaning they have the highest expendable income.” she explains. “You have to ask yourself, ‘How am I specifically going after these groups of people as potential customers?’”
 
Once you know who your customers are, take advantage of these relationships, Laflamme says. “Most companies spend very little time and effort marketing to their existing client base,” he shares. “Maximize these opportunities. Ask for referrals and send them thank-you notes or gift certificates to restaurants for referrals that result in sales. It’s a small price to pay to grow your business.”
 
GROWTH GOAL NO. 3 – SMART MARKETING. Now that you know who your current and target customers are, marketing to them should become easier. The average contractor should be spending 2 to 3 percent of their revenue on marketing, Laflamme points out. In terms of time, Laflamme says an owner only needs to spend one hour each week specifically working on his or her marketing plan, creating a calendar for the year that addresses services, clients, the best time to market the services, the best way to reach the clients and timing.
     
Contractors should use this marketing budget and calendar to be creative and target their marketing to their niche clients, Guido says. “If you do the same Yellow Pages ads as every other landscape company in your area, then what makes you different besides your logo, Web site and phone number?” she asks. “If you all advertise in the same place and use the same verbage and the same pictures, then you don’t stand out. You have to get out of your comfort zone and do something different.”
 
First, look at your service menu and redefine it as something the customer can understand and see potential in. For instance, “you’re not working on properties anymore,” Guido says, “you’re working on outdoor rooms. Think of your business as bigger than what it is to plan for the future and give yourself opportunities for growth.”
 
Then, Guido says contractors should pretend they are sitting in front of their customers when they create their marketing and Web site verbage and ask themselves if the client truly cares about what they are promoting. “If you say you have a big fleet of trucks and a mechanic on site, who cares?” Guido says. “You have to prove it to the customer and tell them how it benefits them. If you say you have a huge fleet of trucks and a mechanic on board so that appointments never have to be rescheduled and you guarantee you can be at their house the same day each week or something along those lines, now you’ve hit a nerve and the client can see how it can be a benefit to them.”
 
Industry Consultant Marty Grunder agrees, adding that contractors need to do what makes sense when it comes to marketing. “For commercial customers, it doesn’t make sense to be doing mass advertising – the best form of marketing in commercial work is cold calling. Drive by potential accounts. Use a script and call them. Figure out your closing ratio and if you close 15 percent of the calls you place, do the math backwards and figure out how many people you need to call to get the number of new accounts you want.”
 
For residential, Grunder says job signs around a neighborhood are still the best method for attracting new customers. “It’s what I call the ‘taking over the neighborhood’ concept,” he says.

GROWTH GOAL NO. 4 – BUDGETING. Contractors who don’t have budgets or growth plans for the upcoming year are “driving without a map,” Laflamme says. “They really don’t know what their sales are supposed to be. They may never get anywhere – they could just be doing the same thing every year. They could be driving in circles.”
 
And it’s not just small businesses who are neglecting this essential business task – “I know landscape contractors with revenues from $2 million to more than $10 million who aren’t budgeting,” Laflamme says, adding that some contractors actually wait until they receive their profit-and-loss statement after they do their taxes to find out if they made any money – four months into the new year. “Spend the money on a computer system where you can plan and track your costs. It costs money to create and track a budget but it’s worth it to know where you are, where you’re going, if you’re off and what you need to do to get back on track throughout the year.”