The numbers game

Having worked with tens of thousands of contractors, I believe landscape contractors are one of the trades most trapped in the growth and diversity myth that bigger is better.

Landscaping is a very entrepreneurial, fast paced business. Landscaping businesses can take on many different forms and directions with the potential to do all types of work. Mowing lawns, chemical applications, irrigation, hardscape, plantings, decks, water features – the list is endless. Such entrepreneurial opportunities can lead landscape contractors to mistakenly think that growth is the answer to all of their problems. Rapid growth is not a friend of most small business owners.

Whatever business issues your company struggles with amplify with growth. Whether you need more employees, cash, leads, better sales skills or an improvement in your management systems, growth demands more in each of these areas.

I am a firm believer in the philosophy make money to grow; don’t try to make money with growth. What I mean by that is if you did not make money at $300,000 in sales, you probably won’t at $500,000 at $1 million or $10 million. Rather, make money in your business now and use that money to grow the business and develop new areas of strength.

If your business is unprofitable, rapid growth is just going to make it more unprofitable and put more pressure on your business weaknesses. Fix the problems first and then focus on going to the next level.

Let’s use some simple math to show how you can make that $100,000 a year income with just five or fewer field employees. Suppose the average field person works 50 weeks a year at 40 hours a week, this would equal 2,000 billable hours per person.

Five employees would equal 10,000 billable hours. Now I realize your business is seasonal, but many landscapers push snow, or work overtime in the summer, and this might be a seasonal average with eight employees in the summer and three in the winter.

Your income result really boils down to prices and efficiency. If we multiply $40 an hour (no material included), times our 10,000 hours, we have $400,000 in sales. We are going to leave material out of the equation because we see material as a necessary expense you merely pass through to the customer.

Suppose the average field wages with field labor burden comes to $16 and we add another $4 an hour for gas and maintenance, this comes to $20 an hour. On 10,000 hours, this comes to $200,000 leaving another $200,000 for overhead and profit.

Let’s suppose material was $100,000 in our sample business, the numbers would now look like this.

$500,000 Sales
-100,000 Materials
-200,000 Labor
$200,000 Gross Profit
40 percent

This leaves a $100,000 to run the business and $100,000 for the owner. I realize this is a simple example, but it’s feasible. The purpose of this article is not about math, but rather to run your business differently.

We actually have a customer who still works in the field and has fewer than two employees, including him, who made more than $140,000 salary and profit. He is successful because his business is under control, efficient and has a great brand.

Our profitable small contractors have some idea of their costs and what they have to do to improve.

They don’t think, “Well, if I just had one more truck or added another service, I would succeed.” They don’t shuffle a box of receipts off to their accountants and have to ask them how much money they made.

Making $100,000 in a small contracting business does not require you to spend a lot of time in the office or become a desk jockey. It does require you to determine costs as best you can and establish target budgets and a breakeven point. All you have to do is remember that two plus two is four, not three. L&L

The author is president of PROOF Management Consultants and PROSULT Networking Groups. He can be reached at mporter@giemedia.com.