 Jim Huston |
The medical profession refers to them as “vital signs.” One’s body temperature, blood pressure, pulse rate, cholesterol levels, etc., are human benchmarks that indicate wellness or the lack thereof. The body temperature benchmark is 98.6 degrees. A few degrees over or under this vital sign indicates a potential problem that warrants further investigation. This benchmark is what I call an absolute benchmark. It never changes.
There are also vital signs for green industry companies that indicate business wellness. However, unlike the human body temperature, they are not necessarily absolute. They may vary from company to company and within the same company over a period of time. Barron’s Dictionary of Business Terms defines a benchmark as a “standard (or universal) unit for the basis of comparison.” If a company formats the right data properly and on a timely basis, it can condense vast amounts of information into some very simple measuring tools that can tell an owner or manager if the company is on or off track.
Common benchmarks
Here are some benchmarks that you should monitor on a regular basis and find useful.
Sales per man-year: It indicates how much revenue a full-time field employee generates per year. A typical maintenance employee should generate between $50-60,000 per man-year. A typical installation employee should generate $100,000 or more per man-year. In other words, an average of 10 full-time installation employees should produce a minimum of $1 million in annual revenue (this includes materials, equipment, overhead, etc.).
Gross profit margin: GPM is the best indicator of what is happening in a particular market. Calculate your GPM for a division or individual job by subtracting direct costs (materials, labor, labor burden, equipment and subcontractor costs) from sales. In a normal economy, the benchmark for GPM is as follows: residential installation: 30 to 40 percent; commercial installation: 20 to 30 percent; all maintenance: 30 to 40 percent; irrigation service: 45 to 55 percent; lawn fertilization: 55 to 65 percent; tree work: 30 to 40 percent. Drop these benchmarks 5 to 10 percent in a down economy.
Production rates: You should know national production standards for the type of work that you do, as well as the actual production rates for your crews. I’ve seen production rates for one installation client improve 65 percent in the last twenty years.
Backlog: This is critical for companies to measure. How much work do you have ahead of you? Are you sold two to three weeks or two to three months out? Commercial installation companies should be building and monitoring their backlog for 2011. Comparing the backlog for 2011 to that of previous years can provide insight into the state of the economy and market conditions in your area.
How it works
A client in New England monitors his company’s key benchmarks on a monthly basis. His staff produces a Monthly Audit Data (MAD) report. This report indicates whether each division is on track or not. Most importantly, this company has developed its own benchmarks using its data and has compared these data to national standards. The owner and division managers can review the vital signs on the MAD report and know the condition of the company in short order.
Conclusion
National benchmarks can provide insight and a very useful tool for your company and staff. There are literally hundreds of benchmarks but you need to focus on the key ones that indicate your corporate wellness.
JIM HUSTON runs J.R. Huston Consulting, a green industry consulting firm. See www.jrhuston.biz; mail jhuston@giemedia.com.
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