Saving money vs. making money: the labor challenge

My childhood was much like a lot of families growing up. My parents, who both worked, put in long hours to provide for us. Their goal was to save money, pay down the mortgage and debt, and save for a modest, comfortable retirement. As I grew up, they passed those same values on to me – either through direct advice, or purely through observation of habits.

Before I started my landscape company, I worked a regular job, with regular hours and a regular, consistent paycheck. I saved money for my rent, then my first down payment, but ultimately spent all my savings getting my landscape business started. I tried to pay cash for my equipment, keep my overhead minimal, and I ended up spending all my time on evenings and weekends doing work so that I could save money.

It wasn’t long into my career as a landscape contractor that I realized that some of my best landscape clients didn’t view finances the same way my parents did. In fact, I was extremely fortunate to have a lengthy conversation with one of my clients about the difference between saving money and making money. It’s a lesson I still carry with me every single working day.

Money-savers like to increase earnings, or personal wealth through cutting costs. They believe that there’s more profit available when you spend as little as possible. Money-makers believe in getting their money working for them. They typically spend more and carry more debt, but they trust that they’ll invest the money in opportunities that will enable them to grow their business, and profits, far beyond the costs of borrowing money.

I was extremely fortunate to have a lengthy conversation with one of my clients about the difference between saving money and making money.

Let’s take a look at how money-savers and money-makers take different approaches to one of the most complicated problems in the landscape industry: hiring and retaining good labor.

Hiring and compensating staff

Money savers: Hire staff for the lowest competitive wages. They limit overtime and benefits and don’t typically invest much in training.

Money makers: Spend more on wages in the hopes they attract better, more competent staff. They’d rather pay more for staff and get people who make less mistakes, require less supervision, and work harder because they value their job, and the extra compensation it provides.

On one end of the spectrum, you have maintenance labor. These roles have little responsibility, make very few decisions and typically have significant turnover. It doesn’t make sense to over-pay for these roles.

On the other end of the spectrum you have roles such as install foreman. A foreman likely makes 150 small decisions a day that have a direct impact on the speed/efficiency/safety or preparation of the job. Their pace and decision-making dictates the productivity of the entire crew and every hour over budget on a job costs hundreds of dollars in unrecovered wages, overhead, equipment costs and lost opportunity on another job.

Above, let’s examine how a money-maker might look at wages by examining the cost of every hour wasted for an average design/build/install crew.

Each day a job goes over-budget represents between $3,500 and $4,500 in unrecovered expenses and lost opportunity. In that light, it just doesn’t make sense to hire cheap at the foreman position. Each and every decision a foreman makes, from loading their trucks, to instructing laborers, to communicating progress + obstacles, has a meaningful impact on costs and opportunity for revenue. When leadership, motivation and decision-making skills are lacking at the foreman level, companies never reach their potential.

Money-makers believe that foreman who work for cheap end up costing far more in productivity than they save in wages. In the example below, you could look seriously at hiring foreman at $10,000 per year more than you’re paying today. If these ‘more expensive’ hires save you 3 days productivity over the course of the season, they more than make up the extra payroll costs. If a more expensive foreman could save you 10 days of mistakes and lost productivity, you’ve got a big difference end-of-year profitability.

Not only do better staff get more work done, they typically include other important benefits:

• Require less supervision – more expensive roles don’t need someone to make every decision for them, which helps control overhead costs and middle management costs
• Better work quality – people who are worth better-than-average pay typically deliver better-than-average quality, reducing the costs of warranty, rework and direct supervision
• Better attendance – better wages attract people with have more responsibilities outside their job such as mortgages and family expenses. People with more responsibilities are less likely to miss work.
• Less turnover – when paid higher-than-average wages, staff are far less likely to leave
• Attract better talent – when you pay better-than-average wages, you attract better-than-average staff, including talent from other industries

In business, there is a time and place for both strategies – saving money and making money. No matter what the expense type (labor, equipment, overhead, etc.), there is a constant struggle between the risk of spending more (with the hope that you then get more) vs. the security of spending less and keeping more money in your pocket. Because retaining good labor is such a challenge, and since it has such a profound impact on our profitability, it is an area where I focus on making, not saving, money. Although it is no guarantee that better wages guarantee better staff, I can promise you that your company will always get the staff it deserves… for better or worse.

I encourage you to look at some of the key expenses in your business and re-examine your spending. Be strategic and deliberate in your decisions to save, or make, money in the important areas of your business.

Mark Bradley's Corner is an occasional advertorial series sponsored by LMN. For more information, visit their website at www.golmn.com.