The pitfalls of technology

How it works (and doesn’t work) in your business

Here are some of the pitfalls that I see with technology as it relates to green industry professionals and their businesses.

1. Implementation of new technology: Green industry entrepreneurs tend to overlook how difficult it is to implement new technology (especially software). “How hard can it be?” Implementing a new software program is like replacing the foundation underneath your home. It’s a terribly disruptive experience that takes months to accomplish. Plan for this.

2. Optimizing your use of technology, once implemented: Many entrepreneurs implement technology but never get much out of it. For new software, the first year is an implementation year. The second year you sort of figure it out. The third year you finally get some good data from it (hopefully). Set realistic expectations for you and your team and get help with the process.

3. False mathematical assumptions in your bidding:

A. Applying markups to direct costs (materials, field labor, trucks and equipment and subcontractors) to allocate general and administrative (G&A) overhead costs. Traditionally, materials are marked up 10%, trucks and equipment 25%, subcontractors 5% and field labor 55% to 95%. Net profit is then added on top of this. These percentages are totally unfounded mathematically and are pulled out of thin air. It’s much more accurate to calculate G&A overhead costs based on a time unit such as a field labor hour. See how I deal with this issue below.

B. Putting truck and equipment costs in your G&A overhead: T&E costs usually amount to 12% plus/minus 2% on your profit and loss (P&L) statement. Some jobs require more than 12%. Others require less. Including T&E costs in your G&A overhead in your bids averages these costs in your pricing and is therefore inaccurate. Include T&E costs for skid-steers, mini-Xs, mowers, and so forth in your pricing as they are needed for a specific job. Do not include them in G&A overhead costs.

C. Entering pre-packaged field labor rates in software: Many green industry software programs require you to enter a consolidated labor rate in them (i.e., $55, $65, $75 per man-hour) that includes all costs (wages, labor burden, overtime, G&A overhead, net profit, etc.). Doing so can distort benchmarks such as gross profit margins (GPM), net profit margins (NPM), and man-hour rates. It is far more accurate for such software to calculate field labor rates from the ground up, so to speak, to separately identify and include such things as: field labor wages, labor burden, overtime, risk factors, G&A overhead, crew truck and net profit margin.

Calculate and monitor gross profit margins in your bids.

If your pricing software requires you to include G&A overhead costs based on markups multiplied by direct costs, monitor the gross profit margin (net profit plus G&A overhead) in your bids and compare to the following benchmarks for a normal to robust economy.

Construction, residential 40% + (Applies to landscape, irrigation and hardscape)

Construction, commercial 25% +/ 5% (Applies to landscape, irrigation and hardscape)

Maintenance, all 35% +/- 5%

Irrigation service 50% +/-5%

Chemical applications 60% +/- 5%

Christmas decorations 55% +/- 5%

Lower the above benchmarks roughly 10% in a recession.

Information management systems are crucial for running your green industry business. Today’s technology provides features that can save you time and significantly improve your bottom line. However, it can also waste a lot of your time and erode your bottom line if handled poorly. Having an information management system that can accommodate all of this technology is very important. Otherwise, all it does is help you make mistakes at the speed of light.