As an owner, it’s your job to become a data scientist and learn how to manage your landscape business like any other business: by the correct numbers and benchmarks.
This will allow you to become a successful investor in your own business! Start by getting a handle on these seven benchmarks:
1. Five-year trends.
The most important benchmark is comparing yourself to yourself. Like any great athlete that competes primarily against him or herself, you must keep track of your past performances. Most firms look back just one year for comparison, but a five-year-lookback will give you an actual trend line to see where you are improving (or faltering) over time. This is why company valuations are often built on five-year trends, because it shows the competitive arc of the business.
2. Benchmark the big picture.
The ultimate purpose of your business is to buy things and hire people in order to serve your clients, with the aim of producing a positive cash flow to invest in growth and take dividends. We can sum this up in 3 benchmarks: 1) Squeeze maximum revenue from the trucks/equipment/things you buy (Sales/Assets). 2) Operate with efficiency and a smart pricing strategy to earn the most profit from those revenues (Profit/Sales). 3) Ensure maximum effectiveness turning your profits into a positive cash flow, aka, cash/profits.
3. Measure activities and results.
In any business, the right results are determined by the right actions. ‘Sales’ is the perfect example:
Activities, e.g.: How many lunch-n-learns do your salespeople perform? How many leads or RFP are you receiving? How many proposals are your salespeople sending out?
Results e.g.: What is their closing ratio? What are their margins-as-built? What are their total sales? What are their enhancement sales as a percent of maintenance contracts?
In each area of your business define the most important activities that lead to the right results, and track and manage both.
4. Triangulate your numbers.
Any number/percent you take time to review should be done in context, by comparing it against the budget and against the actuals from last year. This answers two key questions: How are we doing vs. our goals? and how well did we do last year at this same point in time? It is best to put these into chart or graph form when you share and discuss with your team. This allows non-financially minded leaders to actively engage in discussion and make informed decisions.
5. Empower the divisions.
Your growth potential lies in treating your divisions as profit centers, but before you grow them you should optimize their profitability. Look at each division’s gross and net profit, and benchmark these internally and vs. best in class! Treat each division manager as an intrapreneur and you will optimize your chances for success.
6. Motivate crew performance.
Each division is made of individuals doing work. Their performance will vary from crew to crew and can be tracked as follows: ‘revenue per man hour’ and ‘revenue per man-day and man-week.’ You can benchmark your crews versus one another to create internal competition, and you can benchmark vs. best in class to gain perspective on what’s possible.
7. Remove the biggest internal obstacle.
To become a successful investor, you must master the soft skills as well as the numbers. But where to start? Because all leaders have their blind spots, I recommend benchmarking your blind spots against your teams, and identify where you and each team member must improve. You can also get outside help, by working work with an exceptional coach to understand how you compare with other top performers in the industry. As I tell my coaching clients, “When you continually grow yourself as a leader, the sky is the limit!”
Every business is different and will require a unique set of benchmarks based on its business model and service mix. Apply these seven outlined here as a start and figure out what works best for you!
Interested in learning more? Attend the two-part “Benchmarking for Profit Improvement” session at LANDSCAPES 2020: The Virtual Experience on Wednesday, Oct. 21 at 12:15-1:15 p.m. and 1:30-2:30 p.m.