While you may have started out serving residential clients, at some point, you might decide to focus on commercial properties moving forward. There’s no set company size or length of years of operation that determines when to make this type of transition, nor is it mandatory to make it at all. However, numerous lawn and landscape companies eventually come to a crossroads of which clients they really want to pursue.
Reasons to Transition
EarthWorks, Inc., based in Lillian, Texas, started in 1979, and it wasn’t until 1993 that they decided to start moving into commercial work. By 1998, they had fully transitioned out of residential.
“It was a fairly quick transition for us,” says Chris Lee, president of EarthWorks. “Once we got started with the commercial, we realized immediately it fit us much better. We adopted quickly the philosophy that the least number of bosses per dollar of revenue was ideal.”
Kevin Manning, president of KD Landscaping, based in Rockdale, Illinois, says they shifted away from residential design-build work around two years ago because they prefer to pursue more recurring revenue with commercial maintenance and snow operations.
“Sometime in early 2022 was when we just said we’re going to get away from this and even though it was still good and booming, it was challenging staffing it and we made the decision to switch gears,” Manning says.
Michael Hatcher & Associates, based in Olive Branch, Mississippi, made their transition to only commercial work by the end of 2021. At the time, they were doing around $1.9 million in residential construction, $1.2 million in residential service and $400K in residential enhancements with about 180 customers.
Kelly Ogden, general manager of commercial sales and maintenance operations for Michael Hatcher & Associates, says they were able to focus the resources from the residential side to commercial starting Jan. 1, 2022.
“We were able to serve more properties with a lot less customers,” Ogden says. “One property manager may have anywhere from $150K to $1 million in accounts.”
Doug McDuff, president of Landscape America, based in Wrentham, Massachusetts, says they decided to grow in the commercial market back in 2018, but at the time, they hadn’t planned to exit the residential space. However, in 2022, they decided to exit the residential design-build space and sold their residential maintenance portfolio in December 2023.
He says after spending four years building up their recurring revenue in commercial landscape maintenance and snow, they had shifted 180% from a residential business to a commercial one.
“Residential clients continued to increase their need for more client management, attention, and hand holding, especially with the ‘work from home’ wave post-COVID,” McDuff says. “As a result, our managers were more frustrated at work and we decided to shift our focus on ‘working where people work, not where they live.’”
Benefits and Drawbacks
Manning says it has all been positive since his company switched to focusing on commercial work. The sales process is much quicker, and it has been easier for staff.
“I really felt that we could generate more income at a better margin commercially than we could residentially,” Manning says. “Not that top-line growth is everything. Bottom line is more important, but I just felt like more dollars can be generated in a better margin focusing on commercial work instead of residential.”
KD Landscaping eliminated two positions when making the transition, but these two individuals were underperforming at the time anyway.
Lee agrees that the sales process with commercial clients is easier and faster. He adds that having a big commercial property in a strategic area that can serve as marketing for the company is ideal as well.
“We get one footprint in a geographic area, and then we start to add all around,” Lee says. “They’d refer us to somebody else, and then we’d get a footprint in that area and we start to develop around that pretty quickly.”
Lee says they didn’t lose any employees when switching customer bases and it may have helped them retain team members.
“Most of the guys that we had were really hungry and they just wanted to make as much as they could make,” Lee says. “With the transition to commercial, all of a sudden, the hours went up. It wasn’t quite as easy to manage 40, so guys were getting 45 and 50.”
He says their team also developed a sense of pride as they worked on well-known properties and could point out their efforts to others.
McDuff says switching to commercial has allowed them to scale at a faster rate, both in revenue and growing their team. He says onboarding a new team member takes less time because the work can be systemized.
“Our company has a renewed level of focus, and we’ve removed the distractions for our team and our client base,” McDuff says. “Our marketing and branding are cleaner and more dialed in to the specific properties we want to work at. Our org chart is tighter, and we can easily visualize how it will look in three, five, and 10 years.”
He adds that the transition has also allowed him to pivot his time and energy from sales and client care, to strategy, vision, and coaching his team.
Ogden says one drawback is the change of long-lasting relationships with clients and personal connections.
“People only accept change when the end result is explained in the beginning,” Ogden says.
McDuff agrees it was hard having to part with some long-time legacy clients and friends. He says they also had to replace revenue quickly, which added stress to the sales team.
Lee says the main challenge in the beginning for them was learning how the cash flow differed with commercial clients and the heavier capital requirements.
“We didn’t understand fully the capital,” Lee says. “We didn’t understand fully the cash flow and how that was going to be affected by changing who we were dealing with. We learned some things the hard way. There are differences in how commercial properties are treated and how residential properties are treated.”
Handling the Transition
So, how do you break things off your residential customer base? Depending on your operations, you may decide to move away from them entirely or just decrease your efforts in that market.
Manning says they still have around $900,000 in residential design-build work. Previously, they’d do around $3 million per year. He says they’ll always do some residential design-build projects; it’s just no longer their focus. They changed their website to help convey this message.
“Our website used to look like we only did residential design-build,” Manning says. “It wasn’t even the biggest part of our business. Our commercial construction has always been the biggest part of our business, but I didn’t really feel we needed to advertise to get those customers.”
Manning says that changing their website has helped scale down their requests for residential design-build work.
Ogden says they still have a small handful of long-time high-end residential accounts. Lee says he feels strongly about not burning bridges, so they kept some of their residential clients, like the one who got them their first commercial job.
“Our niche came from that same group of customers, so obviously, we didn’t want to throw them out with the bathwater,” Lee says.
Ogden says they interviewed several companies so they could refer their residential clients to them and several of their former employees who started their own companies picked up accounts as well.
“We sent a personal letter to all the customers and gave an end date that was months away and told them that we would help with a new service provider,” he says.
Lee says they gave their residential clients a 60-day notice but didn’t recommend alternative companies because they can’t guarantee the performance of another business.
“No matter who you’re dealing with, they’re human beings,” Lee says. “When you understand empathy, you understand getting behind your client’s eyes as far as what they need or what they’re really looking to get out of the relationship because it’s not always just mowed grass.”
McDuff says they were fortunate enough to find a buyer for their residential accounts who would service the clients how they would. He says there was a lot of synergy and alignment to make it a soft landing for clients.
“My brother Andy and I physically called some of our long-time clients to let them know about the change directly from us and show our appreciation and gratitude for their years of loyalty,” McDuff says. “Other clients were called or visited by our accounts manager, and the rest were sent a well-drafted letter and email notifying them of the change and introducing the new company.”
Advice for Others
If you are mulling over making a transition with your customer base, Lee advises slowly transitioning as it helps you bridge the gap between cash flow. He says if he had to do it all over again, they would have developed a business plan and investigated how they would win their commercial clients.
“I would have preferred to have a little more of an intentional plan behind what we did and have a better understanding of really what we were getting into,” Lee says.
Ogden encourages helping your clients and your employees all the way through the transition.
“Although I was certainly in favor of shifting our business to the commercial space, it was ultimately our leadership team who made the final decision,” McDuff says. “It felt right because we had the support of our leaders, and that allowed Andy and I to put the plan in action knowing we had buy-in. We put a lot of energy into the communication to our team, having one-on-one and small group meetings to make sure the messaging was clear and to avoid rumors. We also pulled in our marketing partner, and they helped us create a terrific plan to market the residential portfolio in a confidential and secure way.”
This article was published in the March/April issue of the magazine. To read more stories from The Edge magazine, click here to subscribe to the digital edition.
