There are multiple expenses associated with running a landscape business. However, monitoring your numbers closely and addressing some of these hidden costs can make a difference in your company’s profit margins.
“Every bit counts – we are in a low margin industry and every decision that can decrease costs while maintaining quality is an important one to pursue,” says Christianna Denelsbeck, CFO of Landscape Workshop, based in Birmingham, Alabama.
Underestimated Expenses to Be Mindful Of
While labor is the most obvious expense, inefficiencies in your morning rollout and afternoon shutdown can erode your margins without you realizing it.
“All of this cost is ‘on the clock’ and must be captured in the company’s bidding strategy,” says Timothy Sherman, CFO of Yellowstone Landscape, based in Bunnell, Florida. “This cost is more hidden than a bill you have to pay like insurance because the magnitude of the expense can creep up on you over time without disciplined procedures.”
Denelsbeck agrees labor management is key. She recommends keeping an eye on profitability by job/customer, overtime spend, idle time and travel time. If hourly wage increases are outpacing your contract increases, this can also be a warning sign.
Sherman says another extreme efficiency loss in operations is employee turnover.
“Be a great place to work, pay people fairly and reward out-performance, give them the right tools to do the job, and efficiency in operations will yield much better results than penny pinching to the nth degree,” Sherman says.
However, salaries, bonuses and incentives all should be managed with intentionality.
“In any sense that they become an entitlement, they lose their power to motivate and reward productivity,” Sherman says. “There should be clear, measurable objectives to earn a bonus with a risk/reward felt by the employee over items they have an impact on.”
Denelsbeck says when companies have an annual formal review process for salaried employees, they can avoid unplanned wage increases and tend to receive better performance from their teams. She recommends tying compensation to the company’s success to align incentives.
Investing in technology can be a double-edged sword. While without a doubt certain systems can be beneficial for landscape companies, they need to be utilized to their full potential.
Denelsbeck says too often companies invest in systems and technologies they aren’t mature enough to fully tap into.
“For example, I see many companies purchase GPS solutions and then not review the data in an effective way,” she says. “If you aren’t going to both monitor the quality of the data going into a system and do something with the data coming out of that system, your company is not ready to make that investment.”
Metrics to Monitor
One way to ensure your margins remain healthy is to review different expenses at varying frequencies.
Sherman says time and job materials should be reviewed daily. Denelsbeck adds that labor metrics should be viewed daily for the prior day.
“As the business performs a weekly check/ACH payment run to your vendors, owners should request a list of payments to these vendors (sorted highest to lowest spend),” Denelsbeck says. “This will help you keep a pulse on your top vendors and identify spend trends.”
Sherman and Denelsbeck agree a detailed review of P&L statements should be conducted on a monthly basis, comparing line items to the monthly budget.
Sherman says customer margins should be reviewed before the season, and then during the season, you should monitor your performance versus the plan on a monthly basis.
“After the season and ahead of renewal pricing, you should be taking a look at your anticipated cost increases, any necessary scope adjustments to ensure customer satisfaction, along with any updates to your operating plan to then set in place renewal pricing that will yield the margin needed,” he says.
Denelsbeck adds that a review of trailing twelve months revenue and direct by job and customer can help identify the appropriate price increases to pass along to your customers.
If you are looking to determine which expenses are cuttable, Denelsbeck says Landscape Workshop chooses to rank priorities using a 2×2 matrix to determine what is both urgent and important.
“Items that are both urgent and important (or necessary to operate the business) should receive a budgetary allocation,” she says. “Items that can wait or that are not vital to business operations may be put on the request list for a future year.”
Sherman says if an expense can be removed with no impact to the business, it should be cut out.
