Good people want to work for a company that gives them opportunities to succeed. Setting goals and incentives for your sales team is a no-brainer. But selling the work is the easy part. The hard part is getting these jobs done on time and on budget, with as little warranty, fixes and re-work as possible.
Right now, 95% of your peers, and your competitors, pay staff by time—period. The more hours staff work, the more they get paid. But most staff have little, if any, idea, what they’re actually worth and how much work they should be completing. Neither do most owners.
It’s important to remember that different types of work have different levels of goals. A maintenance foreman can’t drive the same annual revenue as a construction/install foreman. The install foreman installs a hundred thousand dollars or more of materials on their jobs, while the maintenance foreman is limited, in most cases, to just labor hours. If your business performs different types of work (construction, maintenance, irrigation) each type of work should have its own benchmark for goals.
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If it’s your first time through this process, the easiest way to set realistic goals is by using last year’s numbers. Start with your sales, by division. It’s safe to leave snow revenue completely out of this process, as snow revenue is primarily dictated by weather.
|Division||Last Year’s Sales|
Now add one more piece of data: The total wages paid to field staff. Don’t count office/overhead staff here– only include the wages of staff who actually work on jobs. If you had some guys who bounced back and forth between divisions, do your best to guesstimate how much time they spent in each division and divide their wage accordingly, across both. Don’t let the fact that you don’t have these numbers separated ‘to-the-penny’ stop you from reaping the benefits of this process.
Once you have the total field staff wages for each division, divide the costs of labor by the sales to arrive at the ratio of wages to sales for each division.
|Division||Last Year’s Sales||Last Year’s Field Payroll||Field Wage Ratio|
The sample numbers above are typical numbers for both divisions. Yours may differ. Note: Maintenance ratios can differ significantly depending on how much enhancement work is included in maintenance revenue figures.
Next, review your profitability last year. Were you happy with your profits? If so, those ratios will likely serve your company well. If you weren’t very profitable, you should either increase your sales goal or reduce what you spend on wages to help improve your bottom line.
The owner of our sample company didn’t make much profit last year, and he’s got some changes in mind as well.
His goals now appear below:
|Division||Forecast Sales Goal||Forecast Payroll||Field Wage Ratio|
With his labor ratios in place, our fictional owner calls that new, more expensive, construction foreman in for his hiring interview. He’s experienced and has worked for a number of reputable companies so he insists he needs to make an annual salary of $50,000 to take the job.
Is $50,0000 too much? Is it too little? Can we afford it? All these questions can be answered easily using those ratios you calculated above.
First, we’ll do our best to estimate the total annual wages for the new foreman’s crew. The foreman will be running a 3 man crew for most of the year, but will probably have a fourth guy for some occasional larger jobs. We estimate his crew’s annual wages below:
|Position||Estimated Hrs||Hourly Wage||Expected Annual Pay|
|Estimated Annual Payroll for Crew||$116,600|
Their production goal is simple: Divide their wages by your division’s target labor ratio. The foreman’s production goal: Expected Annual Pay ($116,600) divided by your Field Wage Ratio (.22) equals $530,000.
To be worth $50,000 a year, this foreman and his crew need to complete $530,000 worth of landscape construction projects this year. In just a few minutes, we’ve created a clear, measurable production goal for the foreman that relates directly to what he wants to earn. If he fails to hit his goal, or come reasonably close to it, the company can’t afford to pay him the wages he’s looking for.
Don’t make the mistake of setting this goal, then never mentioning it again until the end of the year. That won’t help him hit the goal and if he doesn’t hit the goal, you won’t make your profit. You need to track progress with the foreman consistently. Using the simple spreadsheet below, assign each invoice to the foreman that completed the job (or split it up by line item, if it’s a big job) .
|Invoice #||Line Item||Amount||Foreman|
It really can’t get much easier than that. Take an hour at the end of each month to allocate each invoice (or line item) to your foremen. From there, you can total how much invoiced revenue (production) each foreman has completed. This process works for construction or maintenance. Now you can monitor progress (and results at the end of the year) using real numbers instead of emotions and hunches. If your foremen want to make more money, all they need to do is help you make more money. In the end, you’re both happy.
Wishing you every success in boosting your bottom line,
Mark Bradley is the CEO of LMN. Dedicated to transforming talented landscapers into profitable business owners, LMN provides the business management software and training owners need to grow. To learn more about how you can start transforming your business, FREE, with the LMN software platform, visit www.golmn.com. Interested in attending an LMN workshop? Visit golmn.com/workshops/ to register for a workshop near you.