Last time Dan and Bill met, Bill revealed his secret to becoming a profitable company. “You need to be a planning company,” Bill insisted. At the time, Dan thought it was a great idea in theory, but he was a little lost on how to actually become a “planning company.” Bill showed Dan the best way to start – with an operating budget – and how to use it to price work profitably and better manage decisions.

With a year under his belt, Dan feels a new confidence in his numbers, his decisions and his pricing.  But something was still missing…

“OK”, says Dan, “I feel more ready than ever.  My budget and pricing system have given me new confidence in my business this year. More so than ever before. I feel like I’m starting to work on the business as well.  We’ve never had this much momentum moving forward.”

“Great,” says Bill, “Be sure to stick to it now, though. Systems only as good as the people who use them,” he explains, taking a sip of his coffee.

Dan nods his head. “I’ve been meaning to ask about that – how do you get your people buying into the systems? I know I’ve got guys who are going to laugh at this.  Not to my face – but you know what I mean? As much as I get charged up about this, I also feel that, the wheels are going to fall off by late May.”

“Why would it fall apart?” asks Bill

“It always has…” Dan trails off as he thinks about his crew. “We do it for a few weeks, then the guys just stop.” Dan explains.

“Why would you let that happen?” asks Bill, point-blankly. 

“I don’t know.” says Dan, hesitantly. “I’m just trying to be realistic…most of our past changes and improvements just haven’t stuck. We go back to the way things have always been done.”

“But you’re telling me those ways are broken, right?” Bill asks. ”Don’t let it fall off.  You’re the owner, you call the shots. This is your job. Hold people accountable. ”

“How did you do it?” Dan asks, admiringly.

“I guess if I looked back, I could track it back to two things. Good people and a system that tied their wages to their performance”

Good People

Bill can’t stress enough how important it is to have a team of good people working for him. “If it weren’t for some of the great people I’ve had over the years, none of this would have happened.” he says, confidently. “Hiring and training people are a top priority. A long time ago, when I was working with the crews, things ran fairly smooth. It wasn’t until I stepped back into the office when I realized just how fragile our success was. I needed a few leaders who could think-on-the-fly, make good decisions, and manage a job like I would.”

“I hear you,” says Dan

“It’s not easy to find people like this, Dan, but finding and developing leaders is critical to your success. The more great people you find, the more you can grow your business. It’s a simple recipe.”

Systems that Reward Performance

Bill continues, “But you can’t expect great people to work in a messed up company. They won’t stick around. Great people need two things to thrive:  good management systems, and a pay-for-performance system that ties the company’s success to their success.”

“So how’d you do it?  How did you pay for performance?” Dan asks. “I’ve struggled with this for years at Danscaping.”

 “So did I,” says Bill, “Until I really started looking at each crew like it was a small company. And if you think about it, that’s not too far from the truth.  Your foremen are mini-owners within your company.”

Mini-owners? This is a concept Dan had never considered before. But all of a sudden it makes perfect sense.“Go on,” Dan says, eagerly.

“It started when I was reviewing my budget, trying to earmark money for bonuses,” Bill starts to explain. “It dawned on me – I was planning to reward people before I’d even measured their performance. I took a step back and thought about it. An owner doesn’t get rewarded for performance until after the job’s well done… and that bonus is called profit.”

“Profit  sharing?” Dan questions, “How does it work?” he asks.

Bill continues, “Profit’s what’s left of sales after expenses, and overhead is paid. I needed a system that paid the employees like I got paid. It changes the way my employees make decisions. So I simply broke my company operating budget down into crew budgets.”

“Take your company budget and divide it up across your crews. Each crew has a specific sales goal, and gets assigned a percent of those sales to pay equipment, overhead, materials, and other expenses.” Bill explained.  

 “My job – and your job, Dan – is to sell the work, price the jobs using a pricing and overhead recovery system that’s tied to our budget, and manage our spending accordingly.” Bill explains. “The foreman’s job, on the other hand, is to bring each project in on-time and on-budget. If we both do our jobs, we can assume that:

• On the date we hit our sales goal, our overhead is ”paid” (our pricing system helps to ensure that)
• On all sales over and above our sales goal, what was “overhead recovery” is now “bonus money”
• The earlier we hit our sales goals, the bigger the potential bonus

Since our overhead percentage is just about 20%, my guys understand that, on every sales dollar over and above their crew production goals, they can earn up to 20% of the sales as a bonus. You can imagine the difference in motivation and responsibility when guys know that their income is only limited by their productivity.  Now we’re thinking along the same lines.”

 “They think like I think,” Dan puts it simply. “What about warranty issues? Aren’t they sacrificing quality to get the work done fast?”

“Why would they?” asks Bill. “If there are warranty issues, they go back and fix them. And while they’re fixing warranty issues, they’re not getting any closer to their sales goal. Warranty issues hurt their potential income…just like it hurts the company’s.”

“I love the concept. “ Dan nods.

“Then start working toward it,” advises Bill. “Setup your company with systems that turn foremen and supervisors into mini-owners. You don’t have to share every number. But you need a system. If you really want to build a business, you need to think of your foremen as if they own mini-companies within your company. You need them to think about their work like you thought about it when you were in the field, growing the company. You’ll find that some people won’t fit your new system, but the ones that do will help you turn your company from average to incredible.”

Want to build a budget to help you start the process? This winter, Landscape Ontario and the Landscape Management Network are offering Plan for Profit and Estimating to Win courses. Get yourself to a course. Learn how to:

• Build a plan for profit
• Estimate with a system that’s based on the plan
• Turn your estimates into a plan that improves productivity, sales, and your profit.

It’s the best investment you’ll make in your business this year.

Information about Landscape Ontario’s and LMN’s Plan for Profit and Estimating to Win courses are available in the Professional Development Guide, or online at www.horttrades.com under the Professional Development heading. Mark Bradley is the president of The Beach Gardener and the president of Landscape Management Network – learn more at www.landscapemanagementnetwork.com.