Hosted by Mark Bradley
“Amateurs work until they get it right. Professionals work until they can’t get it wrong.”
When times get tough, efficiency is king. As sales slow down, many companies look to the easiest way to try to recover lost revenues – they lower their prices in an effort to get more work. For those that don’t really understand their company’s numbers, this can have a devasting 2-way effect..
1. Less sales means higher overhead costs
Sales can slow quickly – demand can drop within just a few months. Overhead expenses though, generally can’t. It typically takes year or more to downsize our companies to adjust to changing decreases in sales. As owners, we have to answer the tough questions:
- How temporary is the decrease in sales?
- When do we expect to bounce back?
- How much can we cut profit to weather the storm until sales recover?
- What overhead can be cut?
When sales drop, overhead is much slower to decrease, so now every job we have won (and will win) suffers an instant drop in profitability. Although your overhead costs might not have actually increased, each job you’ve won must contribute more to overhead since there are less jobs to pay the overhead bills. With overhead recovery rising, profits fall.
Profit margins are slashed to ‘compete’ better.
Despite higher overhead recovery cutting into profits, many landscape contractors don’t know any better or simply can’t put off the urge to slash profits in order to compete. Owners sacrifice profit margins on jobs to try to prop up declining sales – to better compete for the remaining business. In point #1, we already looked at how profit declines when sales decline. By cutting profit again, many owners are pricing work at break-even or less in a panic-type reaction to slowing sales.
The answer to competing better in any market – but especially tough markets – to get more efficient. To reduce your costs of production. Many owners look at wages, rising fuel costs, and material costs and figure there is no room to reduce costs further – but there is. You don’t need to look any further than your company’s waste – the difference between your company’s capacity for sales and your company’s actual sales to find huge opportunities for improvement.
The average landscape contractor only bills 60% of their actual capacity for sales. 60%. That means – the average landscape contractor, who does about $800,000 in annual sales, actually has the potential to do $1.3 million in sales… without increasing costs. It’s true – if you totalled up your billable costs (labor, equipment, materials, and subs) and multiplied each one by the markups you charge (enough to cover overhead and a fair profit), most contractors are only billing 60% of what they should be billing.
Although this is bad news for most landscape contractors, it’s great news for landscape contractors looking to get an edge and who have the desire and the will to get more efficient. There’s enormous potential for better sales and profit that already exists within your business… waiting for you to seize it.
Watch the video below where we’ll discuss how to measure your capacity, your efficiency, and a few of the best ways we found to reduce waste, improve sales, and improve profits.
To find out more about pricing your work correctly and systems for efficiency, check out www.landscapemanagementnetwork.com. From budgeting and planning to pricing and systems for efficiency, it’s everything you’ve needed for your landscape company and never had time to build.
