What do you do when sales start to slow?
Many companies slash prices to win more work. Their gross revenue increases with an uptick in sales and everything seems fine – until the end of the month. The top line grew but the bottom line is lower than it was before.
Cutting prices hurts your profitability in two ways. The first is obvious – you’re making less money per job. Unless you adjust the scope of work, you’re working the same amount for fewer dollars.
But you’re also increasing your overhead. To handle the additional work, you’ll need to hire more crews, pay overtime, or buy more equipment. These costs cut further into your profit margins.
When your sales decrease, your other jobs pay more of the overhead.
Overhead costs don’t decrease as fast as sales do. Because of this lag, all ongoing jobs are bearing more of the company overhead. So not only are you missing revenue from the lost job, you’re also losing margin on the jobs you do have.
As the business owner, you need to ask the tough questions:
- Is this decrease in sales temporary? Or does it look to be a long-term change?
- Can we bounce back from this downturn? Is our business pipeline healthy?
- Do we have enough of a profit margin to weather this storm?
- Is there overhead we can eliminate without sacrificing customer satisfaction?
Reducing your profit margin to win jobs means you’re being paid less to do more work.
How does reducing waste contribute to revenue per hour?
Wasted materials have a very clear cost to a company. You can see, line item by line item, the dollars you lost. Wasted time isn’t as noticeable, but can have a profound effect.
The average landscape company only bills 60% of their actual capacity for sales. 60%! This means that the average company that earns $800,000 in revenue actually has the capacity to bill $1.3 million per year. And this revenue is available without any additional overhead. Decreasing this waste feeds directly into profit, meaning you have more available time to bill.
So instead of bidding for every job and adding crews to an inefficient system, you can bid for the right job with the people and equipment you have. You’re stepping out of the race to the bottom and taking on the work that makes you profitable.
LMN helps you identify areas of waste and track your revenue per hour. If you’re ready to get started, book a live demo and learn how to improve operational efficiency.
