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How Landscapers Can Actually Double their Profit Margins

Open Book Management with Creative Roots Landscaping
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January 31, 2019
Shovels hanging on a wall
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February 8, 2019
Grass hill, with a white pickup truck parked at the top.

How Landscapers Can Actually Double their Profit Margins
(Crash Course)

 

Could there actually be a way to sell more work, at a higher profit, for a lower cost? Well there is, and in this crash course we’re going to show you EXACTLY how to do it. If you’re a landscape business owner who’s ready to double your profit margins–-without hiking prices or increasing costs, you’ll get step-by-step instructions to achieve ‘Super Profit’ status (yup, it’s a ‘thing’).

 

Introduction to Super Profit

Super Profit refers to earning much larger profit margins on your work than the industry standard. The landscaping industry operates at somewhere between a 2% and 10% profit. Companies that make Super Profit have found ways to earn profit margins of 30%, 40% even 50% net profit on a portion of their work. Super Profit is how your company will make the leap from average to extraordinary, earning profit margins of 10%-25%–-doubling (or more!) the average industry profit.

You can achieve Super Profit status by making the most of every hour, eliminating waste and generating more total revenue per man hour. In essence, Super Profit isn’t achieved by increasing prices but by increasing efficiency and productivity.

WANT TO LEARN TIPS ON HOW TO SUCCEED IN TODAY’S ECONOMY?
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Lesson #1: PUTTING A PRICE ON WASTED TIME

The road to Super Profit starts with identifying (and quantifying) the inefficiencies in your business. Sit down with your foremen early this Spring and brainstorm a list of reasons for wasted time.

 

Create a spreadsheet like the template below.

Step 1: Identify the problem/waste. We’ve included some examples. You could likely fill 50 rows once you get going!

Step 2: Estimate how many man hours per week (not crew hours, but man hours) are spent on each waste. See the sample spreadsheet below:

 

 

Reasons for Waste Man Hrs/Wks Working Wks/Yr Rate/Hr Total Revenue
Talking on cell phones,
texting
2.5
Loading/unloading
open trailers every day
2.5
Stopping to pick-up
miscellaneous small
materials/tools, etc.
3
Floating equipment
between sites
4
Fueling
Work done
incorrectly
Moving materials
around sites
Lack of
proper tools
Waiting for
materials
Late staff

 

Step 3: Now go through that same list, but this time add the following:

  1. The average number of weeks in your working year
  2. Your average charge-out (billing) rate per man hour

Step 4: Then multiply the man hours per week by the working weeks per year to get the total hours per year lost to each waste.

Step 5: Multiply that total by the charge-out rate you normally bill your customers and that’s how much revenue is lost per year to each waste.

 

 

Reasons for Waste Man Hrs/Wks Working Wks/Yr Rate/Hr Total Revenue
Talking on cell phones,
texting
2.5 38 $50 $4,750
Loading/unloading
open trailers every day
2.5 38 $50 $4,750
Stopping to pick-up
miscellaneous small
materials/tools, etc.
3 38 $50 $5,700
Floating equipment
between sites
4 38 $50 $7,600
Fueling
Work done
incorrectly
Moving materials
around sites
Lack of
proper tools
Waiting for
materials
Late staff

 

Want to learn tips on eliminating waste and increasing efficiency?
Attend an LMN Workshop near you


 

Lesson #2: SPOTLIGHT ON SHARING EQUIPMENT

It’s time to break down the real cost of wasted time. Let’s look at the cost of moving a piece of equipment, for example. You might think it’s the fuel or the wage you pay the driver to load and move it. However, the real cost is as follows:

  • 1 hr inspecting a truck and trailer and driving to the site with the equipment
  • 1 hr loading down, strapping, and inspecting the loaded equipment
  • 1 hr driving to the next site and unloading the equipment
  • 1 hr getting back to the shop and disconnecting the trailer

 

That’s a total of 4 hours of billable opportunity lost. If your typical charge-out rate was $50/hr, you’ve really lost $200 of potential revenue.

Instead of moving that equipment, your employee could have spent that time on billable work, ie., installing pavers, planting shrubs, building a deck, etc. and with those 4 hours focused on finishing a job sooner, you’d have 4 hours of extra capacity to do another job before the end of the year.

When you add up all the extra capacity opened up by eliminating waste and staying focused on billable work, it’s not hard to see how each crew can complete an additional $50,000 – $100,000 of billable work in a season.

WANT TO LEARN TIPS ON INCREASING BILLABLE WORK?
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Lesson #3: GOODBYE WASTE, HELLO SUPER PROFIT

And this is exactly where the idea of Super Profit comes in. When you can take wasted hours and turn them into billable hours, you hit Super Profit.

Your costs on this extra work are minimal and your profit goes through the roof. Assume the crew in the example managed to identify and eliminate, $50,000 worth of waste and inefficiency. (Note: many companies find it easy to identify $25,000 worth of waste before they leave the yard in the morning)

The net profit margin on that extra $50,000 is your Super Profit.

Let’s break down exactly where your Super Profit comes from (and where it doesn’t) :

Normal Profit: We’ll assume you charge a fair profit on all your work. If you complete an extra $50,000 in work, we can assume you also earned an extra 10% in net profit.

Labor costs: Would you have any extra labor costs to do that extra $50,000 in work? Yes, you’d have labor costs, but they’re not additional costs because you’re already paying wages for the waste time anyway. All we’re doing is exchanging wasted hours for billable hours. What would normally be counted as labor costs on this extra work (field labor costs are typically 20 – 35% of sales) now becomes net profit.

Equipment costs: Your leases and insurance don’t increase because your sales went up. Fuel and maintenance costs may increase slightly. Equipment costs are typically 10-15% of sales, and since they increase only slightly with the extra work, you’ve likely found another 10% net profit.

Materials costs: If you’re installing materials, these costs will increase with additional work. No extra profit to be found here.

Overhead costs: Your overhead costs don’t increase because your crew improved productivity. Overhead costs typically range from 15% to 35% of a company’s sales, meaning the average company generates an extra 25% net profit here as well.

If you really look at that extra $50,000 in work the crew generated, the net profit margin on that extra work is incredibly high. Because labor, equipment, and overhead costs don’t significantly increase, you can expect to return net profit margins of 50% or more on this extra $50,000 of sales.

WANT TO LEARN TIPS ON MAXIMIZING NET PROFIT?
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LESSON #4: MORE MONEY, LESS PROBLEMS

Now you’ve got a very profitable company with some bonus capital available to reward those employees who made it happen. While most of your sales will be in the standard 10% profit range, the extra sales generated through increased productivity can help your company more than double its total profit in a very short time frame.

At the end of the day, staff and owners alike are driven by a passion for creating outdoor environments and we’d love to earn more for the hard work we invest in bringing our customers’ visions to life. When landscape business owners focus on transforming waste into productivity to achieve Super Profit, everyone gets paid.

WANT TO LEARN TIPS ON REWARDING YOUR EMPLOYEES?
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If you are new to LMN and want to explore how LMN can help your landscape business – check out our Workshops.

If you are an existing customer who wants to take their knowledge of LMN to the next level, we invite you to explore our Webinars and Certification Programs at the LMN Academy.