Anna Turner points out the importance of focussing on profit, not turnover.
I get fired up about this topic (yep, I’m wired a little different). It strikes a nerve because it’s so simple, yet the majority of landscapers focus on revenue over profit. They wrongly believe more revenue will lead to more profit, when it most likely does the opposite.
Sort it out
Chasing revenue with little consideration for the knock-on effect can have catastrophic consequences, like:
• Increased operating costs – an increased volume of work leads to increased overheads, and if you don’t have those under control in the first-place costs will blow out in no time.
• Burnout – more work means more problems to juggle. If you don’t have processes in place to manage the extra work, you and your staff will be stressed to the eyeballs. Before you know it, your employees will be jumping the fence for a more sustainable work environment.
• Increased defects – quality control will go out the window and soon you’ll be fixing defects every evening ’til forever.
When you focus on increasing profit over revenue, it forces you to look at your business from a whole different angle. It forces you to ask some hard truths and make harder decisions. When you do, your business will be profitable, sustainable and ready to grow.
First, you need to identify why you aren’t making money. Only then will you be able to make the decisions you need to make to turn the ship around and get your business back on track.
Strategies for increasing profit
• Understand your costs – knowing your overheads as a percentage of your turnover is non negotiable. You must know this number! Knowing your labour costs is just as important. Without these two numbers you can’t set a profit margin, let alone target one. Once you know your costs you can start pricing your target profit margin into quotes.
The next steps are:
• Track everything – track the profit and loss on every job. It’s time consuming, but there are many apps that help. Spend the time to set your accounting software up so it will track the profit on each project. You need to understand which projects won/lost you money and why. Was the quote out? Did the team underperform? Did you get held up by the weather or builder? Whatever the reason, you need to document it.
Key performance indicators (KPIs) are a great tool for tracking productivity and identifying weaknesses. Yes, they take work to implement and monitor, but they are great for identifying issues early and making people accountable.
• Address the issues – tracking will help you identify the issues, then it’s time to address them. If you have an underperforming team, they must go! If you are under-pricing, you need to adjust your pricing to match the reality of what is happening on site. If it’s the paperwork or management side, you must address it!
• Policies and procedures – more often than not, the single biggest reason profits are down is due to shitty company procedures. It’s not hard to understand why. Every delayed decision and loss
of time leads to a little loss in profit. It’s death by a thousand inefficiencies! So, use procedures to make sure staff have the information they need; who is responsible for what; what’s expected. When the communication is strong and things are clear, your staff can get on with their job – they can be efficient.
• Control overheads – don’t forget to review your overheads and keep them as tight as possible. The average overheads of a landscape company run at 20-25% of turnover. With 20% overheads you need to put a 25% mark-up on the job to breakeven, and a 41% mark-up to make 10% profit. So, it is imperative you keep the overhead costs in check so they don’t eat away at profits.
Focus
Focus on profit before you focus on revenue. Do the research and optimise the resources you have, and make the adjustments required to meet your profit goals. Once you’ve reached your profit goals and have systems in place to grow without exploding your overheads, it’s time to look at increasing revenue.
Remember, increasing revenue without the right procedures in place will cause you a whole world of pain. If you’re not making a profit now, increasing revenue is very unlikely to help.