By utilizing a unique training methodology known as A Better Way 2 Learn, financial expert Frank Ross can be present at all of your company’s financial meetings—for a fraction of the investment. Click here to learn more and to sign up for a no-risk trial offer.
"We've got a mess on our hands, and the only thing that is going to pull us out of this is good old, ingenious capitalism."
Those are the words of Frank Ross. His 35 years of experience and in-depth work on several industry-wide financial studies give him unparalleled knowledge of what Green Industry firms need to do to become profitable.
What do Green Industry firms need to do today? "My partners (Kevin Kehoe and Jeff Harkness) and I are advising our clients that we are in this present condition for the long haul," Ross says. "We'll be here for a minimum of another two years. Don't assume that there's relief right around the corner—because there probably isn't. What is right around the corner is a lot of hard work, more intuitive management and decision making, lots of tracking, and an astute awareness of how your company functions."
Construction is a big part of our economy's gross domestic product, and housing is a big driver of construction. So until housing improves, the economy will not improve.
"Housing has many facets to it," Ross says. "There's fundamental supply and demand. We certainly have a supply, but there is no demand. People aren't buying because they don't have the jobs that will allow them to buy."
As a result, Ross expects pricing on landscape maintenance to diminish another $1-$2 per man-hour per year until the situation improves. Why? Because virtually everyone in the landscaping business remains focused on maintenance.
"The average property manager has figured out that his landscape maintenance vendor will bend because there are other contractors knocking on his door offering greater value at a lesser cost," Ross says. "We're simply training customers to expect lower cost. Even if the economy jumps up several ticks tomorrow, the pricing situation won't turn around for a couple of years—we'll need to retrain our market not to expect lower prices."
Ross is quick to remind that the service world, which includes landscape maintenance, remains very vibrant. There's still work and a lot of opportunity. "Companies still can make a solid return in the service world," Ross says.
Following are best practices Ross has seen from some of his clients who've continued to perform very well over the past couple of years.
"I don't have a client that is successful that doesn't track everything they do daily," Ross says. Because of the downward pressure on prices and upward pressure on spending, you have to heed what the numbers are telling you.
"I'm talking about tracking hours every day," Ross continues. "You have to get the ‘ownership' of the hours down to the level of crew leader, because that's where the action is. You can't control hours in the boardroom. The crew has to understand what needs to be accomplished and the number of hours they have to accomplish it. They need to know that information every morning when they pull out of the yard."
Ross says there is one mistake that's often made in the estimating and pricing process. His best clients are careful to avoid it. "Estimating is a two-part function," he explains. "If you don't treat it as such you'll make errors and sell work that's a loser going in."
Part 1: You have to know what your costs of material and labor are. You should never blue sky these units. It makes no sense, for instance, to estimate 80 hours if you know it's going to take 100.
Part 2: This is where you finish pricing the job according to what the market will bear. "If you don't have an accurate foundation on which to make this pricing decision, which is where you recover your overhead and generate your profit, you will invariably under-price the job," Ross says. "If the marketplace is tough, like it is now, you may very well have to give up a portion of that profit—if not all of it. You may even have to bid a job at a loss for very pragmatic reasons. But at least you're making that decision from an accurate base of knowledge."
Ross says his top clients are working extra hard to stay on top of cash flow. Some of the best contractors he works with have aging of less than 40 days. There are two reasons they are able to collect this quickly:
- They do great work and have happy clients
- They educate their clients as to what the expectations are
"Most companies that have a receivables issue right now can point to the fact that sales or admin staff are inhibited about saying to the customer, 'Here are our credit terms, this is how we invoice, and this is how we expect to be paid … and is that OK with you?" Ross explains.
Profit is not a dirty word
When asked what an average, fair profit is in landscape contracting today, Ross says it's too across the board to pinpoint. However, one thing is clear: Top contractors are now shifting their focus from profit margins to profit dollars.
"Let's say we have an overhead structure of $1 million," Ross begins to illustrate. "It used to take $2 million in revenue to cover that overhead and make a decent profit. Today, because prices have collapsed, we might need $2.5 to $3 million in revenue. So percentages move around a lot.
"What we're interested in is 'the new math,'" Ross continues. "It's no longer a 10% profit. We're talking about how many sales dollars you need to generate in order to maintain cash flow. You now have to measure profits in real dollars. A contractor should sit down in his planning process and plan how many dollars he needs to retire debt, refurbish fleets, support working capital, pay taxes and reward employees. Add all of that up—because that's your end game."