How To Maintain Your Profit Forecast

When times are tough, landscape contractors must have a strategy for how to maintain their profit margin forecast.

Many landscape contractors in today’s market conditions are experiencing the problem of not making their projected sales figures. But remember that your real target is that bottom line number called profit.

The question is: Can you maintain your profit forecast in a slow economy? Management consultant and former landscape contractor Rod Bailey discusses some strategies you might want to consider.

Improve Sales Revenue

If you are a maintenance contractor, make sure you review your properties to propose enhancement ideas to your customers. Are there modifications you can suggest that would improve the appearance or maintainability of the property?

This is typically high-margin, negotiated work that can kick through to your bottom line. Don’t be afraid to reduce your price when you make a cost-saving improvement for a customer; just make sure you keep the same margin dollars you had previously built into the contract.

If you are a design/build or installation contractor, review past projects and properties for the same type of ideas. Customers appreciate this type of follow-up and it gives you the opportunity to stay in touch.

Again, this is typically high-margin, negotiated work. Offer your past customers a tune-up review to maintain the value and appearance of the landscape work you did for them.

Market, market, market! Make sure you are getting your name out there. Some of your competitors are going to disappoint their customers as a result of all the cost cutting. Be there to pick up the business when the customer wonders where to turn next.

Reacting to Pull-Backs

If your maintenance customers call to cancel a contract because they are having personal financial problems, offer them a survival-level program. This move will prevent their landscapes from losing value before economic conditions improve. When you do this, make sure you document these “temporary” service reductions so you can restore full service when budgets begin to improve.

If you have an installation project cancellation, consider offering to phase-in the project over an extended period of time. If customers can’t afford it, offer them a Phase One option and defer Phases Two and Three until conditions improve.

Focus on Margin Producers

You may have a lot of deadwood that’s lurking among both your staff and your customer list.

With respect to staff, eliminating those who are not fully productive and reshuffling the work to the highly motivated is a typical necessity during periods of slow economic growth.

With respect to customers, remember the 80-20 rule: In any given population, 20% of the participants contribute 80% of the result, and 80% of the participants are only contributing 20% of the result. Conduct a gross margin analysis of all your customers and you will find that this rule is not far off. Focus on the 20% who are really contributing 80% of your gross margin dollars. Stick with these customers and put your focus on them.

You may find that by cutting off some of the other 80% of your customer list (I’ll bet you even find some losers in there), your overall efficiency will improve tremendously—and with only minimal impact on your bottom line.

Review your service or product offerings with the same thought in mind. Which services are really contributing the higher gross margins, and which are not? By pruning the poorly performing services or products, you can get more bang for your buck.

Improve Efficiency

Better training and better equipment are both proven methods when it comes to increasing efficiency.

Many equipment dealers are offering good incentives right now. More efficient trucks, mowers or small track loaders that may not have made economic sense to you before might look real good right now.

Better training, of course, is another answer—and now is a good time of the year for doing that. A well-trained crew will out-produce an untrained crew by a major efficiency factor.

Train them to look for efficiency-improving ideas on the sites you are working and make sure you act on the ideas they produce.

Reduce Overhead Costs

A close review of overhead expenses can produce great benefits to the bottom line, because cost reductions drop right through to improved profits.

Can you renegotiate rents paid on facilities? Can you reduce interest expenses by improving your cash flow and paying down debt, or can you renegotiate loans? Review utility and communications costs for additional savings opportunities.

Take a look at your depreciation expenses. Under tax rules that have been liberalized in recent years, most of us write-off equipment at accelerated rates to gain the tax benefits. However, if you spread out your depreciation costs over a few years, your costing and competitiveness will be more consistent.

Can You Hit Your Numbers Now?

We have discussed a broad number of approaches for improving your financial performance—things that worked for Rod Bailey’s landscape company over 30 years and three recessions ago, including the recession of 1980-81.

Some of these investigations and considerations, such as looking at the services they were providing, produced radical changes for Bailey. “We were making it in maintenance but losing it in construction,” he recalls. “We cut the size of our company in more than half and bailed out of the design/build and bid/build markets. By making this decision in early March, we were profitable again by July, rather than out of business by June. Then, once things stabilized, we began doing installation work again—but only for our existing maintenance customers who were requesting it.”

If you have already tried some of the ideas presented in this article and are still not hitting your numbers, you may have to bite the bullet and revise your numbers. This may require great innovation in your business model. But as the old saying goes: “When the going gets tough, the tough get going.” And as Bailey likes to say, “When the going gets tough, the tough get innovative.”

Rod Bailey is a management consultant and the president of Alder Springs Enterprises Inc. in Woodinville, WA. He can be reached at (206) 612-2704 or via email: [email protected].