At the end of each landscaping season most owners are either raising their glasses or scratching their heads. Yet time and again, those in our industry don’t use the “off” months to truly analyze what their businesses need in order to grow and become more profitable.
Through multiple conversations, I get the idea there’s a lot of complacency. Owners are comfortable where they are and scared to make changes. But the reality is you should constantly be changing systems, processes, and budgets from year to year.
Personally, I’ve backed away from providing mowing services. (I’ll explain why later.) I’ve also enacted several strategies to help me grow the bottom line without increasing workload. After all, my end goal is to make more money, not work harder all the time. During these winter months is when you want to do the homework.
The Bottom 10%
At the end of each season, typically December or January for me, I look at reports and try to analyze where I lost money. I start by going through my client list to identify the bottom 10%. These are the least “productive” clients—they spent the least, took a lot of time, and aren’t likely to provide more income. An example would be “Bob” who only receives mowing and never requests additional services. On average, Bob’s line takes over 45 minutes. While I charge Bob $85 per cut, I also pay a foreman $22 and a laborer $18 an hour. Where’s my profit? What’s my bottom line? I will look at this client to determine profit margin. Bob’s service rate might need to almost double for this account to be profitable—and the likelihood that Bob would stay on at that rate is very slim.
With this criteria, I figure out my least productive clients and my least productive billable man hours. I then send a letter informing those clients we will no longer be able to service their properties. This system allows me the time to take on better qualified customers that will spend more money and accept more services. Essentially, each year, I drop the bottom 10% and vet in new clients.
The Importance Of Vetting
What is vetting a new client? It’s essentially figuring out if the potential account meets your criteria as a profitable, no-nonsense client. I start these conversations on the phone by asking questions to help me determine the customer’s expectations, past experiences, and what they expect to pay. I also try to get a sense of whether they’re going to be high maintenance. I’ll explain the hourly rate and scope of work so they get a gauge on costs. When you let a potential customer know a ballpark figure, you quickly find out who’s truly interested. These answers help me eliminate non-profit producing hours spent in the field estimating.
I once spent countless hours going on pointless estimates for people who just wanted the cheap option. Over the years, I’ve gotten wiser and can now typically figure out within two minutes whether a customer is a tire kicker or looking for value.
Remember, your own time is a factor of overall profitability. One thing I began noticing when looking at end-of-year reports were the hours that weren’t being accounted for in my own billable time. I now keep a very specific log on the time I spend working—whether it’s labor, administration, field estimating, and so on. I also now allot a specific amount of time for estimates and that time is built into my overall hourly rate.
The February Email
Besides weeding out the bottom 10%, another winter task I accomplish (usually February for me in MA) is sending emails to my existing customers. I let them know the services we are offering in the coming year and inform them of new services. This email is usually just a quick reminder to clients that if they want to get on the schedule for new projects, now is the time. I explain how the schedule fills up quickly in the Spring and we want them to have first priority. We also let them know we will be sending a follow-up email in early March to renew maintenance contracts. We typically receive a pretty good response to these emails.
This practice gives me a great gauge for revenue expectations going into Spring, and my customers appreciate that they had first option for services. In mid-March, I also send an email out to all my contacts. This helps jumpstart Spring and establish a new customer base. One of the best pieces of advice I have is to boost your revenue from within. It’s also one of the easiest. You already have the contacts. Why not capitalize on what’s in front of you?
Now I want to talk about understanding profit margin. It’s crucial in any business, yet many in our industry seem to focus more on volume than profit. I would rather have 15 customers at a 65% profit margin than 350 customers at 35%. Typically the more clients, the higher the cost of doing business.
Many owners don’t take the time to analyze exactly what it costs to run their businesses. It’s important to remember you’re going to have fixed costs and variables. You should be going through receipts—or, if available, reports—for your company every winter to see what your true costs were down to the penny. Seeing where each dollar goes—and what may cost more than you had budgeted—is what’s really going to help grow that bottom line in the next season.
For instance, I was buying concrete at $7.99 per bag thinking that I was still paying $3.99 from the previous vendor. Stupid me was retailing it for $6.99 per bag. I caught this analyzing my cost-of-goods reports and noticed that we were upside down on a few items. I then contacted another vendor who gave me bulk pricing at $2.25 per bag.
When you have exact total cost numbers, you then divide it into 40-hour work weeks for the months open. This is your direct cost per hour—the money required just to run your company, just to survive. From here, you start to add profit to that hourly rate.
In speaking with other owners, and after digging into the numbers, I found a lot of lawn mowing companies on the smaller side average between a 3% to 9% net profit margin. At my company, we were running within these lines—and it raises an eyebrow.
I always run and analyze my reports (balance sheets, profit and loss, cost of goods) and I do my best to figure out where I can cut costs, raise profits, and eliminate services not generating revenue. Most software has an option to run these reports and really digging into them during the off-season helps identify your weakest points.
By running these reports each year, I began noticing that mowing services were taking a lot of time and making the least amount of profit. Knowing there must be money in mowing (many larger companies do it), and that many add-on services that can be sold to clients, I looked in my report for the mowing customers that opted into additional services. From this, I found that clients who didn’t use us for mowing services were actually generating a higher profit margin in other services than existing mowing customers. The shock came from knowing we made more profit off customers not on our mowing route. I’ll never forget when the thought came to mind: should I eliminate mowing all together?
This got my head spinning. I realized I might be able to eliminate a low-profit service and still keep others, so in 2020 I started to scale back mowing. By running payroll reports, I saw overtime costs were down 35% and profits were up. Less mowing allowed more time on profitable landscape and construction projects. Our fuel cost and vehicle maintenance cost dropped drastically, too. By the end of the year, when reviewing with my accountant, our profits as a company went from 35% to 47%.
In 2021, I made a leap of faith and completely eliminated lawn mowing from our company’s profile, offering landscape maintenance, hardscaping, and construction. The response from existing clientele was not happy. Without revenue from mowing and typical add-ons, it was difficult. We essentially dropped 90% in spring cleanups and 72% in mulching. This was a big hit, especially as it had always been a big revenue boost since it’s predominantly labor. The rest of 2021 proved to be even more difficult. The weather did not cooperate for 90% of the season and we were behind schedule by two months. The amount of back orders on concrete pavers and retaining wall block was absurd. We were not getting the calls we expected for landscape maintenance. The advantage was we were no longer spending three days mowing. We could be more productive on projects we were behind on, and I personally had more time to sell. I’m happy to let you know that after running reports, we’ve now met our numbers from last year and exceeded our profit margins.
Put The Win In Winter
I truly believe that any small landscaping business can easily increase the bottom line and produce more profit by going through reports, growing from within, eliminating clients that don’t spend money, and eliminating services that are non-profit producing. Volume does not make you a successful company. Profit is what makes you a successful company.
Do as much homework on your company as you possibly can and I promise you can grow your business without adding clients. I truly believe that even a young business should create a system to eliminate low profit producing clients. Most will disagree with that opinion, stating that you need to build a reputation. I think the reputation comes in your work, not in the amount of clients you have.
I highly recommend that any lawn care or landscape business owner spend their winters from now on analyzing every dollar that goes in and out of the company annually. Did you try your best to grow from within? Did you identify anything that’s eating away at your profit—whether fixed or variable? Did customers consume too much of your time? What services are profitable and what services can you afford to lose? Knowing these answers can help focus your attention on maximizing profit in the coming season.
Currivan is the owner of Currivan Green Landscaping in Andover, MA. He’s also a podcast contributor to Echo Means Business. For more information, call 978-886-9452 or visit currivangreen.com.