October 15, 2011
Fall is the time for super profits
By Mark Bradley
Fall was setting in, and Dan and his crews were well on their way to the best year ever — both in sales and profits.
As the weather grew colder, and a little more rainy, Dan’s crews started to show signs of burnout. They moved a little slower, seemed to go home a little earlier, and motivation was tailing off. Dan noticed, but he wasn’t overly worried. Everyone had definitely worked harder this year than before.
Dan was driving out to meet a customer to whom he hoped to sell a big job for next spring. If he sold the job, there was a chance he could even get a start on it this year before the snow fell; that is, if they could finish up their current projects.
Just around the corner from Dan’s prospect was one of Bill’s jobs. Dan was early, so he stopped by Bill’s site with the hope that he’d run into Bill for some last minute advice on this big job. Bill was nowhere to be found, but as Dan scanned the site, he watched in amazement at Bill’s guys working away. There was no burnout visible on this site. The pace was fast and efficient.
“Unbelievable,” thought Dan. “It’s October, and his guys are still going 110 per cent.” When he next saw Bill, Dan complimented his crew’s efforts, and asked Bill what he’d done to get such a determined effort out of a crew this late in the season.
Bill explained, “I didn’t say anything. They are motivated because their wallets are going to get fatter. It’s fall and time for super profit and bonus.”
Dan raised an eyebrow, “Super-profits and bonuses? What are you talking about?”
“It’s quite simple. Look back on the budget you built this year. What were your sales goals?”
“$2-million in sales,” replied Dan.
“And what was your overhead budget?”
“We budgeted $400,000 for overhead.”
“And you’re on track to hit your sales goal and keep your overhead spending on budget?” asked Bill.
“Yes, we’re going to hit our goals,” smiled Dan.
Bill continued, “Good. But can you tell me what would happen to your profits if you managed to sell and complete another $100,000 worth of work before the end of the year? What if you beat your sales goals by five per cent?”
“More profit,” said Dan. “With our standard 10 per cent net profit, and assuming all goes well with the job, I could probably bank another $10,000.”
“Probably more,” said Bill. “In fact, it’s very likely a lot more. Think about just that extra $100,000. Will you have to spend more on overhead? Is your rent going to go up because of the extra work? Is your accountant going to charge you more because you did an extra $100k?”
Dan nodded in agreement. “No, our overhead would stay at $400,000. Other than some paper in the office, I don’t see how we’ll spend any more on overhead.”
Bill kept going, “And other than fuel, would your equipment costs change much? Your lease payments would stay the same, yes? You’re not going to need to buy another truck to get that extra $100,000 of work done are you?
Bill said, “Twenty per cent of $100,000 in sales is $20,000 in potential bonus money. By working efficiently, productively, and really knuckling down at the end of the year to complete that extra bit of work, there’s a $20,000 bonus pool to be had.
Bill continued, “It’s building a company of entrepreneurs, but they’re employees within my company. The difference is that each one has some direct influence and control over their earnings. Just like when you run your own business; the better you do, the better your rewards. An hourly wage is simply not enough incentive to inspire anyone to work more efficiently and more productively – especially by the end of the year. In fact, by doing their work faster, they might even assume their pay will go down if their hours decrease.”
“Oh, I’d have no trouble filling their schedule if they were working faster,” argued Dan.
“You might know that, but your crews don’t see it the way you do. And, even if you did fill the schedule, what real incentive is there for them to work harder for the same pay? They’re not going to work harder to put more money in your pocket. That’s the way they see it. But, if you can show them — not just hypothetically, but with an actual system — how they’ll be able to put more money in their pockets, you can change the culture of your company. Instead of me pushing them to get it done faster, better, cheaper, they’re motivated to do it for themselves. Not needing to be on top of every crew on every job means I have less stress, and more time to work on things I want.”
Dan described the big job he’d lined up for next year, and the possibility of starting one of the phases this fall. “With the bonus system you described, my guys would see this opportunity like I do. Whatever work we can complete before the end of this year, boosts our rewards now, and opens up a few weeks next year to sell another job or two.”
Dan nodded, but wasn’t convinced. “But what about quality? How do you make sure they’re not taking shortcuts?”
“Quality can’t suffer for the sake of speed. And if you’ve explained your system right, it won’t. Anytime you are working on re-work or warranty issues, your sales aren’t moving. You’re working for free. Every hour spent on warranty work, is an hour not getting any closer to your sales goals, which also means your crews aren’t getting any closer to bonus time. While they’re working on warranty work, they’re losing opportunity to get to or beat their sales goals.”
“I like it!” said Dan
“So will your people and your profits.” said Bill. “Let me know how you make out with that big job.”
Mark Bradley is the president of The Beach Gardener and the Landscape Management Network.
Fall was setting in, and Dan and his crews were well on their way to the best year ever — both in sales and profits. As the weather grew colder, and a little more rainy, Dan’s crews started to show signs of burnout. They moved a little slower, seemed to go home a little earlier, and motivation was tailing off. Dan noticed, but he wasn’t overly worried. Everyone had definitely worked harder this year than before.
Dan was driving out to meet a customer to whom he hoped to sell a big job for next spring. If he sold the job, there was a chance he could even get a start on it this year before the snow fell; that is, if they could finish up their current projects.
Just around the corner from Dan’s prospect was one of Bill’s jobs. Dan was early, so he stopped by Bill’s site with the hope that he’d run into Bill for some last minute advice on this big job. Bill was nowhere to be found, but as Dan scanned the site, he watched in amazement at Bill’s guys working away. There was no burnout visible on this site. The pace was fast and efficient.
“Unbelievable,” thought Dan. “It’s October, and his guys are still going 110 per cent.” When he next saw Bill, Dan complimented his crew’s efforts, and asked Bill what he’d done to get such a determined effort out of a crew this late in the season.
Bill explained, “I didn’t say anything. They are motivated because their wallets are going to get fatter. It’s fall and time for super profit and bonus.”
Dan raised an eyebrow, “Super-profits and bonuses? What are you talking about?”
“It’s quite simple. Look back on the budget you built this year. What were your sales goals?”
“$2-million in sales,” replied Dan.
“And what was your overhead budget?”
“We budgeted $400,000 for overhead.”
“And you’re on track to hit your sales goal and keep your overhead spending on budget?” asked Bill.
“Yes, we’re going to hit our goals,” smiled Dan.
Bill continued, “Good. But can you tell me what would happen to your profits if you managed to sell and complete another $100,000 worth of work before the end of the year? What if you beat your sales goals by five per cent?”
“More profit,” said Dan. “With our standard 10 per cent net profit, and assuming all goes well with the job, I could probably bank another $10,000.”
“Probably more,” said Bill. “In fact, it’s very likely a lot more. Think about just that extra $100,000. Will you have to spend more on overhead? Is your rent going to go up because of the extra work? Is your accountant going to charge you more because you did an extra $100k?”
Dan nodded in agreement. “No, our overhead would stay at $400,000. Other than some paper in the office, I don’t see how we’ll spend any more on overhead.”
Bill kept going, “And other than fuel, would your equipment costs change much? Your lease payments would stay the same, yes? You’re not going to need to buy another truck to get that extra $100,000 of work done are you?
Overhead costs
“The overhead recovery system that you built in to your budget was calculated on $400,000 of overhead and $2-million in sales. For every sales dollar that comes in, you are spending 20 per cent on overhead. But your overhead costs are fixed. If you beat your sales budget, your overhead is probably still $400,000. So, if you sell and invoice another $100,000 worth of work over your sales goals, the 20 per cent that normally goes to paying overhead is now super profit.”Bill said, “Twenty per cent of $100,000 in sales is $20,000 in potential bonus money. By working efficiently, productively, and really knuckling down at the end of the year to complete that extra bit of work, there’s a $20,000 bonus pool to be had.
Bill continued, “It’s building a company of entrepreneurs, but they’re employees within my company. The difference is that each one has some direct influence and control over their earnings. Just like when you run your own business; the better you do, the better your rewards. An hourly wage is simply not enough incentive to inspire anyone to work more efficiently and more productively – especially by the end of the year. In fact, by doing their work faster, they might even assume their pay will go down if their hours decrease.”
“Oh, I’d have no trouble filling their schedule if they were working faster,” argued Dan.
“You might know that, but your crews don’t see it the way you do. And, even if you did fill the schedule, what real incentive is there for them to work harder for the same pay? They’re not going to work harder to put more money in your pocket. That’s the way they see it. But, if you can show them — not just hypothetically, but with an actual system — how they’ll be able to put more money in their pockets, you can change the culture of your company. Instead of me pushing them to get it done faster, better, cheaper, they’re motivated to do it for themselves. Not needing to be on top of every crew on every job means I have less stress, and more time to work on things I want.”
Dan described the big job he’d lined up for next year, and the possibility of starting one of the phases this fall. “With the bonus system you described, my guys would see this opportunity like I do. Whatever work we can complete before the end of this year, boosts our rewards now, and opens up a few weeks next year to sell another job or two.”
Better rewards
“That’s exactly it. You don’t have to run an open-book company to build a company of entrepreneurs. But you do need a system, and some training, that shows employees that their rewards are directly related to their productivity. The more work we get through, the better the rewards.”Dan nodded, but wasn’t convinced. “But what about quality? How do you make sure they’re not taking shortcuts?”
“Quality can’t suffer for the sake of speed. And if you’ve explained your system right, it won’t. Anytime you are working on re-work or warranty issues, your sales aren’t moving. You’re working for free. Every hour spent on warranty work, is an hour not getting any closer to your sales goals, which also means your crews aren’t getting any closer to bonus time. While they’re working on warranty work, they’re losing opportunity to get to or beat their sales goals.”
“I like it!” said Dan
“So will your people and your profits.” said Bill. “Let me know how you make out with that big job.”
Mark Bradley is the president of The Beach Gardener and the Landscape Management Network.