By Mark Bradley

It’s January, and Dan is eager to set up his budget for the 2011 season. As soon as Dan and Bill sit down, Dan hands his budget over to Bill. “I’m struggling to get my net profit above ten per cent. I just can’t see us hitting the sales numbers that I need. We’re already run off our feet,” said Dan.  

Bill offered some advice, “Typical. You think you’re busy, but look at your budget. You’re still not operating anywhere near your company’s actual capacity,” referring to Dan’s crews. “Your crews are losing too many hours to non-billable time,” he explained. “It might be time on a job – but it’s time that your customers aren’t paying for.”

Dan was puzzled, “And that will help my sales?”

“What’s really hurting your sales is your lost capacity” said Bill.

“What do you mean?” asked Dan.

“Let me explain.” Bill started by asking Dan his average crew wage and billable hourly rate. Dan replied that his cost was around $17 per hour and that his billable hourly rate averaged around $55 per hour.  

“Last time we dropped in on one of your jobs, the guys were standing around waiting for a delivery of crusher run,” Bill recalled.

“That was a mix-up,” says Dan. “We didn’t get our order in until about two hours before we were going to need that load.”  

Bill raised an eyebrow, saying, “And how many times a week does it happen that guys are standing around, getting fuel, waiting for materials, or waiting for their next instructions from you? You can’t blame your guys all the time – there’s no plan for them to follow.”

Bill continued to drive his point home. “There are hundreds, possibly thousands of lost time hours that, when eliminated, increase your sales capacity.” He pointed several out:

• Your crews drive to the gas station and three or four guys wait while a $5 gas can is filled.
• Your crews forget the required tools and equipment.
• Your crews drive over to your vendors to pick up small consumables.
• Drive time is not recovered on your estimates.
• Your crews don’t know how long a job should take, and take too long to complete it.
• You’ve unit-priced a task, but site logistics or complications eat your profit and more.

Bill pointed to Dan’s sales budget, “You’re telling me you can’t add $40,000 to your sales, but I’m telling you that your numbers prove that you have the capacity. Most of the reasons for that lost capacity come back to the same solution:  better planning and systems.”  
 

Planning and systems improve sales

“Plans start with a profitable budget. You need to know how much work you need to sell, resources (people, equipment, materials) required to do the work, and how to look at your numbers throughout the year to ensure your productivity is on track.”

Bill picked up Dan’s budget off the table. “Just look at the potential you have. Multiply your field labour payroll hours by your average hourly rate. If you billed just those hours alone, you’d almost hit the sales goals you need, and that doesn’t include any equipment and material billing.”

Dan paused, “Yes, but those field labour hours include downtime, breaks, drive time, etc.”

Bill stopped Dan dead in his tracks. “But the cost of that time is included in your billable rate, isn’t it? If it isn’t included, who is paying for it?”

“No, you’re right,” said Dan. “We included a downtime factor when we calculated my billing rates.”

“The fact that you’re under-selling isn’t standard down time. It’s unexpected down time, and that’s what I want you to focus on. You can start to solve those problems with a good estimating system,” explained Bill.

He continued, “You’re building estimates that only get handed to the customer. Then your crews arrive at the site, and the circus begins. That’s when they figure out what they didn’t plan for. They leave behind necessary equipment, tools, or materials, because they didn’t know the plan. Now they’re spending time running around, or losing productivity. Worse, you’re getting calls to drop stuff off to them. It’s costing you money and sales capacity!”

Bill continued, “Then, without a clear picture of what the estimator was thinking, your crews don’t know how long anything is supposed to take. It gets worse. They’re paid hourly, so they don’t mind standing around for a bit here and there, and they really don’t mind going for a ride in the truck. Day-by-day, these mistakes are eating your company’s capacity to do more sales for essentially the same costs.” Bill listed the following problem areas:

• Labour – you’re exchanging non-billable hours for billable ones
• Equipment – you’ll burn a bit more fuel, but your payments won’t change
• Materials – might go up, but that’s OK if you’re doing more work
• Overhead – no need for much change. Give the crews the right information and they become accountable to the plan, and begin to manage their own work

Bill’s words really sunk in with Dan. “I was busy,” Dan thinks, “but he’s absolutely right. What we’re really busy doing half the time is running around in circles chasing our own tails.”

“You’re spot on again, Bill,” Dan says with a laugh. “So where do I go from here?”

 “Well, there are three things you need to do,” explains Bill:

1. Start with your budget. Plan your sales goals, plus make sure they are profitable.
2. Turn your estimates into job planners for your office and crews.  You’ll price jobs more accurately, and your people can plan the work using detailed breakdowns of labour, equipment and materials.
3. Teach yourself how to pull all this together.

This winter, Landscape Ontario and the Landscape Management Network are offering Plan for Profit and Estimating to Win courses. Get yourself to a course, and learn how to:

• Build a plan for profit
• Estimate with a system that’s based on the plan
• Turn your estimates into a plan that improves productivity, sales, and profit

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Mark Bradley is the president of The Beach Gardener and the Landscape Management Network.