At the end of the movie “The Martian,” stranded astronaut Mark Watney is about to be rescued by the very crew who’d left him for dead. But in order to be able to leave the surface of Mars and rendezvous with them, he was first going to have to make some changes to his spacecraft.
As it was, it would be too heavy to escape Mars’ gravity. The nosecone, among other things, had to go. He was told to unbolt it, and replace it with a canvas tarp. Mission Control could tell him that, because it knew exactly how much every single piece of that space vehicle weighed, down to the last micromilligram. Once he’d pared enough weight, he could take off.
Do you know the exact ‘weight’ of your operation? All the expenses you incur yearly, quarterly, even daily, to keep your business running? Like that nosecone, your overhead could be the very thing that’s holding your business back, preventing it from really soaring.
There’s payroll, taxes, rent, utilities, fuel, payments for your trucks and equipment and the cost of maintaining them. Then there are insurance premiums for the vehicles, for the general business liability policy, worker’s comp, and health plans. Advertising, training, coffee service, office supplies, uniforms, snacks… the list goes on and on.
A little chunk of every one of those bills needs to be paid by every single job. Only after all of the outgo is accounted for can profits even begin to enter into the picture.
“It’s very important for us to know our costs,” said Angie Slattery Hundley, vice president of operations at Personalized Lawn Care, Inc., Lansing, Kansas. “If we don’t track them and keep them down, it affects our bids and estimates, and finally, our ability to serve the customers.”
If you’re unaware of exactly what it costs to run your operation, you might consistently underbid jobs. Before you know it, you’re out of business. You’ve got to know exactly how much it costs to keep your doors open, and, hopefully, to thrive and grow as well. Fortunately, there are lots of good ways to drill down on those outgoing dollars and ultimately, cut them.
Lowering your labor costs
This is the biggest overhead item for most contractors. Therefore, it should be the first thing you look at when you’re trying to trim the fat.
Todd Pugh, founder and CEO of Todd’s Enviroscapes, Inc. in Louisville, Ohio, uses a ‘lean management’ approach. That means looking for the simplest, least wasteful way to accomplish anything. He adopted this way of doing things because “customers aren’t willing to pay for waste.”
The shortage of good labor was another major spur towards going ‘lean.’ “We had to figure out a way to do more with less,” he said. “Look at it this way: if you’ve already got 100 employees, and you’re able to get 20 percent more productivity out of them, that’s better than hiring 20 percent more workers.”
You’ve got to know how much you’re spending versus how much you’re making, said Pugh. “Otherwise, it’s like driving a car with no dashboard. You wouldn’t know you were running low on gas until you ran out completely.”
If you don’t have information, you can’t make wise decisions, he stressed. This is a business where you have to negotiate and bid on jobs; you need to know what you can afford to do those jobs for.
Pugh says that knowing your people and what they’re capable of is vital. It’ll let you know if it’s better to pay two guys who are just average at a certain task ten bucks an hour, or one guy who’s really good at it 20 bucks an hour. The worker who’s more expensive but also more adept will probably work faster and make fewer mistakes, avoiding the callbacks that can wipe out a job’s profitability entirely.
Technology can help you get control of your labor costs, as it did for Coast Landscaping Inc. of Vista, California. In 2012, the company started using a time-management program that replaced paper time cards with real-time check-ins via smartphone.
“Now we’re able to see the ten-minutes-late clock-ins, the longer lunches taken, the ten minutes someone shaved off at the end of the day,” said marketing and office manager Jessica Mason. “We’ve grown to have over 52 employees, so all of those ‘ten-minutes-here, ten-minutes-there,’ really start to add up.”
Pugh says that even when contractors look at what they’re spending on labor, they often miss the big picture.
“Take a mowing crew, for instance. Most contractors will focus on how the guy’s mowing. What they should be looking at is the fact that the average commercial lawn mower gets about 350 to 500 hours put on it per year, yet the average crewman works between 1,100 and 1,300 hours per year. That means that half that time, he’s not on the mower.” He should be asking, what’s happening the rest of that time, and how can this process be made more efficient?
Judith Benson, owner, founder and president of Clear Water PSI, a Winter Springs, Florida irrigation company, hates going into debt. So, wherever possible, she avoids it.
Though she admits that makes her a bit ‘old school,’ she advises other green industry business owners to follow her example. Not having all that long-term debt, she feels, makes her company more stable, minimizes costs and keeps her cash flow manageable.
This philosophy helped her company survive the Great Recession.
During that period, she watched a lot of companies much larger than hers go under, mostly because they could no longer service their debts.
“If we hadn’t planned so well, we would not have survived. We got hit, not only in our residential and commercial sectors, but lost our government contracts as well. For a while, our business was just bare bones.”
Benson doesn’t lease or finance new trucks, either, preferring to buy used ones that might need a bit of work. Of course, it helps to have an experienced mechanic on the payroll to keep them running; in this case, her husband, Kurt.
She’s also found it more economically feasible to own, rather than lease, the building that houses her company. “Real estate rates kept going up, even through the downturn,” she said. “The commercial landlords all wanted to lock you in on these three- to five-year leases.”
“The first year, you’d have a really attractive monthly rate, but it would go up quite a bit for those second and third years. When I started seeing that, I got away from leasing.”
Getting out your magnifying glass
Taking a hard, squinty look at your work processes is a good way to unearth areas of inefficiency.
Pugh started videotaping and timing his people as they went through their day. It didn’t take long to find waste. Morning startup proved to be one of the worst offenders; he discovered that it took almost an hour for his crews to get out of the yard each day. “The guys didn’t have prepared route sheets, didn’t know where they were going, or which trucks they were supposed to take,” he said.
Once he knew there was a problem, he could start working on the fix. Now, everything is planned out at least a day or two in advance. When workers get to the yard, they know exactly where to go and how to get there. And the time out of the gate for Pughs’ crews has been shaved from 45 minutes down to three. “We learned quickly that focusing on the little things produces big results.”
Informal, in-house spot audits can reveal much. Once a month, Hundley will take a couple of the company’s jobs and do a cost analysis.
She’ll look at the actual labor hours put in, and compare those totals with the original estimates. Then, she’ll add the cost of the materials. Doing this regularly helps keep the company on track, and ensures that the profit margins are where they should be.
“Sometimes, I’ve had to adjust our labor hours, because we forgot to account for the time that the guys spend loading up materials and so forth,” Hundley said. “You have to consider the entire scope of work, everything that goes into a job. Ultimately, it would affect our cash flow if we weren’t projecting in an accurate manner.”
The very nature of the landscape business lends itself to a certain looseness. Crews drive out of the yard in the morning, make several stops, and aren’t seen again until closing time. That leaves a lot of room for ‘play.’ To tighten things up, Coast started using a fleet management system. Via GPS units in all of its trucks, supervisors know exactly where every work vehicle is at all times. This has eliminated unauthorized convenience-store jaunts, or other little errands employees would run using company trucks on company time.
Employing a program such as that also gives you accountability to your clients, said Anthony Alexandre, marketing development manager at ExakTime in Calabasas, California.
This transparency can be especially important with commercial accounts. You’ll be able to provide those clients with reports showing the exact locations where your crews have clocked in, and exactly how much time they spent there.
Alexandre says that his company has been asked to give depositions in court cases in which people have accused landscape crews of not performing paid-for work, or causing damage. You can see where having the ability to prove where all your employees were and exactly what they were doing at any given time would be invaluable in such situations.
Of course, this sort of high-tech tracking rubs some people the wrong way, and you may get pushback from your people. “A lot of companies have employees who’ve been around a long time,” said Alexandre. “Their attitude is, ‘I’ve been a trusted worker for all these years, and now you’re going to start watching me?’”
He suggests telling balky staffers that this can work both ways. Helping you build a stronger company with a healthier bottom line means that you’ll be in a better position to pay them what they deserve. In the end, everybody wins.
Some of Alexandre’s clients have created incentives to help workers see these kinds of measures in a positive light. “They’ll say, ‘Look, if you guys cooperate with this, we’ll create an Employee Day with some of the money we’ll be saving.’” But you don’t have to invest in whole new suites of software in order to harness the power of technology. It’s right there in your pocket.
“In the past, if a piece of equipment broke down, we’d haul it back to the shop,” said Pugh. “Now, our guys whip out their phones and use FaceTime. They say, ‘Here’s the machine; here’s the noise it’s making.’ Nine times out of ten, our mechanic can troubleshoot it over the phone, or at least, order the parts in advance. Then, instead of being in the shop for two days, the machine’s only out of service for one.”
Negotiating with suppliers
In business, as in life, inflation takes its toll. The cost of everything keeps going up, including the materials you use to do your work: irrigation pipes, pavers, sprinkler heads, fertilizer. Yet there may be more wiggle room than you realize in the tab for those things.
Hundley has found that a little schmoozing goes a long way. “We’ve found that it’s important to have good relationships with our suppliers, really get to know them. We meet regularly with our stone guy, look at our gross sales together, and negotiate a better rate for the next year.”
As a company grows, its vendors get more business, too. Hundley uses that fact to get better rates from suppliers, pointing out that her firm is, after all, selling their products for them. This often gets them to reduce their per-item pricing to her company.
She’s surprised by the fact that more contractors don’t use this leverage, perhaps because they don’t realize they have it. “Some of them don’t know to ask for a better rate; they assume that it is what it is, and just accept it. But it never hurts to ask. You could save yourself thousands of dollars in the long run, and pass that savings down to your clients.”
Why not try? All the vendor can do is say is “no.”
Knowledge is power. The more you have, the faster you’ll be able to streamline your business so it can rocket into the stratosphere. Don’t let unexamined costs keep your enterprise earthbound.