This podcast is part three of a series titled: How to make more money.
Here’s what the series looks like:
• Part One: What is gross margin, and the basics of gross margins
• Part Two: How to increase your gross margin with job sequencing
Part Three’s podcast will focus on: Making more money by improving your systems and processes.
Click episode #20 in the orange sidebar to your right to listen to as you read the outline below
Over the course of this series, understanding gross margin has played an integral role in making more money in your business. As a review, here are some of the most common ways gross margin goes down:
• Turnover of personnel
• Having the wrong customer
• Inaccurate estimating
• Operational execution
• Increase in costs without a price adjustment; insufficient increases
• Scope of work change without price adjustment
• Extra work performed without billing
• Inaccurate job costing
• Basic administration, or lack thereof
• Lack of mindset
• No system or process in place
Key improvements to your financials, without raising your prices, can and should be made in the area of gross margin. Since raising prices is probably not high on your list of options, we will begin with how to manage your direct cost side, or how to lower your direct costs in these two areas:
• The workforce at the foremen level and below
• Material cost
So this is what we are focusing on:
• GROSS MARGIN – Revenue minus Direct Costs
Three areas where landscape companies can save on direct costs and increase gross margins.
1 – Define the goals and have measurable benchmarks
• Have clearly defined and understood goals
• Define expected gross margin goals for each area of revenue – maintenance, enhancements, irrigation, installation, snow
• Give ownership at the closest level to each revenue all the way to the crew level if possible
• Define and assign goals
• Set goals for improvement with specifics and with time frames to accomplish
• Track regularly – weekly if possible
Remember: “What gets measured gets managed, what gets managed gets improved.”
2 –Training and certification programs
• Start with the desired results in mind like – quantity of workload, quality of work, efficiently performed work and work that is performed safely
• Verify skills are learned through a certification process
• Have rewards for new ideas that get the company more productive
3 – Have a good estimating process in place
• With so much pressure being applied to pricing it becomes even more important to have an accurate estimating process in place.
• Triangulate your estimating through several vantage points:
o Measure it out. Use square foot measurements then apply production rates to these measurements
o Price per square foot method. Measure the job and define categories like turf, flowers, beds and assign a price per square foot
o Do a field estimate with your supervisors giving crew hours to do the job: like three guys here for three hours per week = nine hours per week
o Compare the job in size and scope with another job you have that is making money
To make more money, it’s critical to have an accurate estimating program in place.
The next Grow Show podcast will review three more ways to increase your Gross Margin simply by having the right systems in place.