How to Double Your Landscape Profits
If you read Part 1 of this blog series, then you already know that our landscaper friend John had used his own equation to calculate a 20% net profit for a backyard makeover job that he had completed. But, as it turned out, his calculation wasn’t even close to being accurate. We plugged John’s numbers into our foolproof net profit equation. By doing so, he realized that he was actually at a loss of 1.9% at the end of this project.
We already showed you how to calculate net profit so that you never accidentally find yourself in the red. Next, we’ll show you the easy changes to make within your business to double your profit margin.
Total Job Revenue
– Cost of Material
– Execution Labor
– Errors/Inefficiencies/Unforeseen Delays
= Net Profit
We’re again going to take a look at this equation to show you how to increase your profit margins by making simple changes to each cost factor.
1. Cost of Material
While you think that you’re getting the best bang for your buck when it comes to your landscape materials, there is always room for improvement—especially if you’re working with a limited number of vendors or are buying from your local garden center.
Our #1 tip for saving on your materials is to make sure that you’re always going directly to the source. This means opting for wholesale vendors over smaller garden centers. Why pay $10 for something at a garden center when you can pay $5 for that same item through a wholesaler? This also means that you will always need to plan ahead!
Another trick to increase your profitability is to order all of your accessory materials in bulk at the beginning of the year. Purchasing your glue, nails, snap edges, geo-textiles, and more on a per project basis is costing you unnecessary time and money. Shop around for a wholesaler who’ll give you the best deal on a bulk order and base your first order off your accessory material data from last year. If you end up being a little bit off, you can always adjust it the next time around.
And if the idea of dealing with multiple wholesalers sounds like a hassle, GoMaterials is a great alternative. Here for all your planting needs, GoMaterials specializes in the wholesale procurement of trees, shrubs, palms, and perennials in any size or caliber. We even offer hardscape products in select regions. We take on the search, price comparison, quality assurance and logistics organization for all your landscape material needs. All you have to do is send us your material list and we’ll take care of the rest. Plus, GoMaterials is 100% free for buyers!
You can save: 5-15%, depending on how efficient you are today.
A major reason why John didn’t make a profit on his backyard makeover project is because he didn’t buy his accessory materials in bulk and wasn’t working with GoMaterials or other wholesalers for his planting and landscape construction needs.
This is what his cost of material looked like in Part 1:
– $ 4,000 ← Cost of Material
– $ 4,750
– $ 640
– $ 800
Now, here’s what his cost of material would have looked like if he applied our very easy tips to save 15%:
– $ 3,400 ← Cost of Material
– $ 4,750
– $ 640
– $ 800
= $ 410
Simply focusing on decreasing his cost of material would’ve brought John out of the red, making him a net profit of 4%.
2. Execution Labor
If you want to decrease your execution labor costs, you’re going to have to ensure that you’re paying your employees in an efficient manner. Your employees need to be producing revenue for every hour that they’re working.
First, install punch clocks in your trucks to accurately keep track of when your employees are working.
Second, create a policy about taking breaks. Put trackers on trucks to make sure that employees aren’t making any detours on their way to a job.
Third, use equipment, such as gas wheelbarrows and mini excavators, to increase productivity. These will deliver more revenue per hour.
Fourth, put policies in place with your suppliers to avoid late deliveries. They should deliver your material before you actually need it, so that your crew is never waiting around. On that note, ensure that your employees have all the necessary material so that they don’t have to run out. If they need anything restocked, they should advise ahead of time.
Fifth, maintain equipment and vehicles on a regular basis so that they don’t unexpectedly break down. If they do, have a reliable rental company’s number on hand to help save the work day.
Sixth, hire a project manager who knows the ins and outs of planning a job. This will save you countless hours and money. Don’t be afraid to pay your project manager well. They’ll take all the guesswork out, help avoid delays, and make your job much easier.
You can save: 5-10%, depending on how efficient you are today.
John’s crew was stopping for coffee on their way into work in the mornings and were often waiting around on-site for late deliveries, which is why his execution labor cost looked like this:
– $ 4,750 ← Execution Labor
By applying just a few of our aforementioned tips, John could’ve saved 7.5% on his execution labor:
– $ 4,394 ← Execution Labor
= $ 766
This would’ve put John at a net profit just above 7.5%!
Contractor profit and overhead go hand in hand, which means that a decrease in overhead needs to happen to see an increase in profit. A great way to minimize your overhead to revenue ratio is to outsource some of your buying to GoMaterials. Not only will we help find you the best prices, we can also work closely with your buyers to help them work faster and more efficiently. In fact, the support that we can offer your purchasing team means that you won’t have to pay more to expand your team in order to supplement your growth.
You can also take a look at your administrative staff to make sure that there isn’t any work duplication. If you’re not using all of your leased spaces to their full potential, consider subleasing a space or a portion of one. You can even rent out any equipment that you aren’t using all the time or consider renting equipment versus buying it. One of the easiest ways to save money is to try negotiating all of your commodity service costs down, like rent and insurance–all you have to do is pick up the phone and ask!
You can save: 5-10%, depending on how efficient you are today.
John’s expensive workspace lease and costly equipment ate up a lot of his overhead costs:
– $ 640 ← Overhead
= ($ 190)
By sharing his space with another company and renting out equipment instead of buying it, John could’ve saved 10% on overhead:
– $ 576 ← Overhead
= $ 830
This would’ve made John’s net profit look even healthier at just over 8%!
4. Errors, Inefficiencies & Unforeseen Delays
Errors, inefficiencies, and delays are often unpredictable. However, there are a few things that you can do to avoid them as much as possible. Download a weather app so that you can cancel in advance if the weather is truly bad. This will save you money on wasted driving time. We suggest using AccuWeather or Dark Sky.
When a customer changes their mind about a project, all of the previous planning becomes wasted overhead. Consider charging them for the last-minute changes to cover the costs of redoing all the work. What’s even worse is when you have to send your employees back to fix a job that they did incorrectly. To save both your reputation and money, you can come up with an incentive to get your employees to complete jobs without having to return. Maybe that incentive comes in the form of Amazon gift cards, or maybe you’ll choose to pick up the lunch bill after fifteen no-return-jobs—get creative with it.
You can save: 3-5%, depending on how efficient you are today.
John’s crew’s faulty water fountain installation cost him a lot of money:
– $800 ← Errors/Inefficiencies/Unforeseen Delays
If he had come up with an incentive to keep workers from returning to fix a job, they might’ve paid closer attention to the installation of the fountain and he could’ve saved himself $800:
– $0 ← Errors/Inefficiencies/Unforeseen Delays
This would’ve given him a net profit of 16%. In other words, he would be in the high end of the profit margin industry standard!
Additional Tips to Increase Profitability
- Upsell your services when you can with easy add-ons.
- View residential jobs as a marketing opportunity to get more jobs in the neighborhood.
- Do a cost analysis before giving a quote to a client to ensure a job’s profitability.
- Track the profitability of each job over the next year. Then, use that data to help improve your company’s profitability.
- Increase your prices to stay aligned with demand. Do so if you think that you can get more money for the service that you’re providing.
As you can see, there are many ways to double—or more than double—your profitability. Don’t make the same mistakes that John did. Use these tips as your profitability bible and watch your numbers grow at the end of the year.