Ten Keys to
High Profits
This is the first of a two part series.
By Kevin Kehoe
A survey of high profit companies
shows that they all excel to some extent at ten
key business practices. In this first of a two part
series we outline the first five of these practices.
1. GET YOUR NUMBERS RIGHT:
Start by having the right chart of accounts and
accounting processes. The ALCA Cost Study and our
standard Industry Benchmark Study are examples of
the right way to account for a landscape business.
If your numbers are inaccurate, you will never know
where you need to improve to increase your profits.
Make sure your accounting is up to date.
2. KNOW YOUR COSTS AND KEY
RATIOS
Once you have the right numbers, then use key ratios
to target strengths and weaknesses. Examples of
key ratios include the labor utilization rate, the
overtime hour rate, the labor realize rate, the
contribution rate, the asset turnover rate, and
the return on asset rate. Compare your ratios to
high profit companies to isolate your profit problems.
3. CHARGE THE RIGHT PLACE:
First, develop a basic per hour labor rate using
your costs and the ratios. Second, incorporate the
hourly rate into an estimating model that uses tasks
to determine labor hours. Third, develop standards
for the top 20% of your most common tasks to speed
up the bidding process. There is practically no
way to make a profit if your pricing model is "under-recovering"
your costs.
4. LOSE LOW PROFIT JOBS AND
ACCOUNTS:
It's the customer who ultimately decides if the
price is right. However, you must decide the best
customer for you. Use the 80/20/30 analysis to rotate
out the bottom 30% of low profit customers at least
once every two years. They drain profits and cloud
your marketing focus. The easiest way to rotate
out is to raise your price and increase your average
job size.
5. MANAGE EXTRAS AND CHANGE
ORDERS:
Does this scenario ring a bell? You respond to a
client request, do the work, pay for labor and materials,
and either neglect, or are unable to bill for the
work. Couldn't you just kick yourself? Contract
management of all "out of scope" or "additional
requests" must be managed by the Account/Project
Manager, and reviewed by Administration to assure
proper billing. Phantom billings are big place where
profits disappear.
INDUSTRY BENCHMARKING STUDY
Please go to our web site www.kehoeguido.com
to participate in our industry wide survey. When
you are at our home page, just click on "Green
Industry Research" and click to download the
survey.
NEXT TIME IN THIS NEWSLETTER:
Part two of our top ten list of practices
of high profit companies.
News
and tips for contractors to help you make more
money.