Landscape Management, October 2010

ILLUSTRATION BY ISTOCK INTERNATIONAL INC BUSINESS PLANNER 2011 STRATEGIC SOLUTIONS Better understanding direct costs can mean more money from existing and new business BY JAYME BROUDY LANDSCAPEMANAGEMENT NET OCTOBER 2010 78 MATERIALS L B O R GROWTH GOALS 1 Improve labor scheduling to reduce overtime and travel time 2 Set up systems to eliminate waste and produce better results 3 Review purchasing agreements and vendor relationships to ensure the best deals S oon after the recession hit I received a fl ood of questions about how to survive the recession My advice was Since you cant control the revenue work on becoming more competitive by implementing better systems and business processes Some owners took my advice and some didnt Now as things are stabilizing a bit guess whos winning the battle for new business and returning to profi tability soonest There are certainly areas where bidding wars are raging and profi tability is suffering but the effi cient businesses can price lower burn less cash and will eventually wear down the competition and emerge victorious So whats this got to do with building revenue Revenue alone doesnt feed the bulldog business is about profi tability not revenue alone and since you have more control over your internal costs than you do over the markets gyrations it makes sense to pay serious attention to your internal costs For every point of cost you can take out and a point means going from 35 to 36 of revenue its a point you can use to either increase profi t in your pocket or reduce your prices and still maintain income The place to push hard is in direct costs meaning the materials and labor used directly in producing your products or services Reducing these costs means youll make more money from both your existing revenue stream and all the new revenue thatll come in as things improve A two point increase in gross margin percentage for a 500000 business will create 50000 in your pocket over fi ve years not too shabby A 1 million business will see an extra 100000 even less shabby And there are plenty of businesses that are leaving fi ve points of gross margin or more on the table but they wont for very long if theyre still around at all How can you make this happen Look at projects that will improve operating effi ciencies like Better labor scheduling to reduce overtime or travel times Detailed procedures that let people produce better results and less waste fewer callbacks etc Tougher purchasing arrangements your suppliers are in the same boat as you are they need business I like to attack direct costs fi rst because of the leverage involved but that doesnt mean indirect costs shouldnt be examined as well A mistake that gets made here though is mistaking investments for expenses and throwing the baby out with the bath water Systems development costs that produce ongoing returns marketing efforts to maintain and increase revenue and other things with payoffs are not expenses theyre investments and in the case of systems standalone work are actually going to end up improving margins so theyre doubly important Dont lump these things together with offi ce supplies and truck washes Does this mean you should stop chasing revenue Absolutely not Aggressive marketing is more important than ever and marketing fi rms are becoming far more results oriented than ever before meaning theyre more willing to be compensated based on whether their activities actually bring more business in the door And when business is fl at its especially important to maintain and increase your visibility so think hard before reducing marketing spending It seems the worst is over or at least its not getting much worse and nows the time to grab the business thats starting to re emerge Were seeing a buyer whos very conscious that you need his business more than he needs you so being able to produce the highest possible quality at lowest price is more important than ever LM broudy is a small business consultant with Contractors Business School Before that she was a part of Michael Gerbers Gerber Business Development Corp Reach her at www contractorsbusinessschool com Go direct