7 strategies to get to 20% net profit

Jeffrey's Pricing Pyramid (illustration: epic_fail/iStock / Getty Images Plus/Getty Images)
illustration: epic_fail/iStock / Getty Images Plus/Getty Images

What are your long-term strategies for growing both your profit and revenue?

It’s critical to keep up with the latest and best strategies to improve your financials. The landscape industry average might be 5 percent net profit (NP), but better companies hit around 10 percent, and my best clients exceed 20 percent. Becoming the best requires a totally different kind of thinking — be strategic, be bold! Try these seven strategies.

Jeffrey's Pricing Pyramid (illustration: epic_fail/iStock / Getty Images Plus/Getty Images)
illustration: epic_fail/iStock / Getty Images Plus/Getty Images

1. Budget based on hours. First, the foundation for making money requires that you correctly assess the number of hours you will bill and the number of nonbillable hours you will pay for. A good starting point is three to five years of historical data, by division, of the hours you can expect to bill and pay for each month. Use realistic assumptions, and success becomes easier.

2. Become king of the mountain. To enjoy price flexibility and higher profits, you need to eliminate or reduce the competition. To do this, you must choose a niche where there are fewer competitors and then aim to be the biggest and the best in that niche, i.e., become king of the mountain. When you have figured out your niche, you can pour marketing dollars on the fire.

3. Sell only to green light customers. As you speed up growth, you need a sales process that filters for green light customers. This is my term for clients who believe what you believe and want what you sell. By contrast, the red light customers do not believe in you and want to shop or change what you sell so they can save money. It’s key to protect your salespeople’s time and psyche and thereby increase both sales and margins. How well do you do this now?

4. Aim higher with your pricing. The mathematical truth is to end up with 20 percent NP, you need to price many jobs at higher than 20 percent. Follow my guidelines outlined on my pricing pyramid (see figure). You apply a much higher net profit to the smaller jobs, where it’s easier to sell fast and produce fast. By combining sales speed and a savvy markup strategy, you are on your way to 20 percent.

5. Manage by profit centers and product lines. Achieving 20 percent NP companywide requires each division to be optimized. First, you must operate within accountable profit centers with separate profit-and-loss statements. Then, analyze each product you sell in that profit center and micromanage the gross margins you expect to earn.

6. Make winning fun. Everyone loves to play and win games. Turn your daily and weekly operational goals into a game. Teach your crews the rules, how to keep score and how to win. Then celebrate and reward the winners. By gamifying your business, you can show your team how to play to win!

7. Be courageous. Getting to 10 percent NP takes hard work. Getting to 20 percent takes imagination, courage and self-worth. Build a habit of making courageous decisions and surround yourself with people who will get you there.

Fortune favors the bold. Your long-term fortune depends not on comparing yourself with industry averages, but rather on striving to make your mark. I believe in you. You can do this!

Let me know which of these strategies work for you.

Jeffrey Scott

Jeffrey Scott

Jeffrey Scott, MBA, author, specializes in growth and profit maximization in the Green Industry. His expertise is rooted in personal success, growing his own company into a $10 million enterprise. Now, he facilitates the Leader’s Edge peer group for landscape business owners. To learn more visit GetTheLeadersEdge.com

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