Are you selling a commodity or a service?

November 29, 2021 -  By
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Are you selling a commodity?

Before you answer with a no, let me tell you a story.

I was speaking with a client who said, “You know, Greg, when it gets down to it, the landscape business is just about selling hours.” I remember that conversation like it was yesterday.

This opinion reflects the reality that many landscape companies get beat down on price. However, is the design and horticultural experience of a landscape company’s employees worth nothing?

The view of “selling hours” is one of the causes of companies getting beat down on price. It is also a reason the average landscape company’s operating profit margin is only 5 percent. There are many companies above and below that average.

Selling a service, not hours

In our annual benchmark report of landscape companies, the top 15 percent of companies have an operating profit margin above 10 percent and do so consistently. I know the owners of many of those companies. They are not selling hours. Those companies have found a type of customer who pays for what they do best, or they have found services that are much less price competitive in their markets, or both. In other words, they are doing something that others are not doing.

The book “Simplified Strategic Planning” by Robert W. Bradford and Peter Duncan contains three powerful questions:

  • What do you sell?
  • To whom do you sell it?
  • How can you beat or avoid the competition?

The first two questions appear simple to answer. However, a company’s management team will be rewarded by brainstorming many possible answers to these questions. Let the creativity flow.

What do you sell?

If you are a below-average profit landscape company, you sell hours. If you are an average profit landscape company, you sell landscape construction or landscape maintenance services — or both.

If you are an above-average profit landscape company and construct residential landscapes, you might sell the design experience, the construction experience and testimonials (nightmare stories abound) and the memories that will be made living in the landscape once completed.

If you are an above-average profit landscape company and maintain the landscape of commercial properties, you might sell comprehensive landscape management that creates certainty in results while minimizing the time required of the property manager. What property manager would not like less work to do?

To whom do you sell it?

Will every homeowner pay more for experiences and memories? No. Will every property manager pay more for fewer landscape hassles? No. But some will.

Finding those who will is the purpose of answering the second question. Good job-cost software will help you answer that question by showing which customers were most profitable and which customers were least profitable.

How can you beat or avoid the competition?

Answering this question is difficult in an industry where the barriers to entry are low.

As I observe high-performing companies, I see highly capable people in management teams. Highly capable people require compensation well above industry averages. Creative incentive plans help retain people and ensure that above-average performance is rewarded with above-average total compensation. This type of incentive plan could be part of how your company beats the competition.

I continue to be amazed by one statistic in the industry: Only a small minority of landscape companies use powerful software to manage their businesses and accumulate incredibly valuable data to help them answer these strategic questions. I suspect that many owners focus on the cost of the software rather than the value.

Even fewer companies have strategic financial leadership. The thinking in this column is an example of strategic financial leadership. Like technology leadership, this service can be outsourced. Technology leadership and strategic financial leadership can help a landscape company beat the competition.

Answering these three strategic questions should be an annual process as management teams start thinking about next year.

Greg Herring has served as a CFO of both public and private companies. Greg is the CEO of The Herring Group, an operational and strategic finance consultancy. He has significant experience in the landscape industry, where he serves business owners challenged by growth by installing financial dashboards and systems that provide more margin for their businesses and their lives.

This article is tagged with , , , and posted in Expert Insights, Featured, November 2021

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