Information and accountability in the workplace

July 2, 2014 -  By

My partners and I gather the financial data from many of our clients nationwide, dump the information into a big cauldron, stir it around and run some interesting benchmarks to provide you a report card about the successes of 2013.

This year we isolated the predominately landscape maintenance firms—30 of them—totaling $251,481,724 in annual volume for fiscal 2013. The range in volumes was $3.9 million to $28.5 million. We eliminated from the survey those firms both below and above this range to enhance the statistical sampling.

A few things will strike you about the chart below. First, our sample had revenue growth of 11.1 percent from 2012 to 2013, but more to the point, net profits increased nearly 24 percent from 6.53 percent to revenue to 8.09 percent. Now, that’s impressive!

The 50,000-foot view of what’s going on with the above performance is 1). volume grew by 11.1 percent as we discussed earlier—that’s nice, but 2). gross margin increased as well from 51.47 percent to 52.26 percent. Now, while that’s only about a 1.5 percent increase in margin percentage, it’s a 12.8 percent increase in margin dollars, which is very impressive. The looming question is how come?

This was an achievement not driven by price increases or efficiencies (remember, we know these companies intimately). Rather, it was driven by eliminating the losers in the portfolio. Know this: Volume is not a sacred cow. Every job in your portfolio must be graded against a predetermined benchmark, be it margin generation or revenue per hour. I personally prefer the latter, but whatever you choose, grade each job’s performance and eliminate the losers. This may surprise you, but our experience when looking at a new client’s portfolio for the first time shows on average more than 25 percent of his jobs are losers—losers! We look at that as an opportunity, and you should, too.

Back to the numbers. Overhead as a percentage of revenue declined in value (44.91 percent vs. 44.17 percent), but in dollars it actually grew 9.2 percent. This is a good trend. Any time overhead growth in percentage is less than the percentage of revenue growth, good things will likely happen. And, if your margin percentage is increasing against overhead’s percentage decreasing, it’s guaranteed that good things will happen. Evidence the bottom line. Net profits grew 23.9 percent in percentage to revenues, but a whopping 37.6 percent in dollars.

A day doesn’t pass that we’re not asked what higher profit companies do to stimulate their bottom line. What makes them different than me? Two words: information and accountability.

All the predominantly maintenance firms in our survey have very detailed information systems. Information systems that cycle daily, weekly and monthly. Information that’s embraced by all levels of management because it provides the scorecard of how each of them is performing.

A few popular benchmarking reports are daily labor efficiencies by route; billable hours vs. total hours paid; job cost information comparing estimated versus actual costs versus estimated costs to complete the job; and a rolling budget monitored and scrubbed monthly to recognize current events and changes in course for the year.

Ask yourself: If you had this kind of information at your fingertips, could you hold your people accountable for achieving goals you all agree should be accomplished? Would your people embrace their goals, strive to surpass them and in the process become much better at what they do? Lastly, does it scare you that you have to compete with companies who are this good at what they do?

Income Statement Comparison – 2012 vs. 2013

2012 2013
Net Profits   $14,781,016 6.53% $20,344,869 8.09%
Total Revenue $226,355,532 100.00% $251,481,724 100.00%
Gross Margin  $116,505,194 51.47% $131,424,348 52.26%
Overhead  $101,724,178 44.91% $111,079,479 44.17%

 

About the Author:

The author is owner-manager of 3PG Consulting. Reach him at frank@3pgconsulting.com.

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