Making the most of a labor force

July 23, 2018 -  By
Man trimming hedges

Cut back Serpico is reaping the benefits of trimming low-margin accounts from its portfolio.

Based in the San Francisco Bay Area, Serpico Landscaping has struggled to hire people—due in part to the region’s economic growth that has created some of the highest wages in the country. President Peter Novak says hiring and retention have been challenging for many years, but the struggle has intensified over the last several years.

“Demand has driven wages way up,” he says, noting the company pays $16-$17 per hour for even an entry-level laborer. “Eventually, even if you do all the normal things for recruiting, you still tap out.”

The Hayward, Calif.-based company’s business is 64 percent mowing and landscape maintenance, 20 percent design/build and installation, 9 percent irrigation and 7 percent tree care.

Last fall when planning for 2018, Novak and his management team decided to stop fighting the tough labor environment and embrace it instead. Rather than continually adding new accounts, expanding their footprint and offering more services, they decided to focus elsewhere—on improving their profitability.

“After reviewing gross margins on our accounts, we saw there was an opportunity to do some hard pruning and to prune out the low-margin accounts, remove them from our portfolio and reallocate that labor toward higher-margin work,” Novak says.

The goal is to improve the overall profitability of the company. The byproduct of this effort is “finding” workers among the people the company already employs.

The management team decided it would “take the hit” and terminate several undesirable accounts from each of its four locations in March, then gradually add back more profitable accounts over the course of the year.

Serpico, which did $10.6 million in 2017, expects to grow about 6 percent in 2018, even with the strategic revenue reduction in March.

How they did it

There are two reasons to terminate accounts, in Novak’s view.

Man and sprinklers

Lower stress Serpico’s labor reallocation relieved some of the pressure that comes with hiring during the busy season.

“No. 1, if it’s a toxic account or No. 2, if the margins are very low and we could reallocate the labor and be instantaneously more profitable,” he says.

For its maintenance accounts, Serpico has contracts with 30- or 60-day termination clauses, so the company told the clients it was dropping in January and February that their contracts would end in March.

Prior to doing so, the management team worked with branch managers and account managers to identify which accounts they would let go.

“Once we briefed them on our intentions, they were able to kick their ideas over to us, and we did an analysis to prove which were the lowest-margin accounts,” Novak says. “Involving them in that process got their buy-in and got them ready when the time came to reallocate the labor.”

It’s still early, but the results have been good so far, Novak says.

While this tactic hasn’t solved the company’s labor challenge 100 percent, the company did free up several full-time equivalent employees in each location, relieving the pressure to hire in the busy spring.

“I’m not sensing the team is having many of the same stresses as other years,” he says. “Those folks were already here and working for us. We didn’t need to recruit for them.”

Additionally, they didn’t have to onboard or train them.

“We didn’t need to do any of those initial things you’d do with a new recruit,” he says. “It’s as simple as making a scheduling change.”

The process also required setting parameters for future maintenance account sales. Novak set a target gross margin range the company must achieve on new maintenance work the team bids.

“It’s really about whether a property is right for us,” he says. “We know who we are and what we do, so it’s about finding our target client who is going to be a good partner with us.”

Advice for others

When it comes down to it, landscape companies should be in business to be profitable, Novak says.

“Low bidding accounts at a zero margin or at a loss just to get market share—I don’t know that that’s going to be a winning strategy for anybody out here,” he says. “I encourage anybody looking to maximize the efficiency of the talent they have on board to measure their maintenance accounts.”

Maintenance accounts are like an annuity, he points out, but that’s only a good thing if they’re sold at a good margin.

“Know the gross margins for all maintenance accounts,” he says. “That means knowing labor, revenue and materials for each account.”

Though Serpico’s labor reallocation has been focused on maintenance, Novak says this approach can apply to any kind of landscape work—irrigation, enhancements, tree work and more.

“The No. 1 expense is labor, No. 2 is most likely fuel and No. 3 is materials and debris or refuse costs,” he says. “Anybody who’s in this business and not paying attention to those things is probably not going to be in business for long.”

Fuel solution

One shift Serpico Landscaping made several years back increased service time and prevented employees from being poached by competitors.

“People would walk up to them at the gas station and say, ‘We have an open position and if you show up tomorrow, we’ll pay you a dollar more an hour than what you’re making,’” President Peter Novak says.

The change? The company stopped sending crews to gas stations and instead hired a mobile fueling company that tops off all vehicles and gas containers on-site several times a week.

The main reason for the change was the result of a study Serpico’s management team did on nonproductive time. It measured the time employees spent driving to the gas station, filling up and getting drinks and snacks every morning for several months.

The average was 30 minutes or more of nonproductive time spend fueling up per route per week.

“If there are two or three guys in a truck, you can do the math,” Novak says. “It adds up fast when you have 80 crews.”

By hiring the mobile fueling firm, Serpico’s cost of fuel remained flat, but there was a big savings realized in the time reinvested back into the routes and a reduction in employees being approached at gas stations by competitors, he says.

Photos: Serpico Landscaping

About the Author:

Marisa Palmieri is an experienced Green Industry editor who's won numerous awards for her coverage of the landscape and golf course markets from the Turf & Ornamental Communicators Association (TOCA), the Press Club of Cleveland and the American Society of Business Publication Editors (ASBPE). In 2007, ASBPE named her a Young Leader. She graduated with a Bachelor of Science in Journalism, cum laude, from Ohio University’s Scripps School of Journalism.

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