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Your performance in the final quarter of 2020 will have an oversized impact on how much net profit your company earns this year.
Weekly throughput
Weekly Throughput is the main driver of net profit in the final quarter, i.e., the amount of billable production work your company can produce (put through) each week.
Here is why this is so important: Even though you estimate for net profit with each and every sale, starting with your first sale in January, the fact is that all the profit from those sales goes toward covering your overhead (OH), until all your overhead is paid for. Once your overhead is covered, you have reached what accountants call your breakeven date.
Once you hit your breakeven date, all the profit you then make from every sale goes straight to your bottom line. Not only the net profit, but also the operational profit (that previously went to pay for overhead) now goes straight to the bottom line. This date is generally hit right before or in the fourth quarter.
Operational margin
My high-performing clients are able to achieve an operational profit margin in the upper 30 percent, some even up to 45 percent, depending on the type of business they are in and how long they have been working with me on continuous improvement. If your operational margin is, for example, 40 percent, then after you hit breakeven, every dollar that gets produced will put approximately 40 cents toward your bottom line and even more given that some of your operational costs are fixed.
To this end, the more sales that your team can produce and bill in this final quarter, the more net profit you will ultimately earn.
Conversely, if you have too many hiccups this fall, you put your net profit at risk.
Ways to boost your weekly throughput
1. Keep salespeople motivated to continue selling strong up through December. Use situational and year-end incentives to keep up the selling momentum. Having an increased backlog puts positive pressure on the crews, so they have more than enough work to chew through.
2. Decrease the nonbillable time (morning, travel, deli and gas stops, evening) so more time is spent on billable work.
3. Eliminate the unnecessary go-backs needed to complete a job by ensuring crews are properly equipped and dispatched, with trucks and tools operating smoothly.
4. Ask crews to be flexible in bad weather, so you can hit your weekly throughput goals.
5. For those who pay overtime (OT), use it to get your extra backlogged work done; the incremental cost of OT will be more than offset by additional operational profit that will drop straight to your bottom line. Do the math!
6. Sell more fall and winter add-on services. Remember, you can sell enhancements at a much higher margin than your standard work anyhow, so it is a double win.
7. Avoid lower margin install work but take it only if you can be guaranteed that doing it will not displace other high margin work.
8. Walk every maintenance property and sell them services to be done as soon as possible (and in the spring.)
9. Find extra work that can be performed by crews already on maintenance properties.
10. Sell holiday decor now to be done this fall. This should be very high-margin work!
11. Sell fireplaces and hardscapes to be done now (and during the milder winter.)
12. Raise your 2021 hourly rate right now in and apply it to your fall work. Who says you have to wait until January to raise rates?
13. Deliver your holiday presents to clients early (now through Thanksgiving); and they will likely give you more work to take care of.
14. Incentivize your crews to increase their weekly throughput. Make crews accountable for their weekly production goals, and motivate them to be as efficient as possible. Share the winnings when they sprint through the finish line.
15. Create fun weekly internal competitions for crews to outperform their peers. Use forced ranking each week to show the winners.
16. Borrow or rent equipment to increase the amount of work that can be produced in a given week. Make use of equipment to increase your throughput.
17. Keep your company vision and purpose front and center. In the end, people are motivated by a higher purpose and not just a paycheck. So show them the greater virtue of following through on your client promises and giving your clients the beauty that only you can provide.
Connect the dots
Many employees may not immediately grasp how sprinting through the finish will benefit them and their family. Take the time to explain it to them by connecting the dots on how it benefits the company and how it benefits them directly. Using an incentive plan on its own is not enough. You have to explain the details and what’s in it for them.
Your challenge
Pull everyone together and explain to them which day in your calendar you hit breakeven and how the production during the fourth quarter will help the company hit and beat its year-end profit goals, thus benefiting everyone.
Make it a rally cry, make it fun and celebrate the wins!
About the Author: Jeffrey Scott
Jeffrey Scott, MBA, author, specializes in growth and profit maximization in the Green Industry. His expertise is rooted in his personal success, growing his own company into a $10 million enterprise. Now, he facilitates the Leader’s Edge peer group for landscape business owners—members achieve a 27 percent profit increase in their first year. To learn more visit www.GetTheLeadersEdge.com.Subscribe to Landscape Management
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