In the November Lawn & Landscape Benchmarking Your Business issue, we discussed the importance of monitoring your backlog at the beginning of the year. However, to make this exercise meaningful, there first has to be an annual sales budget to track against and compare to.
Once the budget is in place, you then have a meaningful target to shoot for.
I like to establish a preliminary budget for my clients in July or August for the upcoming year. This budget should be finalized in late December or early January.
I have developed a bid board in MS Excel that my clients use to track key data to help them monitor their business throughout the year in relation to their budget. You can use the bid board concept to track almost any type of work.
Benchmarks. Here are some benchmarks for some of the categories listed in the box to the right that you might find useful.
Commercial installation companies/divisions* should start monitoring their backlog in August or September for the upcoming year. They should strive to have sold one 1⁄3 to 1⁄2 of their annual budget by January 1. Bids won usually range from 10 percent to 20 percent of work bid. Sales per hour usually run $85 per man-hour (+/- $10) depending on the material intensity of the work bid.
The GPM** in a normal economy for such work ranges from 20 percent to 30 percent. You should bid negotiated work high – in the mid to high 20 percent range – and negotiate down. Low-bid-take-all work should be bid in the low 20 percent range.
Residential installation companies/divisions*** should start monitoring their backlog in November or December for the upcoming year. They should strive to have sold as much work as possible by January 1. However, due to the nature of residential work, most residential installers have a minimal backlog on the first of the year. Bids won usually range from 30 percent to 60 percent of work bid. Often it is much higher. Sales per hour usually run $75 per man-hour (+/- $10) depending on the material intensity of the work bid.
The GPM in a normal economy for such work ranges from 30 percent to 40 percent. Smaller jobs under $10,000 to $20,000 should be priced with a GPM near 40 percent, while larger jobs – ones more than $20,000 – should be priced a little more aggressively near 35 percent.
Maintenance companies/divisions should start monitoring their backlog in the fall for the upcoming year. Non-seasonal companies / divisions should strive to be 80 percent to 90 percent sold by January 1.
Seasonal companies/divisions should strive to be at this level by mid-February or March. Bids won usually range from 10 percent to 20 percent of work bid for commercial work and 30 percent to 60 percent for residential work. Like bids won, sales per hour varies dramatically depending upon the geographical location of the company.
Non-seasonal companies usually see sales per hour near $25, while seasonal companies usually see it at $35 to $55. The GPM for both commercial and residential maintenance work is normally at 35 percent.
Another benchmark to track is enhancement work. This is the work generated from maintenance contracts. Many companies target billing 25 percent above the amount of the contract for such work. You should monitor this figure for your company and set revenue goals for it.
How it works. I’ve been working with and monitoring Salmon Falls Landscaping in Berwick, Maine for more than 25 years.
The staff there has been using the bid board concept for about the same amount of time. Mark Pendergast, president of SFL, is the one who got me to focus on keeping things simple and measurable.
I remember him telling me, “I focus on backlog and production. Are the crews working efficiently and do we have plenty of work in the pipeline?” From that evolved my three-fold mantra: Price it right. Produce it right. And produce enough of it.
John Sheldon, chief estimator at SFL, at any time of year can tell you exactly what the backlog is, what bids are pending and what he needs to sell to meet budget. He also knows where his GPM needs to be to win work. John is so good at bidding that I jokingly say that he can sneeze and produce a $250,000 bid.
* Commercial work is done for a general contractor, builder, homeowners’ association
** GPM is calculated by adding general and administrative (G&A) cost in a bid to the net profit margin (NPM). GPM does not include field equipment and trucks (usually 10 – 14 percent).
*** Residential work is done for a homeowner.