“The critical component to business growth is customer retention. Successful businesses must realize early that it's easier and cheaper to keep a customer than create a new one,” says retired business consultant Walter Fitts of Emerald Isle, N.C. “That, and proper cash flow management.”
Mr. Fitts' advice appears easy enough to follow, especially considering that building a successful landscaping business seems like a basic exercise in hard work and keeping more cash than you spend. The secret to developing a winning approach, however, has evaded many grounds maintenance entrepreneurs. Supporting this is that the banking industry “has realized losses in the landscaping industry,” according to commercial banker, Jerry Thorton at Four Oaks Bank in Clayton, N.C. “There are numerous start-ups with only a handful of profitable survivors.”
As a business owner, you will want to increase your chance of success by incorporating some of the proven concepts of successful grounds maintenance entrepreneurs into your plan to grow your landscaping business.
- Start-up survival
“One of the big mistakes of landscapers is they go out and buy everything new with easy credit from the manufacturers,” says Thorton. “They buy a new $40,000 truck and the most expensive equipment. Next thing you know, they are $100,000 in debt and in over their head.”
Although it is important to have the right equipment, managing overhead — including debt service for equipment — is a difficult challenge for most entrepreneurs.
“I started out with borrowed equipment,” reflects William Dickerson about his days as a start-up, “then I reinvested everything back into the business. The early days were a risky period.” Seventeen years later, Dickerson Landscaping has grown into a premier garden and landscape design firm in Tallahassee, Fla., and includes a nursery, a grounds maintenance division and a retail showroom.
“As a struggling start-up, you could get into cash flow trouble carrying seven-year financing on equipment that only has a four-year life,” says Dickerson.
“To be successful, a landscaper must determine his true costs,” says Fitts. Calculating expenses requires consideration of direct costs like labor and gasoline as well as indirect costs such as insurance, telephone and utilities. “Don't forget to account for depreciation and downtime,” adds Fitts. “Budgeting a project on paper is an area frequently ignored.”
To aid profitable estimating, landscape contractors should incorporate a systemized process for job estimating. Standardizing this process ensures consistency, especially by landscape firms with multiple supervisors. Many systems are based on a square-footage calculation combined with a premium assessment for difficulty of terrain.
“Pricing It Right,” an article by James Huston in Grounds Maintenance (Sept. 2002), provides an in-depth review of pricing and estimating landscape projects.
- Cashflow and collections
“The biggest challenge to growth,” notes Thorton, “is managing the cash flow from job to job. Some jobs may not pay for months, so you have to be able to carry this cash flow burden.”
Dickerson concurs. “During our initial growth, large commercial accounts created cash flow problems. We had to let some of them go.” If you're growing your company, take caution when attempting to expand business via large commercial accounts that are known to pay in 60 to 90 days.
Online university programs such as the Michigan Small Business Development Center provide useful cash flow estimating and budgeting resources. You can visit this Web site at www.misbtdc.org/CashFlowSpreadsheets.asp for cash flow tools.
Invoicing customers immediately is an important aspect of cash flow management. Don't get so tied up in your day-to-day landscaping tasks that you ignore important business issues such as timely billing.
- Residential vs. commercial
Construction contractors can be a steady source of new business for landscape designers, but don't forget that contractors can suffer the cash flow challenges of any business. “That's the beauty of residential, they pay immediately,” says Joel Lerner of Joel Lerner Environmental Design, a 30-year-old landscape design and maintenance firm in the Washington, D.C., area. Currently, Lerner's work is 25 percent commercial and 75 percent residential. Dickerson maintains a 50 percent split between the two.
“Residential is truly where you will make a good living,” says Lerner. “It's much easier to establish a reputation leading to word-of-mouth referrals since relationship building is the key.”
In residential landscaping design, it's typical to require customers to pay one-third or more up front, another third on delivery and the remainder billed upon completion of the job. Landscape contractors with a strong reputation, such as Dickerson, request “40 percent up front just to get the project on the calendar,” Dickerson adds.
For commercial design work, Dickerson maintains healthy cash flow by requesting progress payments.
“I was a ‘mow, blow and go’ guy for 12 years but was never really making enough,” reflected Lerner about his early days in the business. “Then I went back to school for horticulture and landscape design and returned to business with the advice of a marketing guru. Ever since, I have approached the marketing of my business from a higher level.”
This professional approach is key to successful growth, says Lerner. “But patience is required for the pay off.” This “higher level” described by Lerner is a multi-faceted approach based on building customer rapport to create customer retention as well as building value in your expertise as a landscaper.
- Relationship building leads to loyal client base
Lerner's opinion about advertising is that the self-promotional aspect of advertising alone is not optimal. “It's better to make others talk positively about you than for you to talk about you.” Lerner's marketing emphasis is keeping customers happy enough to generate referrals.
“Commercial maintenance is so competitive, and there's no loyalty. As soon as property management changes, it's out to bid again,” observes Dickerson. Like Lerner, Dickerson's major emphasis to supervisors is to establish relationships with customers. “Get out and get to know them. It's hard for your client to fire someone he or she is on a first-name basis with.”
Adds Lerner, the key is “establishing client loyalty built on enduring personal relationships and doing what you say you are going to do, when you say you are going to do it.”
- Building value in your expertise
Anyone can sell on price, but to advance your business away from competing on price, you must identify yourself as a specialist. “Present yourself as an expert in a particular area. Develop a specialty — a hook, a branded identity,” says Lerner. This identity helps distinguish you and your business from the masses. It's what will set you apart. “In grounds maintenance, it's easy to surface as cream by defining a specialty.”
What other marketing techniques help communicate your expertise? Lerner recommends taking advantage of speaking and presentation opportunities. “The key is to teach others: It showcases you as a professional and an expert.” He frequently addresses garden clubs, public gardens and continuing education programs. Talk to similar organizations in your community to get on their speaker lists.
- Marketing tools
Dickerson and Lerner maintain Web sites showcasing samples of their impressive design work and reference letters. Dickerson conducts customer surveys twice annually and also distributes a quarterly newsletter.
Your crew and vehicles can also serve as marketing tools. Professionally maintained uniforms and vehicles with professional signage are important items as well.
Developing and maintaining a professional work environment is necessary to reduce employee turnover. As important as retaining customers is the need to attract and retain good employees. This kind of employee requires a professional work environment.
Dickerson recommends on-going employee training, regular staff meetings and an up-to-date employee handbook as the necessary tools to fostering a professional work environment. In addition, Dickerson reviews and revises business goals with the support of his crew supervisors. As a team, they assess potential blind spots in the business and what they can do to avoid them.
“I also introduced an open-book management policy three years ago,” he notes. Open-book management reveals the financial details of a company to employees and provides the opportunity for their buy-in and input on managerial decisions by giving them a clear view of the finances.
THE SECRET TO GROWTH: THE NEXT LEVEL
According to Dickerson, the biggest challenge to growth is establishing and maintaining a minimum level of quality that is consistent despite employee turnover. Policies, structure and a professional environment with a motivated management team are required to create this consistent quality.
And the second biggest challenge? “The second biggest challenge is convincing customers that you have this consistent level of high quality,” says Dickerson.
At some point in the life cycle of a growing landscape company, the “next level” often seems elusive. Many struggle to a certain point and plateau. According to Dickerson, at a certain level, “growth will only occur when you are able to delegate — when you can step back and develop a system to better manage and grow.” The creation of a management team — a team of supervisors — allows you as owner to set and maintain quality standards.
In the daily grind of work, business owners often overlook the big picture. Dickerson says the introduction of such a team enabled him to step back to examine his business and work harder at growing it.
YOUR PLAN FOR MANAGED GROWTH
Successful business growth requires a careful balance of focused marketing, careful estimating, cash flow management and a professional work environment. Quality, too, is an important element of your work.
Manage your cash flow, collect what you're owed in a timely manner, balance commercial and residential projects, work to retain your loyal customer base, market yourself as an expert, keep trained employees and build a strong, motivated management team, and you will master the art of managing business growth.
Lenzie Harcum is program director of the Small Business & Technology Development Center (SBTDC), a business management program at the University of North Carolina (Chapel Hill, N.C.).
If you want additional information or have specific questions about building your business, you can turn to the following sources of information.
You can find a business development guide to managing growth and business planning at the University of North Carolina at Chapel Hill SBTDC Web site: http://www.sbtdc.org/quick_faqs/faqs.asp.
How to Price Landscape & Irrigation Projects by J.R. Huston. For more information on the products and services offered by J.R. Huston Enterprises (JRHEI), call 800-451-5588 or e-mail JRHEI at email@example.com.
Landscape Professional's Marketing & Sales Sourcebook by Joel Lerner.
Joel M. Lerner Environmental Designs, http://www.gardenlerner.com/.
Dickerson Landscaping, www.dickersonlandscaping.com.
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