Subcontracting: More service can mean more sales
Branching out your services is a growing idea, but is it right for you? It's becoming a common situation: your client is happy with all the services you've been providing, but is growing tired of dealing with the variety of contractors that are needed for the numerous jobs. They want you to do it all.
What's that you say? Put in goal posts, spray chemicals, install fountains? There are no specialists who can do that at your company. You don't have time or money to buy equipment and learn the various trades. And you want to keep the client happy.
Hiring subcontractors to satisfy customers and maximize revenues is becoming more common, and can be the key to expand marketability for companies that are able to meet their clients' needs. Subs may also be your key to finishing a job on time and providing a special niche to your clients.
Chances are, if you don't take on these subs, one of your competitors will. And with many more companies being able to maximize the number of services they offer in order to keep up with competitive pressures of business, can you afford not to? Find out if subbing is right for you and, if it is, how to do it right.
Quality subs When a subcontractor is sent out to do a job for your client, your company's name is on the line. If you're going to hire a sub, professionals say that you should ensure he or she is qualified and able to reflect well on your company.
Dennis' Seven Dees Landscaping keeps a record of qualified contractors they have worked with and interviewed over the years. Account Manager Dan Nord finds that this reputable list of subcontractors he can count on ultimately gives the business more credibility and commitment for future contracts.
Contractors looking for good candidates usually evaluate them through a detailed interviewing process before they are considered. Safety ratings, insurance and references are commonly looked at by Dennis' Seven Dees Landscaping when checking out potential subs. Their subs also are given an advance sample of the legal contract they would sign if hired.
Some larger companies, such as OneSource Landscape and Golf Services in Tampa, Fla., utilize a computer program to ensure applicants are qualified. A candidate is interviewed by a member of human resources, then asked to complete a survey that is entered into a computer program. This program generates a 50-page report on what the potential employee is good at, how to manage that person and what their likes and dislikes include.
Safety and liability The landscape industry is under a great deal of scrutiny concerning safety standards. Before jumping into any subcontractor relationship there are many considerations to keep in mind. If your company doesn't emphasize the importance of safety, your workers compensation rates can go sky high, your contract could be cancelled and you may even lose your business. And no company wants to receive the dreaded call from the client (or even worse an OSHA official) reporting that their subcontractors weren't wearing the required personal protective apparel or using equipment properly on a job.
Hiring subs requires taking the risk of upsetting a client because of someone else's mistake. Insufficient training or poor communication can lead to mistakes. This is why OneSource invests time and money to train their employees. All employees who pass an industry-related class are reimbursed. In-house training and seminars are offered periodically, and many of the company's managerial staff members use help books and software designed specifically to improve their time-management skills. Ron Schmoyer, president of OneSource emphasizes the importance of participating in professional industry organizations that offer information, news and education about industry issues. "We're involved with many industry organizations," he says. "And for many of them, we serve on a committee or boards. It's important to stay involved."
To sub or not to sub? A company can increase its capability through the use of subs. Increased sales without the increase in payroll, equipment or other overhead is one reason why this service can work to increase profits. These services can include jobs involving swimming pools, fences, electrical work, concrete, excavation, carpentry, painting, paving, plumbing, irrigation and whatever else a clients needs. Subs fill in to help meet deadlines and workloads, which can allow a company to stay on schedule. Flexibility is another advantage of hiring subs, which is often cited by companies that are not always involved in year-round work. When work slows down, so can the use of subs.
Kurt Kluznik, CCLP and president of Yardmaster, Inc., finds it beneficial to utilize subs when handling projects that are a greater distance from home base. Considering the costs of travel time - and even overnight and food allowance expenses - the use of subs can be more effective than doing work in-house. The company commonly hires subs for such services as field mowing, lawn-care applications, irrigation, tree work and pond maintenance. Even though many of these services can be done in-house, Kluznik finds it more convenient and profitable to sub out. This allows the company to concentrate on its core competencies, especially during the peak seasons.
"The caliber of person it takes to operate a spray route can produce triple the volume of supervising a crew of operators," says Kluznik. "We can replace the lost margin on the lawn care easily - and then some, which makes good business sense in my book. When one of our sites has weeds in the turf, we get to make a phone call to correct it instead of dispatching our own crew."
Although there are many advantages to working with subcontractors, sometimes it is more beneficial to offer services in-house. Dean Snodgrass, vice president for Dennis' Seven Dees Landscaping, says that the decision should be a matter of frequency. How often are you asked to provide a particular service?
"If you're doing something often enough, it's worth looking into bringing it inside the company," he offers. "Sometimes, companies are even able to hook up with past employees who want more flexibility and have established a good working relationship at the business. You already know that person is reliable. In this scenario, both parties can win."
But Snodgrass notes that you may be compromising if you bring a service into the company that you only perform occasionally, because you're not able to invest in the latest and greatest equipment like the specialist can. "Subcontractors who practice their specialty all year long are better and more efficient then you can be," he says.
Staying in check One of the reasons to hire a sub is also one of the difficulties: You don't have the experience or qualifications to predict or evaluate the expected outcome. You're relying on them to finish a job with your company's name on the line. And just because you're hiring out another company to do a job, it doesn't mean you don't have to worry about them or supervise their work. As a general contractor, you're still responsible for the work they perform.
Some guidelines to follow to ensure their productivity include visiting the job site at least every other week and maintain frequent communication. This is a great way to see what is going on. Are the plants thriving? Are any trees dead? Coming in to monitor the job every other week to make sure these problems aren't going on will keep your company in check.
Kluznik maintains that supervision and frequent, timely communication with your subs goes a long way to create a productive environment for your company. And, when dealing with a fledgling company, it's only ethical to make sure they don't short themselves when it comes to pricing the work. For example, if the sub doesn't have a chance to make a reasonable profit, they're unlikely to be around for long - maybe not even long enough to finish the project, Kluznik says. "Since many smaller subs depend on quick payment to survive, chances are your work will take precedence if you pay well, meaning priority scheduling and less hassles," he says.
Marketing tools Providing clients with everything they need under one roof can make your company valuable and convenient. Kluznik says not only does contracting allow his company to keep control of a project, but it increases his profit through the mark-ups. "It's a marketing tool to be able to offer a wider range of services to our clients without incurring all of the costs of maintaining the same expertise under our roof," Kluznik notes. "By doing this, we build relationships with subs who frequently refer us to work or invite us to work with them on projects as well," says Kluznik. "It has become a nice little network where everyone wins and the roles may change from job to job."
The bottom line Subcontracting may be a profitable way for a business to expand its capabilities and keep clients happy, but some companies can get into trouble by taking on too much. Success depends on circumstances such as mark-up, quality of the sub, clarity of the contract and scope of work.
Snodgrass says that the subcontracting margin is typically small, but it's extremely important to service all of your customers' needs as much as possible. "Every time you turn a customer away, you could be turning them toward a competitor who is willing to provide these services," he notes.
Kluznik finds that profits are usually influenced by the way a sub handles the job. "If you end up cleaning up after the carpenters, disposing of their debris, repairing the damage to the landscape and cleaning the oil stains on the driveway due to their leaking truck, you might wish you had been more specific in your agreement or had a larger margin," he says. "If the irrigation sub possesses good customer service skills and walks your client through their new irrigation system, and is so neat that you have to look twice to make sure his crew was there, then the chances of making a profit are good."
A happy client Some contractors compare the relationships formed with subcontractors to that of the company's relationship with its clients. Both are important for success.
Getting to know your clients and learning their true goals as well as how to achieve those goals is what most contractors strive for. Clients want to feel important. They want to feel like they're your only customer, even though they know they're not.
Schmoyer believes the most significant aspects in any service industry that contribute to developing good customer relationships include responsiveness and proactivity. This is because subcontractors who are responsive and proactive will not wait for the customer to tell them what to do. Rather, these subcontractors go to the client or contractor immediately to communicate their suggestions when they see a potential problem
"Clients will appreciate your honesty and integrity," notes Schmoyer. "Your clients won't mind if you're making a profit as long as they're getting a fair price."
Sometimes, you may be asked to do something more than what was anticipated - tasks that are totally out of your world - but from the client's perspective, it's a task you should provide.
"If a client has a need and asks us if we can handle it, 90 percent of the time we'll figure out a way to get it done for them," says Nord. "We have a comprehensive list of qualified subcontractors, three to four for each specialized task."
Once clients feel confident in your ability to provide them with quality services, they will be more likely to continue the relationship. If their company grows, they may be more likely to come to you to negotiate a new contract, increase it or provide additional services at additional locations.
Snodgrass believes that the term "partnering" is a better explanation of what a company should aim to achieve when working with a subcontractor. Subs should be looked at as employees and treated with fairness and respect. He advises not looking at the project as if you're pushing off a portion of the job on someone else's lap, but rather as bringing a service and individual into the whole process with you.
Developing a good relationship with your subcontractor is vital to your business. Kurt Kluznik offers these tips for establishing and maintaining relationships with your subs:
- Treat them fairly and professionally.
- Don't take advantage of them.
- Pay them quickly and according to your agreement with them.
- Help them be successful.
- Always do business in writing.
- Maintain good communication with them.
- Be loyal, but smart.
- Don't get sloppy and be taken advantage of.
- Keep more than one sub working so none of them take you for granted.
- Maintain a rapid response to their calls or requests.
- Exceed their expectations when it comes to schedules, quality, warrant, response times and resourcefulness.
- Under-promise and over-deliver.
- Have a niche. Don't try to be everything to everyone. Become famous in one area.
- Stay responsive and proactive.
- Develop a pricing strategy that recovers your overhead.
- Provide a clear, concise contract that includes payment structure and scope of work.
- Measure and monitor your key indicators. These could include sales, gross profit, average age of receivable, actual vs. estimated job hours, unapplied vs. applied time, etc. Share these measures with all of your employees.
- Set goals and measure progress against them. Make goal-setting part of the company culture.
- Treat a subcontractor with respect and fairness.
- Ensure that the subcontractor is in alignment with your safety standards.
- Use the help of outside experts such as members of professional organizations like the Associated Landscape Contractors of America, consultants, accountants and advisors. Shorten the learning curve. Attend industry conferences to earn certification.
The above tips are shared by the following professionals: Kurt Kluznik, Dan Nord, Dean Snodgrass and Ron Schmoyer.
Currently, most grounds maintenance supervisors are finding that labor consumes more than 50 percent of their operating budgets, says Bruce Jasurda, chief operating officer for Tyler Enterprises, Inc.
"Getting good people is getting tougher all the time, which has created a whole separate market for outsourcing," says Jasurda, whose company specializes in providing high-quality landscaping services to professionals who don't have the time, people or equipment resources to carry out a project. He cites the high costs of owning and maintaining equipment as a major reason for the market's outsourcing growth.
"Because of our state-of-the-art system that's run off the Falcon Computer System, we can measure all that we put down. Through soil testing and custom application, we can measure precisely the right mixture for the precise location. You want certainty that you're putting the right things down," Jasurda says. "The wrong fertilizer applied to grass could burn that grass or destroy it. That's a pretty visible high-risk scenario for someone who's got the whole community driving by his mistakes."
He says that in the new economy - with quality manpower being at a premium, resulting in employers fighting to get qualified people - it should be assuring for grounds maintenance professionals to know that outsourcing can provide precisely what they need, and precisely what they order.
Frank Stec, superintendent of parks and building maintenance for the village of Orland Park, agrees that the availability of finding and keeping a good staff is a strong reason to turn to outsourcing. The district controls roughly 500 acres of public grounds including parks, ball fields, soccer fields, picnic areas and a nature area.
"With the good economy, it's hard to get good people to come in and work," says Stec. "People come in and work for a month or two then leave for a full-time job. And with seasonal help, most kids have to leave in early August. Our season doesn't end until around October."
Outsourcing for mowing has proven to be a positive experience for Stec. The only challenge lies in keeping a good contractor. The grass cutting company Stec uses has been contracting with him for two years. If he has to switch to a new company now, he will be forced to spend time training and working to show them all the little areas they might have missed or the exact lines. Next time, a three- to four-year contract would be better, Stec says. "It is so much nicer to have someone who knows your area," he says.
Because Stec's mowing contract runs about $220,000 for more than 380 acres, he can't afford to have a small, average company come in and do the job. His organization needs to keep someone who the proper equipment and the budget to maintain that equipment. "At first I never believed in it [outsourcing]," says Stec. "But, depending what's going on, you can find good people through outsourcing who care just as much as you do. That's what's nice."
In addition to regular duties, most ground maintenance supervisors have other responsibilities that include mowing, fertilizing, pest control and irrigation. Not being able to get things like these done - things that are essential to the primary job - may prevent your crew from completing a job on time. Jasurda cites this opportunity cost as another factor that has been contributing to the growth of outsourcing.
Environmental Protection Agency (EPA) regulations are another reason you should consider hiring subcontractors. Since the EPA made it mandatory for groundskeepers to be licensed to apply chemicals, Vincent Tuzar Jr., building and grounds coordinator for School District #205 in South Holland, Ill., finds that outsourcing has become very appealing. "It's much cheaper to contract services to someone who already has the available license than to purchase material, get licensed and do it ourselves," says Tuzar. "It saves us a lot of time and frees up our staff."
For example, Tuzar sometimes had to put off aerating or seeding until the following season because of limited staff and time. Now his staff is free to do more detailed work such as spin trimming, tree pruning, shrub trimming, mulching and renovating baseball fields. The limited grounds staff at Tuzar's district is responsible for three high schools that encompass about 160 acres. During baseball, soccer and football seasons, fields must be marked and maintained. By outsourcing jobs, Tuzar has seen dividends in the improved look of the grounds. In fact, his district has been the recipient of a Fields of Excellence award presented by Pioneer Randustrial for the past two years. "As an old groundskeeper myself, I appreciate the value of time that's been created by outsourcing," he adds.
For more information on outsourcing, you may contact Tyler Enterprises at (800) 784-0240.
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