Having a profitable year is ultimately determined by how much in sales you produce and bill out in the 4th quarter. Succeeding at business is akin to winning a long-distance sprint. You have to get a quick jump off the starter-blocks, accelerate quickly to your top speed, and sprint through the finish line. It is the final sprint that wins the race.
Here are some things to consider that may help you end the year on a profitable note:
Weekly throughput: The main driver of net profit in the fourth quarter is measured by your company’s weekly throughput – that is, the amount of billable production work your company can produce, or “put through,” each week. 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 until all overhead is paid. Once your overhead is covered, you have reached what accountants call your breakeven date.
Once you hit your breakeven date, all profit 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 4th quarter.
My high-performing clients are able to achieve an operational profit margin from the high 30s to as much as 45 percent, depending on the type of business they are in. If your operational margin is, for example, 40 percent, then after you hit break even, every dollar that gets produced will put approximately 40 cents toward your bottom line.
To this end, the more sales your team can produce and bill in this final quarter (again, the weekly throughput), the more net profit you will ultimately earn. Conversely, if you have too many hiccups in the fourth quarter, you put your net profit at risk.
Here’s several ways to increase your weekly throughput:
- Keep salespeople motivated to continue selling strong through December. Use 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.
- Decrease the non-billable time (morning, travel, deli and gas stops, evening) so more time is spent on billable work.
- Decrease (or, preferably, eliminate) the unnecessary go-backs needed to complete a job by ensuring crews are properly equipped and dispatched, with trucks and tools operating smoothly.
- Ask crews to be flexible in bad weather, so you can hit your weekly throughput goals.
- Use overtime 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!
- Sell more fall and winter add-on services. Remember, enhancement sales can be sold at a higher margin than your standard work, so it’s a double win.
- Take lower-margin install work if you can be guaranteed that doing so will not displace work with higher margins.
- Walk every maintenance property and sell them pruning services to be done asap.
- Find extra work that can be performed by crews already on maintenance properties.
- Raise your hourly rate right now. Who says you have to wait until January to raise rates?
- 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.
Many of your employees may not immediately grasp how sprinting through the finish and ensuring a healthy net profit will benefit them and their families. Take the time to explain it to them by connecting the dots. Using an incentive plan helps them see directly how it benefits them.
EDITOR’S NOTE: This column was contributed by Jeffrey Scott. Jeffrey Scott is a business consultant specializing in the landscaping industry and facilitator of the Leader’s Edge peer group.