How to win with key performance indicators.
Imagine a sporting event where the players take the field without knowing the rules to the game, with no clock and without a scoreboard. How would that go over?
“You can’t play a game if you don’t know whether you’re winning,” says Timothee Sallin, president of LegacyScapes in Groveland, Fla. It’s the same in business, he says.
To win, you need to keep score. And there’s no better motivator for your team.
For instance, if you instruct a project manager to build a job with $100,000 in six weeks, and you don’t huddle with him until it’s over, there’s a good chance he’ll run over budget or over time. “On the other hand, if I give him an update on the numbers every week and he can see how he’s doing, he’s trying to win the game and it’s fun,” Sallin says. “He’s going to be more successful if he knows the score.”
Experts say there are a variety of ways to keep score with key performance indicators (KPIs). You just have to figure out which ones work best for your company.
Here’s a look at how LegacyScapes and two other landscape companies track KPIs.
KPI: Gross margin per project
Company: LegacyScapes
Location: Groveland, Fla. 2015
Revenue: $10.3 million (anticipated)
Client mix: Primarily commercial
Business mix: Primarily design/build + installation
LegacyScapes tracks many KPIs, including EBITDA, customer satisfaction and quality measures. Perhaps the most vital one that keeps the company on pace for profitability, though, is gross margin on every job during the construction process, says Sallin.
He defines gross margin as the difference between revenue and direct costs.
“We want to know how we’re doing on a project during construction in order to make adjustments if we need to,” he says. “That’s very different from saying we want to know how we did at the end.”
On the type of major construction jobs LegacyScapes builds, gross margin is often a moving target because of change orders. It’s challenging because it requires the company to track real-time data on direct costs (labor, material and subcontractors). But it’s vital, Sallin says, to ensure each job is a success. About two years ago, the company committed to tracking gross margin per job with up-to-date information because it was struggling with profitability on some jobs.
Sallin encourages other companies to do the same.
“I know how much we’ve struggled to get these systems in place, and it’s still not perfect,” he says. “I think a lot of companies don’t do it because it’s hard and they don’t see the value, but the payoff is there for the company who can get organized.”
Since LegacyScapes committed to this KPI, it’s increased net profit by more than five points, Sallin says.
Getting it done
Step one was to track costs in as close to actual time as possible.
“There’s no point in looking at numbers that aren’t accurate,” Sallin says. LegacyScapes uses its cloud-based payroll software to track labor costs. Foremen have Chromebooks and input their crews’ hours from the field.
Many landscape companies still track hours manually with punch cards or paper time sheets, so it might be a week or two before those numbers hit the accounting system. This lag in reporting makes it difficult to track gross margin accurately, Sallin says, but if you can enter the information daily, you can get close to real-time labor data.
To track materials, LegacyScapes tightened up its purchasing process to code every purchase order to the correct project. As soon as the office receives an invoice, it’s entered into the accounting software, and it automatically reflects in the company’s construction management software, Spitfire Project Management System, which integrates with its accounting software. It’s important to have an employee accountable for entering invoices and coding them to jobs as quickly as possible, Sallin says.
“If you don’t have that person or discipline, it will fall apart because of invoice backup,” he says.
After collecting all the data, LegacyScapes reviews progress during monthly project management meetings, in addition to making it available to foremen and project managers remotely.
“We really want them to be aware of where they stand on the job,” he says. “If you’re really in a hole and you’re 30 percent of the way through the job, you still have 70 percent of the way to catch up. If you wait until the end of the job, there’s nothing you can do about it.”
KPI: Payroll percentage
Company: 360 Lawn Care
Location: Rock Hill, S.C. 2015
Revenue: $650,000(anticipated)
Client mix: 70 percent residential; 30 percent commercial
Business mix: 60 percent mowing + landscape maintenance; 30 percent design/build + installation; 10 percent other
Brandon Guffey, a former advertising sales representative, dabbled in landscaping for a few years before deciding to leave media sales in 2011 to launch 360 Lawn Care. He preferred cutting grass to sitting behind a desk, so he signed a lease on a shop and started a landscape business.
The first few years were a slog, and Guffey knew he had to find a way to make more money. “Last year we did $320,000, and we spent $318,000,” he says. “I started freaking out a bit and trying to figure out what I’m doing wrong. It seemed like my pay could never increase and there was never any profit.”
So Guffey began looking into purchasing a franchise as an option, and he began taking landscape industry education courses.
He decided not to go with a franchise, but he learned one thing from the franchisees he interviewed during his due diligence process: His payroll percentage was way off. The franchise owners said their payroll was expected to be around 25 percent, leaving about 60 percent for overhead and at least 15 percent for profit. Guffey’s payroll in 2014 was 67 percent.
“A lot of it was 15 minutes here and 15 minutes there,” he says. “If you have a four-man crew, a 15-minute break equals one hour of payroll.”
Armed with that information, Guffey made some changes. “I created a spreadsheet to start tracking everything and increased all of my bids,” he says. “So if I’m bidding a job at $100, my payroll better not be more than $25.”
Currently, his payroll is around 30 percent. It’s not where he wants to be, but it’s a marked improvement from last year. And he expects to end the year with about 10 percent net profit, up from half a percent last year.
Guffey was able to drastically reduce payroll with simple measures, such as enlisting a supervisor to fuel trucks rather than sending the entire crew to the gas station, giving crews the hours budgeted for each job and tracking all these figures in a spreadsheet. In other words, he started keeping score.
“That’s the only thing I’ve really changed,” he says. “Once we started tracking our payroll percentage, we started generating profit.”
In the midst of these improvements, business has nearly doubled. The company will likely hit its $650,000 revenue budget this year, Guffey says.
He has 12 employees now with plans to add a dedicated fertilization crew in 2016. He’s also looking for a better system than spreadsheets.
“My primary job is tracking payroll percentages and providing the guys with their (budgeted) hours,” he says. “It’s a lot of paperwork. And that’s one of the reasons I left advertising.”
KPI: Client credits
Company: Taylor Irrigation
Location: Houston 2015
Revenue: $1.5 million (anticipated)
Client mix: 80 percent residential; 20 percent commercial
Business mix: 36 percent irrigation + water management; 18 percent mowing + landscape maintenance; 39 percent design/build + installation; 7 percent other
Taylor Irrigation strives for perfection on every job, says John Taylor, president and CEO. That’s why the company gives client credits on any work that falls short.
“If we don’t do the work to our standards, even if the client is completely satisfied, we give a credit,” he says. “It protects your reputation with clients, and, in-house, we can keep track of those credits and say, ‘We must not be living up to our own standards.’”
In short, the value of overall customer credits on the books serves as a barometer of quality. It’s typically around 1 percent of revenue, and the company reviews it weekly.
The result of tracking customer credits so closely has been an overall decline in the value of credits issued, Taylor says. But the purpose for tracking goes beyond that. It’s more about analyzing where and when the credits pop up, keeping the team members accountable and using the information as a training tool, he says.
“Everybody hates to lose money,” he says. “I’ve found with the staff, you don’t have to yell or crack the whip. When they hear we’re not going to make the money on a project that we thought we would, it gets their attention.”
In fact, the company internally refers to the metric as CEUs—for continuing education units—because the team considers them to be “lessons learned,” Taylor says.
“There might come a point where this is no longer a useful tool, but for now, it provides us with a great deal of information and puts us in a position to deal with problems we wouldn’t have known about before,” he says.
How credits are tracked
Taylor Irrigation has tallied a running total of client credits for a long time, but during the last two and a half years, it’s tracked them on a spreadsheet with 10 additional data points, including truck, day of the week, time of year, division, manager and more.
The credits are sortable by each of these fields, so the management team can identify trends.
“It allows me to see that the B truck has a problem with planting seasonal color, for example,” Taylor says. “That means we have to empower that truck when it comes to seasonal color, so maybe that means more training.”
The idea to develop this KPI came from the data the company has access to as an Angie’s List member, Taylor says. These tools include lists of the top five complaints by market, average response times by market and more.
“Those tools give us data about the competitors in our market, and it inspired us to say, ‘Let’s create our own tools,’ so we can split them out from division to division, time of year or day of the week,” he says.
The company already tracked customer credits, and Taylor realized it could be a good KPI if there was more information attached to it.
To collect the information, each of Taylor Irrigation’s division managers completes a job summary sheet for every project. It includes a space for client credits, which are issued at the discretion of the manager or Taylor. The office manager enters that information into a master spreadsheet when she invoices the job. The spreadsheet includes other company details, such as revenue and profits, and all employees have access to that information, Taylor says.
The team also reviews the credit levels during a weekly managers’ meeting when it discusses projects in the pipeline and recently completed jobs. The managers then address any credit-related concerns with the team in the field. If something appears to be a trend, they’ll bring the crew into the conference room and say, “What can we do to make this better?”
The key is for management to use the information as an opportunity for instruction—not to be punitive.
“A lot of times in our industry, when a boss sees something’s wrong, he blows a gasket and someone’s in trouble,” Taylor says. “By involving your people in the solutions, your team will want to take responsibility for making it better.”
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