When we start talking about financial benchmarks, you’ll often hear me say “it depends.” Different companies allocate costs in different ways and different business mixes have different benchmarks for success which means you can't always compare apples to apples. While we do this for some of the metrics we look at and review quarterly with our ACE peer group program, it's always helpful to compare numbers against yourself so you can compare apples to apples.
This week I wanted to talk more about one of the “it depends” cost allocations and how a simple change in how we handled this at Grunder Landscaping Co. resulted in a much clearer view of our company’s profitability that shifted our strategy on our growth journey.
For years, based on the way we allocated our costs, hardscaping was our most profitable service, and maintenance services like mowing and watering were things we offered essentially as loss leaders.
When we were implementing Aspire, we updated our allocation of equipment costs because previously, we had put all equipment costs into a single bucket that was considered part of general overhead and then recovered across all of our business lines. Now equipment costs are allocated within the department that they are utilized, and our individual job profitability is much clearer. That makes a lot more sense, doesn't it?
While there are a lot of handheld tools, power equipment, and even heavy machinery (like loaders) used for all types of jobs, simply allocating all of our equipment costs across all of our jobs was skewing our profitability.
This change for clarity meant more work on the back end, but it also meant better, clearer numbers on the profitability of our work. After making these changes, we found that the most profitable service we offer is watering and that our hardscape projects weren't as profitable as we previously thought.
Using this information made the business case for growing maintenance services even stronger and helped us clarify where we had room on pricing to be more competitive
I encourage you to look at your numbers this week and analyze what they’re telling you about your business. Ask yourself:
- How am I allocating my overhead? Am I properly capturing costs and expenses in the right departments?
- What is my most profitable service offering? Least? Why are they? Does that align with our strategy?
- What type of work are the numbers saying we should do more of in 2024? Less of?
- What gaps exist in the data in front of us? What is it not telling us that we need to know to make smart decisions?
Planning season for 2024 is already here for many companies, as you look ahead to next year, I hope this gives you another perspective.
We'll talk to you next week!
Vince Torchia
Vice President
The Grow Group
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