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Facts and figures on the landscaping industry

Facts and figures on the landscaping industry

Published in: Business, Technology, Education

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  • 1. Problems and possibilities for Landscapers 2006 Highlighting Profitability
  • 2. Trends - Landscaping 2006
    • Cowboys- increases rapidly . The number of companies grows faster than the number of employees. Franchising may be growing in Europe too.
    • Landscapers develops into “outdoor service masters”
    • Traditional facility management firms develops into multinational companies with total solutions for In and Outdoor maintenance .
    • Nurseries and Farmers actively pursue the development of sidebusinesses in the outdoor servicesector and successfully gain marketshares .
    See also separate charter on industry developement and enclosed attachement about a Landscapers developement into a facility management firm.
  • 3. Public Green care - still the dominant player in European Green Care. Europe USA No available data The total value of public installation and maintenance in European Green Care can very roughly be estimated to 20 billion US dollars. 20% of the cost is made up of capital costs on new investments in lawns, trees, hedges, hard-surfaces etc. (as a thumb rule, the public sector is worth between 125%-175% of that of the private sector in each country. Scandinavia and the Netherlands represents the highest value, while southern Europe represents the lowest)
  • 4. The Landscape Industry
    • USA ca 60 billion $
    • Europe ca 15 billion $
    Percentage of the total industry turnover -Europe ( both installation and maintenance) ( both installation and maintenance)
  • 5. Europe USA Revenues rising 50% 72% Revenues holding 40% 21% Revenues falling 10% 7% Average % of rise 2,5% 18% Residential customers 30% 60% Commercial customers 25% 36% Government customers 45% 4% Cheap labour, often of foreign origin 20% 45% The landscape industry has a higher growth rate in the US than in Europe, mainly due to the fact that residential work grows steadily in the US, while government contracts in Europe is falling in value. The access to cheap labour increases in Europe, but still is much lower than in USA.
  • 6. Europe USA Working hours/week 39 56 Average wage/hour for entry-level labour 9,5 $ 8,5-9,25 $ Benefits/social costs 35-50% 15-30% Labour cost/total costs 45% 30-35% (average for the industry, both installation and maintenance) Installation/total turnover 62% 35% Maintenance/ total turnover 38% 65% It is significant that the american workforce works many more hours during the season. A higher degree of seasonal workers and higher access to cheap labour is part of the explanation. More rigorous working laws in Europe regarding maximum working time and overtime compensation is another causal factor. The cost of labour is clearly higher in Europe, with northern and central Europe having the highest cost. While maintenance dominates the american market, installation is still strong in Europe.
  • 7. Europe USA Number of companies 42000 80-90000 Revenue less than $100000 34% Revenue less than $200000 26% Revenue $ 100-499999 40% Revenue $ 200-440000 20% Revenue $ 500-1000000 16% Revenue $ 441-880000 26% Revenue more than 1 m$ 10% Revenue more than $ 880000 28% The fastest growing type of company is the really small ones, the cowboys. Medium sized companies still are dominated by landscapers but here is where the transition to facility management firms take place. The larger firms are more frequent in Europe than in the US, but both in the US and in Europe most of the larger firms offer service solutions, i e are a kind of facility management-company today.
  • 8. Profitability Generally lower profit-levels than in the US Installation more profitable than maintenance Private maintenance more profitable than working on government contracts No hard-facts available Europe USA Profit margin varies from 23% for commercial to 28% for residential work. Cowboys have 38,5-39%, while medium companies have 20-24% and large companies 13,5-18,5%. Generally maintenance generates the same margins as installation works.
  • 9. What are the Costs made up of ? Labour cost 45% Material 30% Machines 12% Administration 8% Taxes 13% Europe USA Labour cost 35% Material 25% Machines 23% Administration 7% Taxes 10% The composition of costs varies greatly from one type of work to another. For the industry in general it is important to remember that the Landscape Industry in USA has a higher degree of maintenance compared to Europe and a much higher degree of mobility due to customer structure with a major part of the turnover coming from the residential side. Also chemical lawncare f example is a big business in the US, but very little in Europe, which is one explanation for the relatively little difference in material costs.
  • 10. How to make money with Lawncare 1 Choose the right mix of customers . Generally private,commercial contracts are more profitable than government contracts. Choose the right mix of maintenance work . Generally chemical lawncare, fertilizing, aeration, scarification etc are more profitable than mowing and trimming. Cleaning lawns and raking leaves are the least profitable type of work.
  • 11. How to make money with Lawncare 2 Choose customers that are reachable with short transportation time or less than 15% of the time spent on-site. Choose a fast working method for loading/unloading , the right type of vehicle and trailer etc to reduce non-billable time to a minimum.
  • 12. How to make money with Lawncare 3 Choose the right mix of skilled and unskilled labour . Generally 1/3 skilled labour and 2/3 unskilled labour are used for maintenance work and 2/3 skilled labour and 1/3 unskilled labour for installation work. Choose the right crew size for a specific workload . Generally 2 men crews should be used for workloads of up to 4 manhours, 3 men crews for workloads up to 6 manhours and 4 men crews for greater workloads.
  • 13. How to make money with Lawncare 4 Keep an eye on your overhead . Overhead costs tend to rise dramatically after the initial establishing fase ( 5 years and more in the business) Sell a service solution with additional values to the customer. Choose the right sub-deliverers with the right conditions for plants, chemicals etc .
  • 14. How to make money with Lawncare 5 Keep your machine costs under control. Set an hourly cost of each larger machine which includes capital and running costs. Estimate running time per year and economical length of life. Either buy low-cost professional machines where running time/year is expected to be low, or buy higher-cost professional machines where running time/year is expected to be high. Reduce ineffective time, which mainly occurs due to transportation-problems and break-downs.
  • 15. Cost Transparency Model Price per m2/year --------------------- Direct costs -field labour -material -machines -transports Gross profit Indirect costs - administration - supervisors/ management - office-building/ garages etc - other indirect costs Contribution margin Financial costs Net margin Maintenance costs can normally be estimated by m2-units For small firms like cowboys, the focus is to be set on direct costs. For larger firms the focus is to be set on indirect costs. For all type of firms the thinking must change so that pricing more often will focus on contribution margin. Which type of work and which of the customers contributes the most to our profit ?
  • 16. Problems with measuring - Maintenance Productivity Measuring productivity in the landscape business is not uncomplicated. Often no consideration is taken to the quality aspect when measuring productivity. Neither to the conditions or sizes of the surfaces where maintenance is carried out. Time values given by manufacturers of machine equipment are often overestimated due to that the calculations are based upon ideal conditions as to surface-sizes, weather, cleanliness, lack of constraints etc. Opposite organisational or scholarly based time values often underestimate productivity due to lack of field-studies, cautiousness etc.
  • 17. Minimizing Improductivity
    • The greater demand for out-sourcing of both public and private landscape maintenance and installation, increases the mobile units and reduces stationary units.
    • The highly mobile units ( more than 5 stops/day) are to a very high degree units who work with garden maintenance for private customers.
    • Improductivity is a problem for all types of work, but it affects mobile units the most.
    • Minimizing improductivity is a must for increasing profitability
    • Improductivity is non-billable time for waiting, transports, time for supervising and instruction, pauses, time for taking up and closing down the work before and after pauses etc.
    • Improductivity in public greencare can be estimated to 20-25% for stationary units and 30-40% for mobile units
    • Improductivity in private greencare can be estimated to ca 15% for stationary units and 20-30% for mobile units.
  • 18. Highlighting Profitability
    • The more public greencare is out-sourced in Europe , the more dominant will the private sector be; i e the landscape industry.
    • In every type of private greencare profitability is a necessity to generate money for new investments, covering the risks and overall to create motivation.
    • Focusing on profitability highlights total solutions instead of mere productivity, which is very common to focus on.
    • It is very clear that some maintenance, like mowing lawns, struggles with low profitability , putting a tough constraint on investment possibilities. Sometime the industry itself seeks simple solutions like recruiting cheap labour or buying consumer machines to keep the direct costs down, although there are better ways of dealing with the profitability-problem.
  • 19. Three simple ways to increase profitability
    • To keep the direct costs down, the best way is to reduce improductivity . Not just to have cheap labour or cheap machines. Sometimes a combination may be necessary due to price dumping, but normally it is a shortsighted solution.
    • To keep the indirect costs low it is important to focus on the correct infrastructure of the company . How much overhead can a company carry ? It is like the snail who carries his house on the back wherever he goes. If the house should be too heavy, the snail would be immobilised. Keep overhead low !
    • The price must be right . Correct calculation gives you the necessary tool to know if you make money, or loose money. It is easy to price yourself out of business. If you are too cheap you get a lot of work, but loose more money the more work you get. If you are too expensive, you do not get enough work. A good price-policy allows you to both make money and yet be competitive.