Even when it comes to the tree care industry, numbers are important.
If you don’t see the numbers, or the impact they have on your tree care business, you could be missing growth opportunities.
Return on Marketing
Stop and ask how new clients are finding out about you. Did they come from past clients, new referrals, radio ads, yard signage, billboard adds, or social media for example?
It’s simple; whenever you get a new call always ask, “Well, how did you hear about us?” This helps you gauge your marketing efforts. You can now start to make your marketing strategies as precise as your felling cuts.
A common metric is that every ₤1 you invest in marketing should create at least ₤5 in revenue.
For example, if you invested ₤500 into marketing, your target revenue should be ₤2,500.
If this is not the case, take a look at your past client demographics. Did you receive business mainly from residents, businesses, realtors, landscape referrals, municipalities, etc.? Once you know this, you can think about how you got them and use the marketing medium that caters best to that specific group.
Sales Conversion
Next, we have to go out and close the prospective clients. This is about your closing percentage.
Take the number of jobs that you got, divided by the total number of jobs that you assessed.
For example, if you looked at 25 jobs and closed 12, then you have a 48% closing rate. This allows you to see how successful you are at selling your services.
Your sales conversion ratio can tell you a lot about your sales process.
Once you know and understand this number, you can ask better questions, especially if your results are not favorable, for instance, “Did we over-bid on these jobs”, “Did we not present our unique value proposition well enough to prospective clients.”
Gross Margin
Understanding margin help you control profitability better. This formula is simple and all about efficiency…
Sales minus Direct Cost = Gross Profit
Your direct cost is essentially the money you have to spend to get the job done, for example, the cost of haulers, climbers, and ground personnel (the individuals who are directly providing the service).
First, set a gross profit % target. This depends on several factors: how you operate, your personnel, the amount of equipment used, and your profitability target. If you desire a 50% margin, your total direct labor costs should not exceed 50%. So, if you bid on a job for ₤2,000, then your costs should not be over ₤1,000. Your desired gross margin depends on the amount of sales and the return that the company needs, to not just stay in business, but to thrive.
Typically, gross margin should be at least 30% to ensure that the company has enough sales to cover the remaining fixed and variable costs of the business.
Second, use a simple spreadsheet to track your gross profit per job. Start with the price of the job minus the direct hauling, climbing, and ground costs. Knowing the power of margin helps you make course corrections quicker along the way.
Keep these 3 metrics in mind as you manage your tree service.
Edward Morrow,
Accountant, Author, Arborist
