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KPI's in a Landscape Business - Doing the Math Part 3

KPI: Sounds pretty important, doesn’t it? That’s because KPIs (Key Performance Indicators) are important. They are the first level “drill down” in the reporting cascade for a good Landscape Business Management Software (see below).

BIG PICTURE

Drill-Down

Rolling Budget

Business KPIs (Key Productivity Indicators)

Functional Reports (Sales, Client, Production, Finances)

Process Dashboards

LITTLE PICTURE

KPIs are used to identify the sources of the variations in your rolling budget so that you can make the adjustments needed to reach your goals. There are six critical KPIs: overhead recovery; client management; job - service and profit center margins (P&L); labor efficiency; sales management; and work forecast. Let’s briefly look at each one and why they are essential.

Key Performance Indicators

Overhead Recovery – If I am the boss, I want to know: (a) I am generating enough gross profit to cover fixed expenses, and (b) whether I can “flex” my pricing because I have it covered.

Overhead Recovery KPI

Client Management – I want to know (a) how much recurring contract revenue we have under management, (b) what we have lost and why, (c) what is at risk of non-renewal, and (d) how much upsell revenue we are generating as a percent of current contract revenue . I want to know if our client revenue will achieve the budget goals.

Client Management KPI

Job - Service P&L Management – I want to know (a) where I make and lose money, (b) the nature of my gross margins in detail, and (c) whether my labor rates and projected labor spending dollars are within budget. As I discussed in the last post, no cost variance will cost me more than poorly trending labor. I can tell you this from a client experience last year - a very painful and costly experience at that. The lesson learned: When it starts to trend badly, don't wait. Act!

Profit & Loss KPI

Labor Efficiency – I want to know (a) where we are over or under on job hours, and (b) whether that over/under is due to field performance and/or estimating accuracy. I also want to analyze these trends down to individual crews and the jobs.

Labor Efficiency KPI

Sales Management – This is major variance problem #1 (labor is a close second).  Therefore, I want to know where my new sales are coming from: (a) is there sufficient pipeline activity to meet the revenue budget, and (b) if we are bidding the right stuff at the right margin, and closing at an acceptable rate.

Sales Score Card KPI

Work Forecast – Finally, I want to look forward and play sensitivity analysis (a.k.a. "what if"). Specifically, I want to know, based on what has already sold and some of what is currently proposed, whether (a) there will be enough revenue to achieve the budget, (b) if we have too many or too few production crews to match the revenue budget, and (c) if the combination of these two will produce the gross profit dollars required to pay for my overhead.

Forecast KPI

 

Bringing It All Together

Budget variances point me to where the problem is and the KPIs tell me what it is. And dipping back into my bag of the clichés, “a problem well-defined is a problem already half solved.”  I learned this at the same time I learned to always do the math.

Why do the math and go through all this reporting and analysis? Because everyone has an opinion and a rationale. This is fine by itself, but opinion and a rationale are no substitute for facts. When it comes to smart budgeting, only numbers matter. So I listen to the opinions and rationales, then ask, "Can you prove it to me with the numbers?"  That's why we do the math.

The next level in a cascading business management software reporting system is a drill down through the KPIs - otherwise known as Functional Reports (e.g.;  Detailed Sales, Client, Production, and Cost reports). These reports will provide real insight into actual transactions (the "scene of the crime" details) essential to correction, action, accountability and ownership of problems/solutions.

I will discuss these reports next time.

If you have questions or need more information about any of these KPIs, please feel free to contact me at kevin.kehoe@youraspire.com.

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