Think about this: The decisions your employees make every day create transactions that can be – and are accounted for – on your Profit & Loss Statement (P&L). The challenge for you and for them is that these results can’t easily be “seen” or appreciated. This also means they can’t be managed well. Yet these decisions affect your revenues and costs.
So how can you get your people to pay attention to the P&L? The answer is to manage the transactions that end up there. This requires visibility into those transactions: proposing, closing, scheduling, routing, purchasing and invoicing.
And because there are so many of these transactions, the key to success is to manage those that have the greatest impact on your P&L. So, focus on the big stuff: revenue and labor dollars. This is the 80/20 Rule: 20% of your transactions (revenue and labor) account for 80% of the bottom line result.
So let’s create a reporting cascade to manage these critical transactions. We start with a Profit KPI (Key Performance Indicator). This KPI provides you with a snapshot of where you stand at any given moment. The Profit KPI will cascade to “drill down” reports, and finally to a few dashboard dials to maximize visibility and accountability. See the graphic below – Profit Management Reporting.
Profit Management Report Cascade
Profit Management (KPI):
The Profit KPI captures actual revenue and labor dollars compared to your budget revenue and labor dollars. The blue bar is the budget and the red is your actual transactions for the time period selected (month, quarter, YTD, etc.). Most importantly, it captures Gross Profit (GP) dollars. Why are GP dollars important? Because they “pay” for your fixed overhead costs. To get a more granular view of the KPI, it is essential to drill down further into variance reports.
Profit Management Drill Down Reports:
Since revenue and labor drive GP (gross profit) dollars, we need to drill into each of these line items individually. The purpose is to identify problems and opportunities in the related transactions and determine the who, how and why.
- Revenue Variance Report
- Labor Variance Report
Revenue Variance Reports
Who is selling (and what they are selling) account for all the positive or negative variances associated with the Profit Management KPI. Drilling down to the revenue transactions can provide the information on who, how and why. The revenue variance report provides information on two transactions – proposing and closing. Since the first drives the second, it is essential to monitor both.
NOTE: See a few of my prior posts (specifically the ones on KPIs and Sales Management) for more detail on managing these transactions. These individual “scorecards” allow you to manage your selling staff more closely – whether they are Business Developers (contract sales) or Account Managers (upsells).
Here is a version of the report:
Assuming there are sufficient revenues, the labor variance alone may explain why GP dollars are below or above budget. The purpose of the Labor Variance Report is to identify the jobs – at the division (profit center) and service levels – that are responsible. This report may have several versions. But the closer you manage division and service performance, the better chance you have of making adjustments and creating accountability (and, heaven forbid, better decision making in the future). Looking at the report below, we can isolate some problems.
Daily Dashboards - Revenue
The reasons for revenue variances are, in order of importance: (1) renewals, (2) contract closes, (3) upsell closes, (4) and respective proposals bid. To manage the transactions better, use dashboards that each sales person can manage on their own and can be monitored by the boss at the same time. Click HERE (Page 1) to see a few individual revenue dashboards by person and by time period (week, month, YTD, etc.).
Daily Dashboards - Labor
The causes of labor variances are primarily driven by: (1) service type, (2) site conditions, and (3) crew leadership. What I mean is: (1) Not all service types produce the same gross margins, (2) site conditions may create extra labor hours not anticipated in an estimate, and/or (3) incorrect crew sizing or crew chemistry eats into efficiency. Every production supervisor must have insight into these transactions. Click HERE (Page 2) to see several dashboards I like to look at.
Using a cascading reporting structure to focus on revenue and labor dollars is a Profit Management best practice for landscape and snow business management. Use this cascading approach to identify problems and opportunities, take corrective measures and re-assign/manage the people responsible for the thousands of transactions every month that end up on your P&L. Take the mystery – as well as the time lags – out of the P&L to engage your team in making more informed and better decisions.
A culture of personal accountability pays for itself in better decisions, made when they matter. This is landscape business management in real-time, using all the information you need to make your bottom line better.
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Next up: the Labor Management KPI.