Do you find yourself working 60... 70... 80 hours a week, only to have single digit net profit margins? You might as well get a job! But if you implement what we'll share into today's show, you can learn how to enjoy a better lifestyle AND make killer net profit margins.
Today I'm excited to interview landscape industry consultant and author Jeffrey Scott who shares:
- How many landscape company owners suffer from Poverty Mentality, and what to do about it
- Which key departments you need a strong #2 person heading up
- His proven Pricing Pyramid to help you reach a healthy 20% net profit margin
Jack Jostes:
Alright folks, today we are here with Jeffrey Scott. I'm really excited to interview him on the show today. Jeffrey is the author of Become A Destination Company, and he is a landscape industry consultant, who works with clients all over the country. So Jeffrey, for those listening who haven't heard of you, or met you before, who are you, and how did you get into what you're doing now?
Jeffrey Scott:
Thank you so much for having me on the show. Really appreciate that. I have been in the industry since I was seven, working in my family's landscape business. And, I've been in and out of the industry really, over a period of time. So, I grew up in the industry, and then I went off to college, and I left the industry. I studied engineering, and business, and then I came back into the industry, and took over my family's business, grew it up to, let's say, in today's dollars, about $15 million, and then I went out of the industry, or went sideways in the industry to consulting.
Jeffrey Scott:
And so, I've grown up with it, I've lived it, I've been in the position of, "How are we going to make payroll over this winter?" I've had all the headaches, and heartaches, and I also bring a bit of outside expertise, with my MBA, and my engineering degree, and helping hundreds of other companies, and I just love what I do.
Jack Jostes:
Great, great. Well that's amazing that you have that industry experience, your education, and now you're able to share both of those viewpoints with landscape companies all around the country. And one of the things Jeffrey, you and I were just having kind of a networking conversation, and what I really do is I help people generate leads, get the right leads through digital marketing. What do you do? And why is marketing... One of the things that we talked about is that you actually don't like working with people until they have their marketing, kind of dialed in. Why is that? What kind of problems happen for landscape companies when they don't have their marketing dialed in?
Jeffrey Scott:
So, that's correct. I'm just going to kind of qualify what you just said there. If I take on a client, and they have no marketing, and the marketing is, let's say, broken, that is a problem that has to get fixed first, before I can help them. I mean, I help companies in three ways. I help them fix their company. I help them scale their company, and then for those of a certain age, I help them exit their business plan, their succession plan, and we can dive into that a little bit further.
Jeffrey Scott:
But, if their marketing is broken, then there's no ammunition to work with, in order to do those other three things. Now, I love marketing actually, I love it. I love branding. I love marketing. Anybody who follows me, sees that I do a fair bit of it. But, you're the marketing expert, right? That's what you do. And so, I want my clients to figure that out. Now, I work with plenty of people where the marketing is okay, and it needs to be better. That's okay. But if it's broken, right down here, then that's a major impediment.
Why is Marketing a 'Dirty Word' For Many Landscapers?
Jack Jostes:
And why is that? For many landscapers, marketing is like a dirty word. They think, "All we need to do is good work, and we'll get referrals." And many of them even view doing marketing as a weakness, as a sign of not getting enough referrals. What do you think about that?
Jeffrey Scott:
When I first got back into the business, my father pulled me aside, and he's one of my mentors. I mean, I've had many outside of my family, but a big mentor of mine. And he said, "Jeff, we're not in the landscape business." This is when I took it over, at about $5 million. He says, "We're not in the landscape business, we're in the marketing business. Our job, and your job as CEO, is to attract a certain type of client, that we can best service, and give them the best service possible." And he said, "That's really an exercise in marketing."
Jeffrey Scott:
I've really been steeped in this ever since I was a kid, growing up around the dinner table, where we talked business. And let me tell you, when that phone doesn't ring, and I know this because I've been through four, or five recessions, right? Young guys that have only been through none or one, but when that phone doesn't ring, that's a big, "Uh-oh."
Jeffrey Scott:
And so, that's on the one hand. And marketing really is about fine tuning your message, and finding the right client, and then making sure they really know who you are, and how to find you. So, that's On the one hand. On the even more positive side, when you have really strong marketing, and you have a really strong flow of clients, you get to pick and choose. And that's where I want to take all my clients. I want to take them to that level, because then... For example, some clients will come to me where they need the business fixed. So that means they're overworking, underpaid, and growth is sort of hit a ceiling.
Jeffrey Scott:
And so, if we can have a plethora, a preponderance of leads, meaning leads are coming in at a nice, fast pace, now, we can really be true to who we are. We meaning my client, or the company. And here's the clients we best serve. And here's the clients that we want to sell to.
Jeffrey Scott:
And so, if we can say, "No, no, yes, no, no, yes." We're going to be able to sell at the right price. We're going to be happiest with those clients, and our in our employees will be happiest serving those clients, because we won't be having to nickel and dime the offering, and then we can't really follow through with service, and nobody's happy, then the clients not even happy, right? You'll have happier clients, happier employees. That will grow your reputation. So now we've come full circle. A reputation doesn't make the need for marketing go away. In fact, great marketing and sales creates an even better reputation, which will then grow your business.
Jack Jostes:
Yeah, I absolutely agree. And that's one of the first things I always help people with, is figuring out what we call the Hell Yes Customer, which is, when the phone rings, it's a, "Hell yes, we can help you with that." Versus what you're describing, where a lot of times landscapers who don't have marketing, are taking on every job that comes in, they're bidding everything, and you really need to get to the point where you're qualifying on the phone, and turning away the projects that are not a fit, that when you know it's not, so you can focus on the right ones.
Jack Jostes:
So, let's pretend that we're talking about a landscape company who has totally dialed in their sales and marketing. They've got a nice, vibrant pipeline of qualified leads, where they're able to pick and choose which projects they're going to take on, and which ones they're going to decline. What are some of the challenges that landscape companies face after that, once they've reached maybe that next level of success, as a result of their sales and marketing?
Jeffrey Scott:
So, you made an assumption, which you probably helped solve, but I just want to back up a second. I think companies often get the marketing fixed, but then they still don't have sales fixed.
Jack Jostes:
Right.
Jeffrey Scott:
No, you may do that, but I'm just saying, "Here's what I see, when I see the average person." So they get the marketing fixed, they often still need to work on the sales part. But back to your question, so, I help clients fix scale, and exit their business. And so, fix means they're overworked, underpaid, and they're not growing fast enough. And often that's connected to poor marketing, and sales. So we got poor marketing and sales worked out. Now we need to work out pricing. We need to work out what parts of the business we really want to grow, that will help the company in its own sweet spot, really take off.
Jeffrey Scott:
Some parts of the business you just don't want to grow, or you want to put to the side. I had a client come to me, design build client, who's now a coaching client with me. And a really smart guy, really smart, has pretty much his marketing and sales figured out. Not completely, but he wanted to grow the business. And after I did my assessment with him, I said, "Your maintenance makes so much more money than your design build."
Jeffrey Scott:
He's like, "Yeah, I hate maintenance." I'm like, "It does so much better, somebody else could run that for you. You don't have to love it. But your business should love it." And so, he bought in, and so now we're growing the maintenance, and the design build will keep growing. But his whole profit formula is really going to take off because of that.
Jeffrey Scott:
And so, you have to figure out really what's the right mix for your business, in your niche. The pricing, we have to figure out. Organizationally, who's going to do what? And it all starts at the top, right? So we got the owner at the very top, and this is like a triangle here. I hope it looks like a triangle.
Jack Jostes:
Yes.
Jeffrey Scott:
And then at the next level, right? Who do you really need in that team below you, is your direct reports. That is so critical. It's not one size fits all, at all, and it depends on the service mix, like I just spoke about. It depends on the owner's strengths, depends on the existing team, depends on the vision, where do we want to go? So those are some of the next steps that we work on.
What To Do If You're Overworked and Your Net Profit is NOT Where You Want It To Be
Jack Jostes:
And what are some of the challenges that people have, when you're working with them on that, that through your program you're able to help them with?
Jeffrey Scott:
What are the challenges they have? So, do you mean the challenges, why they hired me? Or as we get into it?
Jack Jostes:
How would they know that they might need to hire you? What are some of the symptoms that they would have? And so you're right, I was assuming that they had fixed both sales, and marketing. They're not necessarily the same, but they've got their sales and marketing problem fixed. What are some of the challenges that they're then experiencing?
Jeffrey Scott:
Well, overworked is one of them. I spoke to a prospect who's probably not going to hire me, to bad for him. And I spoke to him, he's working 70 hours a week. It's a big business, over $5 million, but it's not growing too fast. 70 hours a week, and he's making 5% net. That's just a shame. A guy who's reached that level of success could easily... Guy or gal, right? Could easily dial it back to 60, 50, 40, even 30 if that person wanted, and the profitability, the money he's leaving on the table is just a shame, and he didn't seem to care.
Jeffrey Scott:
Okay. He didn't care. I'm not a good fit for him. That's fine, right? It's all about you have enough leads, because not everybody wants what you have. And so, but those are classic problems. Increasing the profitability, and then increasing enough cash so that you can have take home pay, so you're increasing your own take home pay, dialing in your hours to where you want it. Some younger guys, they just want to... They're in the beginning of growing the business, and they want to work obscene hours, and their spouse supports them. Sure. Okay, that's fine. But, many, at least half, maybe two thirds that I work with, realize, "No, no, we've got to dial that back in, but still have the profit and the growth." So those are some of the issues. Oh, go ahead.
Jack Jostes:
I was going to say, at one point in my business, I actually just recently... I'm 11 years into my business, recently, in the last year or two, have gotten to work a reasonable amount, where I have a life, I have hobbies, I spend time with my family. But there were a years, most of my career, where I was the 70, 80, 90 hour a week person.
Jack Jostes:
For people who are listening who are there, and I know a lot of people who are, and they're at that slim, single digit margin, right? How can you get out of that? What are some of the things that people who are listening, who are there, and they feel trapped, maybe they feel like, "Well, if I don't work 70 hours a week, I'll be lucky to even make 5%, or I only make 5%, how could I hire somebody to help me stop working this much?" What are some of the things that listeners could do to break free from that?
Jeffrey Scott:
I love what you just said, that's it. Bingo. "I don't make enough money. I can't afford to fill in the blank." Right?
Jack Jostes:
Right.
Jeffrey Scott:
And when I work with them, I'm like, "No, no, no, that's backwards. We're going to fix the profitability, and in part, you need to do these things to fix the profitability, but we'll fix it quick enough, where you'll have the money to put these new things in place."
Why Many Landscape Company Owners Suffer From Poverty Mentality
Jeffrey Scott:
People are often, what's the word? Poverty mentality. "I don't have enough, I'm not making enough. I don't earn enough, I can't invest." It's a real negative, it's a lack, L-A-C-K. They have a lack of fill in the blank. And, that's a separate problem. That's kind of a... I don't want to say disease, but that's like a virus on its own, that you have to get rid of, and get out of your system. Because once you do, the sky is the limit, once you realize that you can fuel your own growth, and have anything you want, and everything you want. Right? It's all there, with the right mindset, and focus, and strategy. I was going to circle back to your question, but go ahead.
Jack Jostes:
Yeah. So I'm looking for someone who's there. I think you're onto something, though. It is a mindset, and it's hard to know which changes first, because I was working through this with my wife recently, where she's like, "Hey, you're way more relaxed about money now." And I'm like, "Well, yeah, I make more of it."
Jack Jostes:
She said, "Well, no, you changed your mindset first, and then you started making more money." And I'm like, "No, I don't think so." I don't know, though. Right? I think it's something that a lot of successful people, entrepreneurs, are motivated by fear, or maybe they've had a negative experience in their life, where they didn't have money, and that's inspired them to want to achieve great things, but there is kind of always that fear, or that poverty mentality. So, which comes first, Jeffrey? Is it the mindset shift? Or, do you just start making more money, and then your mind shifts? How do you work through that with someone who... I can't imagine an entrepreneur I know who hasn't struggled with that, at one point in their career.
Jeffrey Scott:
Sometimes they don't let go of it, and that's the shame. I'm jumping to the end of the conversation. Sometimes they make it, and they still operate from a poverty mentality, and that's the shame. So, back to your question. When I take on a client, I grab it all at the same time, and we just work on it together. And we build trust, they trust me, we make it work, and I'm that support for the attitude, and for the system to make more money.
Jeffrey Scott:
And then, when they realize, "Oh, I can invest, and grow my business, and I can still have money for me, and still have money for bonuses." Wow, this is a whole new dynamic. But the attitude is really what comes first, but you still also have to make money, and that takes the strategy. So, I work on the attitude immediately, as we put the strategies in place.
Jack Jostes:
So, one of the things that I've found with the poverty mentality that you're describing, pertains to pricing. And often, landscapers, or small businesses in general, are not charging enough for the value that they're delivering. And the pricing is one of the things, if you adjust it, can have an immediate impact on your profitability. So, what are some of the things that you coach people through around their pricing, that listeners could go and implement that might help them right away?
Jeffrey's Pricing Pyramid Can Help You Reach a Healthy 20% Net Profit Margin
Jeffrey Scott:
So, let's go from the attitude of, "I deserve to make money. The business deserves to make money. Now, how much do you deserve?" And what I tell my clients, what I'm telling you is, you deserve to make 20% net profit, after depreciation. Especially if you're in residential, especially. And like the prospect I told you I was talking to earlier, he said, "What? I never heard of that."
Jeffrey Scott:
I don't think he quite believed me. So, you have to get past your disbelief, and realize that you're not cheating anybody. You can't run a business on 5%. 5% is really zero, right? 10% is 5%, 20%, because you need cash to run the business, is really only 15, or even less after you buy stuff, and put cash in the business. So 20% is where I want you at. So to get there, you need to follow my pricing pyramid. And I could draw it up for you here, but I'll just tell you about it real quick.
Jeffrey Scott:
The base work that you sell, the biggest jobs, let's say jobs over a week long, selling those at 20%. You've got to sell the smaller work at over 20%, so that it'll average out when it's all done, at around 20%, or 15%. And so, the base work that's a week or longer, you sell for 20% net. Jobs under a week, shorter than a week, you sell for 25%. Jobs under a day, you sell for 30%. Jobs under half a day, little jobs that some of you hate doing, because are so little, you sell for 35%. That's the pricing pyramid.
Jeffrey Scott:
Some of you by the way, it might even be higher than I've just said. I work with some niches where we sell the work even higher than that. Some of you may be in big build, and you can't quite get 20% for your biggest jobs. Okay, you scale it down a little bit, but, follow that model. And it's like building a stone wall that's really strong. You put the big stones in first, and then the medium sized stones, and then the smaller stones, and little chips. And, that's how it should be. The 20% profit work, the 25%, the 30%, and little chips of 35% profit work. That will build a strong wall, that will build a strong budget. That will average out to 20% if everything else goes right. You get all the months of work you need, et cetera. And if you still miss out, okay, you're missing out from 20% down to 15%, not from 5% down to zero.
Jack Jostes:
And we're talking about net profit, not gross profit. So, I think that's a really important thing. What kind of gross profit? Often, gross profit margins, depending on how you do your bookkeeping, are usually the numbers that most contractors are able to focus on. What kind gross profit margins should people be targeting to get a total net profit for the whole company?
Jeffrey Scott:
I'm reticent to give you a silver bullet, because it's just going to depend on the setup of the company. Generally, people are shooting too low. I talked to a gentleman from Florida yesterday, and he said, "Well, maintenance, we aim for 40% gross profit." Again, I don't know his definition, "And design and build, we aim for 50." And I'm like, "Okay, not in my book. In my book, maintenance you want to be 50 to 60, and design and build, you want to be 55 to 65." And so, remember I told you about my client who was design build, but he made even more in maintenance? His maintenance was 69%. You see what I'm saying?
Jack Jostes:
That's crazy. Yeah, absolutely.
Jeffrey Scott:
Grow more of the maintenance. So, I don't want you to listen to this, and lower your gross margin. It takes a bit of an investigation to set some standards for your company, but the net profit doesn't lie. So, the gross profit can lie a little bit, right? It's going to be different in every company. Everyone has a different makeup, different overhead structure, but the net profit is the net profit.
Jack Jostes:
For sure. And I agree, I understand every business calculates their gross profit margin differently, and it can be kind of confusing, and it is hard to answer, but I agree at 20% net profit margin is very healthy. And part of achieving that, though, is having the right people on the bus. So, talk to us a little bit about manpower, and what are some strategies that people listening can have, to make sure they have the right people on their team? Which is a big focus of your book, Become A Destination Company, which I recommend everybody check out. Obviously, there's the money, and the money is related to the people, and the time that's being spent doing work.
Jeffrey Scott:
Yeah.
Jack Jostes:
What are some of the tips for manpower?
Jeffrey Scott:
So this is a big complaint in our industry, that they can't find enough people. And they'll say, "I can't solve that problem." Right? "I can't get the right people." But that's really a marketing problem. So, you are going to help, my book is going to help you build that destination company to attract the right people. So, again, it's about belief. You have to believe that your company deserves the best people, not just anybody off the street.
Jeffrey Scott:
And so, I'm going to tie that back to, you're overworked and underpaid, right? If you're overworked, you're doing too many things yourself. You either don't have, or haven't hired the right people, or retained the right people. Or, you have a false belief system that you can't trust them, they can't do it as well as you. Nobody's ever built a huge business. Right? Not Apple, not Pepsi Cola, not some of the most successful landscape businesses.
Jeffrey Scott:
They all realize, "Oh, there's people smarter than me. I can get people that can work harder than me, better than me." There's a small business mindset. I see it in Facebook all the time. "Nobody's as good a salesperson as you. Nobody can do it as good as you." Come on. Really? There's 1,000 businesses, the Fortune 1,000, that will prove that wrong. So, plenty of people out there. So, work on the mindset. "If there's people that are out there, I can get them. In fact, they might be better than me in the different positions."
Should You Be Putting Up With B players, or C or D Players on Your Team?
Jeffrey Scott:
You want a solid number two person in production, in admin, and in sales, or sales management. So, the first thing to do is to look at your team, and your team... That's in theory. In practice, there will be four or five people. There might be somebody running the shop, there might be two production managers for the divisions. You might have a CFO. But, in simple terms, it's those three sectors, or areas of your business. Then you've got to have A players in those businesses.
Jeffrey Scott:
If you put up with a B player, or a C player, or a D player. Game over, you don't qualify. You're not in the Olympics. Sorry. Your team's not good enough. I'm reading a great book here, by the way, a little aside here, Boys in the Boat, fabulous book about the rowing team that won the 1936 Olympics, in Hitler's Germany. And, got to have the right team. Can't have one weak link on your rowing team. Really great book. Can't have one weak link and your rowing team to win any kind of race, let alone the Olympics. And so, raising your awareness of that, that you're not going to put up with even B players in those positions. There're going to be B players in your company, but those key positions should be A players.
Jack Jostes:
Jeffrey, tell us a little bit about, you've mentioned that you're going to have B players on your team in various positions, but you can't have B players in your manager, or management, or leadership positions. And one of the things that I like about your book, and some of the speaking I've seen you do, is about focusing time on the A players, right? Because so often organizations, they'll have A players, they'll have stars on their team, but they'll think, "Oh, they're a star. I don't need to spend any time managing, coaching them, building them up." What are your thoughts about that?
Jeffrey Scott:
Oh, I love that question. You want to give your stars more coaching, not less coaching. More attention, not less attention, more resources, not less resources. Right? It's like an investment. Where do you want to invest your time and money? In your better stocks. Where do you want to invest your time and money in your company? With your better people. In fact, when you hire an A player, and you don't give them enough attention, it can actually go sideways on you.
Jeffrey Scott:
So, if you hire somebody who's super ambitious, super smart, is used to making decisions quickly, and you leave them alone for the first 30 days, they could cause trouble. They could just cause rufflings, ruffling the feathers, going down a road you don't want them to, making decisions you don't want them to. I've seen it time and time again. And so, it's ironic, but your A players both need more time up front to get them focused, and then, you get a better return on investment down the road, by giving them more time, focus, and resources.
Jack Jostes:
Great. Great. Well, thanks so much. You've offered a lot of really great tips and information today. For people listening or watching, where can we learn more about you?
Jeffrey Scott:
You can find me at jeffreyscott.biz. You can get my book, The Destination Company on my website. There's also, on LinkedIn, if you follow me, I'm always putting out a free link to download it for free. So, watch me on LinkedIn. When you're on my website, you can sign up for my weekly newsletter. I give away a lot of information. Tips, tools, techniques, so you'll enjoy it, and you'll profit from it, when you sign up on my newsletter.
Jack Jostes:
Right on. Well, yeah, I certainly learned a lot from you, definitely on LinkedIn. I really enjoy all your posts there. And thanks so much for being a guest on the show. Everyone, check out jeffreyscott.biz, and have an awesome week. I look forward to talking with you next Friday.
Jeffrey Scott:
Thank you.