Doing more with less

By Judith M. Guido

Note: Last Fall, SIMA completed its first financial benchmarking report for the industry. The association wanted to plant a flag for snow and ice CEOs and managers and create a resource that compiled industry data anonymously, allowing companies to benchmark themselves against other companies. Working with the Profit Planning Group, a third-party expert, data was collected and a statistically valid report was created. SIMA hopes to continue this work every few years by continuing to deliver benchmarks. We wanted to share some key information with the industry at large. With that in mind, I asked industry expert Judy Guido to provide her thoughts on the key takeaways from the report.
- Brian Birch, Assistant Executive Director, SIMA

Once Brian asked me to review the information in the report, I started to get an idea of how the higher-profit companies in snow and ice maintain success. Although the sample size [those companies that reported their financial data] was small, the data told a story that hinted at the owners’ moves and how those decisions translated into either financial success or mediocrity for their businesses.

For this analysis, I focused on “typical” companies vs. “high-profit” companies. According to the report’s executive summary, financial performance varied widely among participants. While the high-profit firms may not have always performed better in all critical profit variables (CPV), the sum total of their CPV performance produced better overall results.

Some insights to ponder:
Accounts receivable. One such example in which high-profit companies underperformed typical companies was in the average collection period days, which reflects a company’s accounts receivable practices. The typical companies had a 46.8-day average for collections, compared with the high-profit companies’ 51.3-day average. While cash flow is important to any company’s success, this 4.5-day collection difference was neutralized by the high-profit companies’ efficiencies and execution in their overall operations, sales and financing practices.

Employee productivity. The data that shed some light for me on the successes of the high-profit companies were first seen in the area of sales. The typical companies yielded $104,400 net sales per employee vs. $147,600 for the high-profit companies, which is a large variance. High-profit companies also had higher sales from fixed assets (6.6 yield versus 5.6 for the typical company). The high-profit companies averaged 62 inches of snow vs. 55 for the typical company, yet serviced less average acres [69] compared with the typical company [89]. And while both types of companies had an average of 32 events, the typical companies generated $17,024 per service event, while the high-profit firms averaged $19,983 per event.

Personnel and compensation. High-profit companies paid only slightly higher compensation of $38,643 per employee vs. $37,099 per employee [34.6% total payroll expense for high profits vs. 42% for a typical company]. The high-profit companies had 2.2 fewer employees than typical companies [10.4 vs. 12.6], while direct production labor was only 7.2 employees for the high-profits compared with 9 for the typical companies.

Sales and gross margins. Of further interest was that the high-profit companies had almost 50% fewer sales people than the typical companies. High-profit companies averaged $6,388 of snow and ice sales per customer compared with $5,773 for the typical companies, and $37,044 of snow and ice sales per plow and salt vehicle for a high-profit vs. $25,423 for a typical company. Gross margin per employee for a typical company was $42,995 compared with $55,838 for a high-profit company. This data suggests that the high-profit companies are steeped in sales and manpower efficiencies, and also indicates that perhaps these organizations wisely invested in marketing, sales and operational training.

Expense management. The next interesting data points were seen in the gross margin percentages, which reflect the ability to manage cost of goods sold, and the operating expense percentages, which focus on controlling expenses. While both groups had identical gross margin percentages of 42.6, there was a significant difference in their operating expense percentage [37.7% for a typical company and 30.7% for a high-profit company]. The 7% variance in operating expense, along with the enhanced productivity of employees in the high-profit group, shows that overall the high-profit companies did significantly more with less.

Debt to equity. Last, but not least, the high-profit companies’ owners took out less in payroll [3.1% vs. 4.2%] and invested more into the company [59.6% owner equity compared with 48.4% for a typical company]. High-profit companies, therefore, had less debt to equity [0.7 compared with 1.1]. The times interest earned was dramatically different, with typical companies having a 5.0 ratio vs. high-profit companies’ 24.0 ratio.

The data clearly show that high-profit companies were much more efficient in their operation, sales and financial strategies, and their owners invested more back into the company to grow and protect it.

• 29.9% - Return on assets (ROA) as a measure of performance is a good indicator of the firm's ability to survive and prosper. The high-profit firms had a significantly higher ROA percentage compared with the typical firms (9.6%).
• 58.4% - The high-profit firms had a higher percentage of net sales from snow and ice removal than the typical firms (46.4%). In addition, high-profit firms performed more deicing only events (56.8% vs. 48.7%), whereas the typical firms serviced more plowing events (51.3% vs. 43.2%).
• 11.5% vs. 4% - High-profit firms recognized a substantially higher percentage of profit before taxes compared with the typical firms, in part because of lower operating expenses. Their return on net worth was also substantially higher (50.8% vs. 20.2% for typical firms).

Judith M. Guido is a principal in Guido & Associates and a business management consultant who has been helping snow and green companies grow successfully for more than 20 years. Visit her on LinkedIn, Facebook and Twitter.