Commercial VS Residential Landcaping? IMPORTANT

Hey everyone, it's Mike with Landscape Business course podcast. And today we're talking about big contracts, commercial jobs and city work, especially when you're too small for the size of job that's being required. And I really want to just jump right into this because it's something I see time and time again leading to the failure of many, many landscaping companies, especially when they're in their infancy, especially year one, two, three. And this is what happens. This is the story that I hear at least once or twice a week. Company does 50 to 100,000 in revenue, just kind of part time getting started. They go full time, they're really excited and they get a big RFP request for proposal or a big opportunity to make an estimate on a big job that is 50 to 75, 80,000 in an annual contract. And they're very excited because they know that instantly they're going to be able to hire somebody instantly, they're gonna be able to get a second truck instantly, they are going to be able to real business and double the size of their business literally overnight. And that's all very, very exciting and very, very seductive for a small business owner especially. That's just started out second, third year, very, very hard to turn away. But here are the reasons, here's the warning I want to give to you. If you're just starting out, if you're new, if you have a small lawn care landscaping business, this is why you want to turn that work away. Okay, this has happened time and time again where we get massive RFPs, we requests for proposals. That is the type of contract that's usually put out to bid on by city projects as well as big commercial jobs. This is big maintenance projects. This might be install projects, this might be city work for maintaining along highways, roadways, garden areas that are public areas, municipal contracts, all of these.

The number one thing I don't like about it is typically it's very low margin. The reason it's a very low margin, other words, in other words, very unprofitable, is because they are having, they have an rfp. In other words, they're going to submit that same document to 10 other landscapers. They're not making that one document and handing it to me like, oh, please give us an estimate. No, if they take the time to make an rfp, they are going to submit that to all your competition and all of your competitors are basically in a race to the bottom. And guess what? Most commercial jobs and most city jobs are on a budget and they're going to take the Bottom of the pack. They're going to take the bottom two or three bidders and they're going to vet those people. They're not looking at the people who are priced in the middle or priced above them and asking why they're different. They just take the bottom ones and try to vet them out. And so traditionally very low margin, what I see as a kind of marker is people in companies that really focus on large commercial maintenance or large commercial installs. Their profit margin 5 to 10% a good company, they have much more higher volume but 5 to 10% in terms of net profit. That gets me a little bit scared when there's a recession or when things start falling apart when the labor economy tightens up like it is now. Now in a residential, a good, a well run residential company, you can easily make 10 to 20% net profit and but be much more comfortable because you can charge higher premiums to the residential customer who's not getting 20 bids. They take you because you submit your estimate within 24 hours instead of everyone else takes three or four days and they accept your estimate before they even get other bids done. Whereas a commercial person is taking their time. It takes a bunch of your time to prepare the estimate. You have to read the whole rfp. You have to go through all the things they want. You have to make sure all your scheduling is correct. You have to, it might take you literally 10, 15 hours to create an actual proposal for them. Alright, number one thing I have against this type of work is low margin. Number two, very high competition with big players. And these big players, whether it be regional or even national companies that are especially in the maintenance field, they'll go after these big contracts and they're willing to make 1 2% margin. They're willing to lose money if they're trying to gain market share or wipe out competition. They are willing to do that and they have the pockets to do that. They are counting on scale. They're counting on. If you're looking at someone like brightview who has to move stock prices, they need to grow revenue by X amount this quarter and they're willing to lose money on the contract in order to get that revenue marker goal met. Alright, so you're competing with much bigger players who are willing to lose on these contracts to get them. Third reason why I'm against these cityworks big maintenance contracts for commercial jobs. Equipment costs much, much bigger. You might have been doing 50 to 100,000 for example last year in revenue doing residential lawns. You only need a push mower and a weed eater and a blower and some simple basic equipment. Now you get into an $80,000 a year commercial contract and all of a sudden you need a 60 inch zero turn and a bigger truck to haul a bigger trailer. And you need bigger pieces of equipment. And when the leaves fall, no longer is a blower like all you need, you need like a big bagging system with a dump truck. Like it's insane. And so your equipment costs go up. Cause you need bigger equipment and your asset utilization goes down. Because you might only get one contract that's like that. Like you might not. A blower might be good for all your other jobs, but because you get this one contract, you go out and you have to buy a piece of equipment that you use for three weeks out of the year, like a Leaf Vac or some other big piece of equipment that you need. Because this one contract, this one customer makes you buy it. And guess what? If you lose that contract next year, that equipment is useless now and the asset utilization is very low because all your other contracts don't need that piece of equipment. Another thing I don't like about these big contracts, big maintenance contracts, especially when you're starting out again, I'm not against commercial, I'm not against municipal or city work. But when you're just starting out, I feel like time and time again it's like business suicide for small lawn care businesses. Another thing about contracts is you need a lot of services. They want you to do irrigation, they want you to do mowing, they want you to do plowing, they want you to trim all the bushes, they want you to do spraying, they want you to do fertilization. And like the list just keeps going on and on. And in order to do that again, you're adding complexity to the business. If you listen to all the training videos we talk about, simplify, simplify, simplify. Make the business more simple. If you want to scale it, if you want to get out of day to day operations, if you want to be able to empower your people, if you're wanting to be able to find labor easier instead of having to find really skilled individuals. And so by having lots of services that they're requiring, you then have to go diversify so much to the point where you have to be on the property more. It's harder to find people that know how to do all those services. It takes longer to train them, takes longer to get them to a place where those employees are profitable because they have to learn so many different types of service. Mixes. So I highly encourage you if you're small, if you're just getting your business built, do not go out and try to bid on these properties. Don't even entertain the thought.

City, municipality submits you a bid and it's 20 pages long. Don't even look at it. Don't even look at it. If you're not already have the equipment, you have the manpower, and that customer is not going to be a, you know, 30, 40, 50% of your revenue next year is wrapped up in one customer or one contract. It makes you very vulnerable. And it makes you to the point where if that, if you lost that customer, you'd go out of business. Because now you've bought all this equipment, you have all these people, you have bought, you know, invested all this time, energy, money into something that then disappears on the next year. And I highly recommend you really think about before you get into these big contracts. Make sure your business foundation is set in stone and you have a solid foundation to build on. That is not in your first year or two of business. That is not when you're doing 100, 200, 300,000 in revenue until you're doing a large scale, you have lots of manpower and lots of equipment and you can actually get those jobs done at a profitable, healthy profit margin. I, I wouldn't even entertain the thought. One of the biggest things I see put small landscaping businesses out of business is getting big, big contracts in their second and third year of business that make up 20 to 40% of their revenue for that given year. And what do you know, within a year or two, said contract is gone, or even worse, the contract, they get to keep it, they win it, and it's unprofitable. And every single time they come to the job, they're losing money. And when, when they're unprofitable now on 40 and 50% of their revenue, they are going out of business. They are going bankrupt. And so I highly recommend you really take a look at this. Remember, if there's an RFP that's being submitted to you and it's big, it's going to a bunch of other companies, it's gonna be very highly competitive, very low profit margin. And I double think that especially if you're just starting out. My tip of the day, just one man's opinion, but I hope it helps. You comment below if you agree or if you disagree about the prospect of bidding on these massive landscaping projects, massive landscape maintenance contracts, when you're just getting started. Thank you so much, everyone. I'm Mike Andes. You've been listening to landscapebusinesscourse. Com. Make sure you text Landscaping to the number on the screen right there. 855-575-1267. And special treats are on there. We'll see.