Big Companies Taking Over Business

Discussion in 'Business Operations' started by longislandlawn, Apr 2, 2013.

  1. jbell36

    jbell36 LawnSite Bronze Member
    from KANSAS
    Posts: 1,265

    one thing i will add is this...the large companies buy in bulk, not only their material like fertilizer but mowers and equipment too...so they definitely get a discount there...also having a lot of properties gives a better chance of closer stops, less windshield time...and think about insurance, you have to have a special kind of insurance if you are doing lawn treatments, for example, on top of all the other insurance you have to have...it seems to me that the larger companies are doing so much revenue in chemicals that this additional cost is very minimal, whereas a smaller company would be affected much more by this...

    to me it's all seems relative, if you have 50 employees then that's because you can keep 50 employees busy as opposed to just having 2 employees and being able to keep 2 busy, so yes, your payroll is much much much more expensive, but your return is also much much much more...i've always heard the larger companies have more overhead, but i never quite understood why
     
  2. 205mx

    205mx LawnSite Silver Member
    Posts: 2,342

    Why haven't you? Overhead isn't a percentage. It's a number.
    If y business has one lawn and I use a string trimmer to mow. I have less that 500/year Overhead.
    Posted via Mobile Device
     
  3. Smallaxe

    Smallaxe LawnSite Fanatic
    Posts: 10,080

    Everyone is correct in that overhead is simply a number inclusive of al the costs of doing business... I got ahead of myself by automatically comparing to Gross Income and assuming Profit Margin...

    For me overhead has little or no meaning outside of it relationship to income,,, becuz the only thing that has meaning is the profit margin...

    If I was a big company moving against the small companies in a particular market I could cut profit margins into a negative number for the particular market and still have a profit margin in the millions...

    My point is simply that we could never win a lawn war against TGCL when playing by their rules...
    I hope the point is clearer now,,, and thanx for not jumping all over my slipup and call me names for the next 20 posts as some people do... :)
     
  4. Smallaxe

    Smallaxe LawnSite Fanatic
    Posts: 10,080

    Riggle has exposed the underbelly of the Leviathon and its related weakness... My POV in addition to that CONCEPT is that there is no way that a "One Size Fits All Conglomerate" can compete with an IPM company that UNDERSTANDS what he/she is doing...

    As long as you play the "Wannabee" and play by their sub-standard cultural practices,,, you will always be the second or third rate lowballer,,, JUST to stay in business...
    I say,,, step it up a notch and make your clients the best in the neighborhood by doing lawns RIGHT...

    Of course that means,,, doing lawns right... Real education is what is needed in this particular case... :)
     
  5. Greg78

    Greg78 LawnSite Silver Member
    Posts: 2,010

    Wal-Mart has purchasing power. Comparing the retail industry to a service based business is apples and oranges.
     
  6. ryde307

    ryde307 LawnSite Senior Member
    Posts: 540

    Not exactly true. If you do not believe large companies have purchasing power you are mistaken. Many are purchasing supplies and equipment at considerably discounted prices compared to what the average company will.
    This will then help them to keep prices lower and at places you or I may not be able to compete in a price only structure.
    Service or retail in most ways you are still selling a product. Walmart may be selling a toy they by 1,000,000 of so they now get it for a fraction of the price. They still now have there labor, overhead, and profit but again it is spread out over so much production/sales they can sell at a lower price.

    In the lawn company scenario you are still selling a product. You are selling a finished, maintained, well taken care of lawn/landscape. Again the big company purchases equipment and supplies in large quantity at a discounted price, adds there labor, overhead (again divided by a larger amount of man hours), and profit.

    In the end it is not as apples to oranges as it seems.

    In a small scale think of it this way.
    Company X and Y both need 3 pallets of fert per application with 5 apps per season or 15 total.
    Company x prebuys all 15 pallets. They now get a discount rate based on volume, and they get free delivery saving labor and fuel. They are no paying 30% below retail to have product ready to go.
    Company Y says we don't have the ability to prebuy we will buy 3 pallets each application. The do not get the discounts based on quantity purchased and do not get free delivery. They now are paying 20% below retail to have product ready to go.

    Company X is already 10% ahead of company Y before any production even happens.
     
  7. snomaha

    snomaha LawnSite Senior Member
    from midwest
    Posts: 871

    Overhead starts to lower as a percentage of sales once you become a large business (roughly 2 million or more in sales). Maybe this company is getting work because they can price more competitive than you?

    Larger companies can often make more efficient use of office space, office machines, facilities, office personnel and other capital assets. They also have better buying power for materials, supplies, insurance and equipment.
     
  8. GreenUtah

    GreenUtah LawnSite Senior Member
    from SLC, UT
    Posts: 866

    Since I came from that "world" and have directly competed with them for decades since, I'll speak up.
    The notion of bulk buying and efficiencies of other fixed costs is correct. When you buy by the truckload, you save. When you buy in mass for insurance and fuel, you save. When you buy under a fleet account, you save.

    Period.

    Likewise, fixed costs like warehouse/storage space, office personnel etc. are far more spread out over a larger customer base, meaning less cost per job than you might incur.

    So how come they aren't just setting a price so low that no one else can compete, drive out all competitors in each market and create a monopoly?

    Because you are missing some costs that you don't have. Number one, layers of personnel. Your company is not paying for high dollar branch, regional and corporate managers. Their travel time and expenses, their enormous inefficiencies and their salaries which are often a multiple of service or sales personnel. Second, bond and shareholders. Sure, you as an owner count in your expenses but you are also likely to be a revenue producer, whether that's as a sales person or field operator. Theirs do no such thing, they are only negative cash flow with high demands. Third, as stated previously, their plans cannot change quickly, they do the minimum job, they turnover personnel rapidly. All of those things negate their route efficiencies by creating customer service issues on the backend, which leads to additional costs. The average TGCL branch churns 30% of their customer base each year and a similar, if not higher, number of employees. Retraining and marketing just to get even has a high cost that you likely do not.

    Don't fear the nationals. They've got their whole host of problems to deal with too. Learn their weaknesses and exploit them with those that are unhappy and be glad that they are creating the market for you with their empty promises that go unfulfilled by their disconnected production arms. :)
     
  9. clydebusa

    clydebusa LawnSite Bronze Member
    Posts: 1,660

    ^^^ nicely done ^^^
     
  10. Vanderhoff Landscaping

    Vanderhoff Landscaping LawnSite Senior Member
    Posts: 383

    Most of these larger companies have been around for a long time. Their work is basically their advertising. A reputable company takes time to build. I'm in my third season and I am nowhere near the size that I would like to be. I've got quite a few new customers through word of mouth. That I can say is the best advertising that you can get. I will throw a client a bone if they refer more buisness to me. You take care of them, they take care of you.
     

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