Measuring up

Photo © Adobestock

I remember one of my first Loma Vista Nursery budget meetings. I was sitting in a small conference room with the company’s owner (my dad), along with my uncle and our accountant.

Now if you remember 2007 like I do, it wasn’t a great year. Big and small companies were going out of business right and left. Sales were down. And we, like probably a lot of other production nurseries, were throwing away surplus inventory at what seemed an alarming rate.

But we did not have a good process in place to inform our staff how much shrink we were tossing, or even if our labor and sales were legitimately comparable to others in the industry.

Our ownership and top-level management tracked company financials on paper at the end of each quarter, or whenever the accountant was able to put them together. My perception was that, even though we set a company budget, we didn’t worry too much about sticking to it back then. My dad approved or didn’t approve purchases on what seemed like a whim. In reality, approvals were based on excellent use of his tribal knowledge and business acumen.

Soon, this budget meeting took an interesting turn. Studying the numbers aloud, my dad began voicing concerns about the company’s labor costs compared to sales revenue. The cost of labor was increasing, and with declining sales, the costs in relation to sales were very high. With emphasis perhaps fueled by frustration, he stated: “This labor is out of hand. No raises and hiring freezes effective immediately.”

Benchmarking as a compass

Looking back, my dad was on to something. At the time, I knew our shrink was high. I knew our sales were down. I knew things were a little slower than in previous years. I knew we had a lot of good people working for us. But I sheepishly asked, “How do we know our labor is out of line?”

The air in the conference room stood still as he pulled out a spiral-bound, plastic-covered notebook and slapped it on the table. He began thumbing through pages and started schooling us on something called “benchmarking statistics,” published by the former American Nursery and Landscape Association (ANLA), now AmericanHort.

By way of definition, benchmarking is a compass for improving business performance. It’s an anonymous, industry-specific tool for collecting and interpreting financial data and comparing metrics against industry peers. Outcomes point leadership in specific directions for company success.

“It says right here,” he continued, jabbing the page and gazing up, making eye contact with each of us, “that a grower’s labor as percentage of sales should be around 25%. We are at 35%, and 35% is garbage. We must be wasting a ton of labor.”

Fast-forward to 2022. I’ve just completed Dr. Charlie Hall’s Executive Academy for Growth & Leadership program, called EAGL, and I’ve enrolled Loma Vista Nursery in his Your MarketMetrics benchmarking community, which anonymously takes a nursery’s raw data and crunches it into comparable metrics.

Key Performance Indicators

Benchmarking is used by countless industries to track metrics around company-provided key performance indicators (KPIs), including shrink and labor. Through graphs and number storytelling, benchmarking can show how your business stacks up among others “like you” and suggests where to focus attention for growth.

Among its benefits, Your MarketMetrics arms company leadership with a wealth of valuable information. Specific to our industry, benchmarking enables participants to anonymously input their company’s metadata using KPIs they care about most. Typically, these include labor as a percentage of total sales, product loss and transportation, among others. By applying and adjusting specific filters, leadership can see how their business stacks up with others in the industry and where they can improve for optimal performance, productivity and efficiency.

I know with certainty that benchmarking gives Loma Vista Nursery a solid baseline of information. Our numbers people love the program. And our budget meetings are productive as we evaluate, then reference apples-to-apples comparisons aggregated from industry benchmarking. Our strategic planning meetings are productive, too, because we use benchmark data to identify company strengths and weaknesses in relation to our peers.

Among our key learnings, we know that controlling shrink is a sure and fast way to improve profitability. While this may seem an easy decision, consider this: We all know growers experience shrinkage for one reason or another. We can have crop failures related to weather events. We can have shrink due to pest or disease damage. Or, we can have surplus plants that just don’t sell.

Everyone measures differently

Think about these scenarios, too: Grower A may be perfectly happy with 10% shrink as a percentage of sales, until they learn that Growers C, D and E experience 3% shrink. Or, what if Grower A has 35% shrink year after year but is still profitable? What if Grower B’s team cannot find a way to reduce out-of-control shrink but believes a lower shrink goal is unrealistic? Benchmark statistics show that improvements are possible.

What if — in reviewing financial benchmarks — a company discovers its costs are significantly higher than their competitors? Obviously, it would be wise to evaluate processes for improvement and invest in efficiencies. Benchmarking provides that level of detail, too. And if they’re willing to share, it’s possible to learn from another peer company — one that struggles with the same issue.

These days, companies use value propositions and messages about differentiation to stand out from their competition and become vendors of choice for their clients. That’s part of the secret sauce that makes your company attractive to customers. But it’s not the only ingredient.

Growers, always driven by consumer marketplace demand, still need to produce their products in the most cost-effective way possible. Instead of defining company standards and setting goals based on opinions, ideas or assumptions, benchmarking arms leadership with data. Decisions are then based on facts learned from statistics. This can and should also inform the company’s brand value propositions and differentiation messaging.

It takes time

Applying benchmark results takes time. It’s an ongoing process of tracking, analysis and action — not something to be done all at once.

The most important outcome of benchmarking is applying data to make a difference. Communicating about those results and key learnings from the top down and company-wide is an important outcome. If you ask people to track certain things and then never look at or address the data, it’s not meaningful.

We can let each team member know our expectations for business growth in a way that builds confidence in the company and in us as leaders. No one is in the dark about how success or failure is measured.

A good example of this is productivity on the canning line. We have metrics by container size for the number of pots we should plant daily. If someone on the line is slowing things down and not allowing us to hit our metrics, we see this as an opportunity for training.

Not sure where to begin? Start with communities like Your MarketMetrics and associations like AmericanHort. Industry resources like these and others offer opportunities to deeply understand how your business ranks among industry peers and can help you interpret data to guide business decisions.

AmericanHort will release its 2024 Financial Benchmark Industry Report in October 2024. The report will provide comprehensive data that is the result of industry-wide surveys conducted this year.

Numbers don’t lie

We keep score on a daily basis at Loma Vista Nursery. Success is a result of the direction benchmarking points us. For example, we track production labor hours by job code. If our labor costs creep up too much and become out of line with industry standards, we identify ways to improve.

Knowing where we spend our labor dollars is key because without this information, we are just guessing. Guesswork should not drive decisions about labor cuts or efficiency improvements.

My dad knew this that day back in 2007. I know it today, and the metrics prove it out. Employing results based on benchmark data enables development of actionable plans that have positive outcomes.

To be sure, you cannot live and die by industry benchmarks alone. They’re not gospel. You still have to consider your company’s uniqueness, along with its brand values and marketplace reputation. But knowing where your company stands in relation to others — that you are not on an island alone in a big green sea — is a good starting point for legitimately identifying strengths and weaknesses.

Data gleaned from benchmarking analysis is the compass that points the way to success. And it’s comforting to know that in good times and in challenging ones, we really are all in this together.

Lyndsi Oestmann is president of Loma Vista Nursery, a family legacy business founded in 1991 by her father, Mark Clear. She served as an AmericanHort board member from 2021 to 2024.