Financial Benchmarks: How do your customers measure up?

By Brian K. Birch

Over the past year, SIMA’s education committee worked with a professional third party expert to conduct a benchmarking study for the industry. The goal was to aggregate financial data from balance sheets and Profit and Loss statements to create some target benchmarks. The preliminary results are in, and I thought I’d share a few that are relevant to those of us who are trying to understand the professional snow and ice contractor better.

The benchmarking survey results below are broken down primarily by revenue in snow and ice. From there, ratios were used to determine the high profit companies whom were leveraging their P and L's most effectively and generating more profit and lower expense.  The graphs below will illustrate the average, the high profit, and then several revenue categories for comparison. My hope is to share a little information with you to spark your interest in learning more about who your snow customers are, and where they stand from a long-term business and fiscal management perspective.

Return on Assets
This ratio, determined by dividing Profits (before taxes) by Total Assets, we can see that the snow and ice firms whom have a higher profit are seeing a much higher return on their assets. How is your product making their Return on Assets ratio go up? 

In general, a Return on Assets lower than 5% would indicate a serious problem for the company for long term survival. A ratio between 8-10% indicates an owners minimum benchmark, but still not ideal as there is no provision for growth or offsetting of inflation. Firms with Return on Assets over 15% are the higher-profit companies performing well, managing their assets effectively, and generating solid profit.

Accounts Receivable Collection Period (Days)

This is a simple graphical illustration of the average length of time it takes to collect receivables. Are your payment options and terms in line with these contractors, and are they flexible and customer-centric? 

Equipment Ratios

For the averages below, the first column is the average typical respondent, the second column is the high profit, third column is Sales under $1 Million, fourth is Sales $1 - $5 Million, and last column is sales of $5 Million or more. This illustrates the average number of service vehicles, what type of vehicle, and some equipment to sales ratios.

 

Summary

As we develop our marketing and sales initiatives for the next winter season, we’ll need to keep in mind the immense pressures that are pushing on our target audience. They are being forced to do more with less, and while overall the professionals in the industry are holding strong, this is still a time of great need. How can you and your service or product solve an issue for them, or cause one of these benchmarks to move toward the highly profitable/successful column? 

If you would like more information about how to obtain the 34-page financial benchmark survey, email me at Brian@sima.org!