Editor’s note: This is the second in a series of three articles discussing the characteristics of highly marketable and valuable companies in the green industry — commonly referred to as “elite performers” or “best-in-class” companies.
Earnings before interest, taxes, depreciation and amortization (EBITDA) is a widely used key performance indicator (KPI) in the green industry for assessing value. However, metrics like labor costs, gross profit, cash flow, and sales and retention trends also offer useful insights into performance. What do top-performing companies prioritize?
The fundamental question is whether the business’s growth strategy focuses on incremental expansion — adding one customer and one employee at a time over decades — which may make EBITDA less critical. Conversely, if scaling through a buy-and-build approach is the objective, none of these KPIs can be overlooked.
Furthermore, it is essential to consider whether a business can truly achieve scalability and operational excellence without effective EBITDA management. Consulting with experienced operators and comparing their perspectives with private equity principles can offer valuable insights, so continued analysis of these factors is recommended.
Many say focusing on EBITDA often leads to a decline in customer experience. Maybe you’ve heard that narrative recently, but that myth has made the rounds in the industry and investor decks for years. The idea goes something like this — if you’re laser-focused on EBITDA, there is more financial pressure, you are cutting costs, which must mean you’re skimping on the customer experience or cheating scope in your production model.
But that’s a false dichotomy based on what I have seen from the best companies operating in the facility services and skilled trades niche. In my view, it’s an assumption that just doesn’t hold up.
Labels such as “greatness,” “best in class,” or “elite” are not necessarily determined by funding or ownership; outcomes are influenced by leadership and the strategic decisions those leaders make. Leadership is frequently discussed in the context of performance metrics or KPIs, many of which rely on retrospective data. Aligning investor metrics with private equity benchmarks is important. Business improvement strategies benefit from incorporating both viewpoints, in my opinion.
Key metrics to consider when scaling up
EBITDA
A financial metric used to assess operational profitability, EBITDA is not inherently anti-customer. This myth stems from the assumption that improving EBITDA means slashing expenses, especially in service-heavy areas, which could hurt customer satisfaction.
In reality, many companies have proven that delighting customers can actually improve EBITDA by increasing retention, reducing churn and driving referrals. Chick-fil-A, Apple and Ritz-Carlton are good examples of this.
Other critics argue EBITDA is a “fairy tale” metric because it ignores capital needs, working capital and long-term sustainability. Some say it’s misused when companies manipulate add-backs or ignore recurring costs. But that’s not a flaw of EBITDA itself; instead, it’s a flaw in how it’s applied. Poor leadership might chase short-term EBITDA at the expense of long-term brand equity, but that’s a strategic failure, not a financial inevitability.
Internal rate of return (IRR)
The internal rate of return (IRR) measures annualized returns while accounting for the timing of cash flows. Although IRR is widely regarded as the benchmark for private equity performance, it is often overlooked by operators, primarily due to the absence of a liquidity event.
Nevertheless, operators typically experience annual cash flows through salaries and distributions. To determine IRR, one can input annual cash flow figures into Excel or Google Sheets and use the formula: “= IRR (A1:A6)” (See “The buy and build example” on page 30). If the firm aims for a hurdle rate of 20 percent, then a deal clears most bars and is considered attractive.
Multiple on invested capital (MOIC)
Represents the total value (realized plus unrealized) divided by invested capital. This measure does not account for the time value of money (see “The buy and build example” on page 30). Returns of 3x or better in a five-year time horizon are considered attractive.
Organic revenue growth
Tracking retention rates are key indicators of market traction and scalability. While operators may underestimate the importance of high single-digit or low double-digit revenue growth, investors often consider insufficient growth a critical concern.
Additionally, many companies continue to demonstrate a passive approach in their go-to-market strategies.
Debt leverage ratios
Measures how much debt is used. Private equity often leverages up to 4.5x EBITDA (e.g., $2 million EBITDA = $9 million debt), while operators using traditional or senior bank debt typically reach only 1x due to stricter underwriting, personal guarantees, credit checks, collateral and cash flow requirements.
Customer retention rate
Equally critical is the deliberate focus on customer retention and lifetime value, as these metrics reflect both the health of client relationships and the company’s ability to generate sustainable revenue without constantly relying on new customer acquisition. Monitoring customer satisfaction scores, Net Promoter Scores (NPS) and churn rates gives operators a deeper understanding of long-term revenue stability and brand loyalty.
When paired with rigorous financial and operational benchmarks, such as those highlighted above, these customer-centric indicators empower organizations to balance fiscal discipline with exceptional service, fostering not only profitability but also a resilient, people-focused culture that withstands market fluctuations.
Employee turnover and engagement
Another dimension that distinguishes high-performing organizations is their vigilance in monitoring non-financial indicators, such as employee headcount, employee turnover and engagement. Companies that foster a culture of open communication, professional growth and clear purpose are better positioned to retain top talent and maintain institutional knowledge, which drives operational efficiency and innovation.
By routinely surveying employee sentiment and tracking development opportunities, leadership can proactively address issues before they impact morale or productivity. Such deliberate attention to people metrics complements rigorous financial analysis, offering a holistic view of organizational health and readiness for growth.
Safety metrics (TRIR, DART)
Organizations now track safety metrics like total recordable incident (TRIR) and day away, restricted or transferred (DART) rates alongside financial controls to gauge workplace safety and compliance. This integrated approach protects employees, demonstrates commitment to sustainability and balances performance in profitability, growth, culture, and risk management for long-term value.
Budget vs. actual variance
Many companies still lack effective budgeting and real-time tracking. Simply trying to outperform last year isn’t an effective management approach, and consistent forecasting remains a major challenge, equivalent to driving by only looking in the rearview mirror.
All these strategies reflect a leadership mindset. When considering acquisitions or business evaluations, assess alignment in culture, metrics and operations. Private equity firms use fund-level metrics and portfolio KPIs to measure returns, manage risk and guide decisions, and operators should do the same.
What great leaders do
To truly drive sustained success in today’s competitive landscape, organizations must weave together these quantitative and qualitative metrics into a cohesive strategy, ensuring that financial rigor complements people-first priorities. This equilibrium not only amplifies operational agility but also reinforces the vital connection between engaged employees, loyal customers, and robust financial outcomes, providing a solid foundation for the operational excellence and forward-thinking practices that follow.
⦁ Operational excellence without sacrificing experience. Streamline operations to reduce waste and improve margins — think Six Sigma or Kaizen — but never at the expense of customer touchpoints.
⦁ Automation and asset. Return-on-investment (ROI) measurement is crucial as robotic mowers and AI continue to evolve. Are these technologies included in your budget and strategy? Data visualization software is increasingly used in private equity to convert fragmented data into actionable insights.
⦁ Empowered frontline teams. Your foremen and supervisors are likely interacting the most with the customer. Training and incentives are essential and lead to higher retention and better performance.
⦁ Decentralized decision-making. Ritz-Carlton empowers employees to resolve issues instantly, which reduces escalations and builds loyalty, all while keeping service costs predictable. If you look at the failures in the landscaping space from private equity or publicly traded companies, centralizing too many parts of the business becomes a fatal flaw. Empowering branches is the best strategy.
⦁ Employee development. Chick-fil-A invests heavily in employee development, which translates into faster service, fewer errors and happier customers. Why not you?
⦁ Customer-centric metrics tied to financial outcomes. Companies monitor NPS and customer lifetime calue (CLV) alongside EBITDA to ensure long-term profitability.
⦁ Retention as a profit lever: High retention reduces acquisition costs and stabilizes revenue, often a direct EBITDA booster.
Brands like Apple, Chick-fil-A and Ritz-Carlton have shown that investing in customer experience can lead to premium pricing, loyalty and operational efficiency, all EBITDA boosters. In private equity, firms often use EBITDA as a performance yardstick, but the best operators know that customer delight is a lever, not a liability. If you’re building a business culture that values both financial discipline and customer obsession, you’re not just busting the myth, you’re rewriting the playbook.
To push this philosophy further, integrating real-time feedback loops and embracing continuous improvement ensures that organizations quickly adapt to evolving market conditions while fostering a culture of innovation. Leveraging data analytics and customer insights, forward-looking leaders can anticipate needs and personalize offerings, enhancing the entire service journey.
This approach not only sharpens the company’s competitive edge but also nurtures a workplace where empowerment and accountability drive both personal growth and organizational results, setting a powerful precedent for sustainable, people-driven success.
