Figuring your business costs (a must read)

[Little's]

I found this while on an Arborist forum. He taught landscape architecture and was a contstruction professor at Iowa State Univ. What he says here is very informative, and I think everyone should read it. Here it is: Figuring out what to charge for each guy and for each piece of equipment is a big part of the equation but there is more to consider. As lxt stated, first you need to know what your operation or overhead cost is per hour. This figure should exclude the cost of owning and operating your large equipment. For your overhead cost, you add up your insurance, advertising, maintenance expenses, cost of small equipment and other annual expenses then divide that by the total number of working hours you can put in in a given year (ex: 50wks x 40 = 2000 hrs). That will give you a dollar figure for your overhead per hour of operation. Then, you figure out your payroll operating costs including taxes, insurance, training, etc. if you haven't already figured this into overhead. Divide your payroll cost by your working hours in a year and you now know the minimum you have to charge for labor to break even on it. Next, figure your cost of equipment including loan principal or lease payments, interest, insurance, maintenance, reparis, depreciation, fuel etc. and anything else that you have not already figured into your overhead costs for each piece of equipment. Divide the total annual operating cost for each piece of equipment by the total number of actual hours you will put on it in a given year (typically not going to be as many hours as labor). Now you know how much it costs to operate your chipper vs your bucket truck vs your dump truck. Each should have its own hourly cost of operation. Add all of these together and you now know what your minimum operating expense per hour is for a three man crew running a bucket truck and chipper. Mind you, I said 'minimum' as in break even cost. Now, you have to figure in how much profit per hour you need to make for your own salary (if you're not included as an employee) and for your business to grow and prosper. You're still not done. Now you add the 'difficulty' factor to the bid. This is a factor that can be less or more than 100% of your base bid that is determined from your 'gut feeling' about the job. For jobs that are extremely easy with little danger or maybe during times when things are a bit slow, you might take your bid times a factor of 0.90 and end up with a final bid smaller than what you normally would charge - BUT, you at least do this knowing what you normally would charge. For difficult jobs that are going to be a major pain in the butt, you might take you bid times a factor greater than 1.0 to give you a cushion for things that might go wrong. Finally, don't forget mileage, hauling and disposal fees for the job. How far do you have to travel? Where will you dispose of chips, logs, stumps? Are you considering drive time for your employees and equipment? When you come up with your bid price, you should know exactly what your costs associated with the job will be and what your bottomline profit will be. If you can't sit down and pick out these numbers with every bid that you give then, you are just guessing at your numbers.

__________________
Northern California

[Little's]

How to get lawn care customers - Vol 2

oops

__________________
Northern California

Figuring out the rate for each piece of equipment seems like a great idea. Just gotta sit down and do a #### of a lot of work to do all that :P

[Little's]

Originally Posted by [b

Quote[/b] (UniversityLandscapers @ May 02 2008,8:56)]Figuring out the rate for each piece of equipment seems like a great idea. Just gotta sit down and do a #### of a lot of work to do all that :P

Yeah I agree it would be a lot of work to get the figures accurate to begin with, but would make for some good solid figures you could work with without any worry if you are charging correctly or not.
Kinda like sitting down to do your taxes, no one wants to, but once it is done, man it feels good.

[Steve]

This is really fascinating stuff! Thank you for posting this. I want to break this down a bit so I can understand all this better.

Let's talk about

Originally Posted by [b

Quote[/b] ]your cost of equipment including loan principal or lease payments, interest, insurance, maintenance, reparis, depreciation, fuel etc. and anything else that you have not already figured into your overhead costs for each piece of equipment. Divide the total annual operating cost for each piece of equipment by the total number of actual hours you will put on it in a given year (typically not going to be as many hours as labor). Now you know how much it costs to operate your chipper vs your bucket truck vs your dump truck. Each should have its own hourly cost of operation.

Ok so say for instance we are talking about a lawn mower. How would one estimate how many hours a year a lawn mower is going to be used? Or an edger? Or a trimmer? Especially if they are just getting started?

Does anyone have any thoughts on this?

[All Aspects Landscaping]

Steve,
all the numbers are an estimate for the year... When I started doing this, I took how many hour for each day a machine is used in my route. Do that for every day, then multiply out the weeks.. for trimmers, edgers, and other small tools, we estimate a life expectancy of 2 years. We then replace it. What he posted is awesome. You should somehow make it madatory for all the forum members to read this!!! Have a great day gentleman... 7:00 start time... and its 6:50 now

[b18bgone]

I have been looking into taking over a lawn care business, and after a week
of riding with the crew doing the maintance and keeping very detailed notes and time lines. I have found that this company's over head is significantly higher than what is being charged for maintance contracts. There is a total of 66 accounts 3 of which are commercial accounts. One of the residential accounts is charged $159.08 per/mo $1,908.96 annually for the following services, spring/fall seeding/airating, 4 season fertilizing, weekly cutting, (40 cuts a year), edging, weed eating, round-up sprayed weekly if needed, blowing off walkways etc....

My evaluation of this property is that it takes 13 minutes travel time to get to the property in a Dodge 2500 diesel pulling a enclosed trailer, ~ 13mpg.
The job takes 3 men 21minutes total to finish the job from pulling up to the house to pulling away from the house, the hourly rate for each is $11, 11, $10which of course isnt any tax stuff f/f/s.

Im evaluating this job as a total time of 34 minutes 21 of work and 13 minutes of travel.

After keeping detailed notes and time, I have figured out that the 48inch Zmower only gets used 29% of the over all time, the edger/weedeater 36%, blower 20%, and backpack sprayer w/round-up 10%. The other missing 5% went to standing around, push mowing, small walk behinds, trash pick-up.

1. $8500 zmower + $1520 in gas + $960 maintance = $10,980 / (.29%)(2000working/hours) = $18.93 per/hr

1. $300 Edger + $190 gas + $60 edge it + $50 maintance + $10 string = $630 / (.36)(2000 w/h) = $.85 per/hr

1. $400 Blower + 190 gas + 100 maintance = $690 / (.20%)(2000 w/h) = $1.73 per/hr

1. $6720 Truck & Trailer(annual payments) 2006 truck/trailer + $650 taxes + $70 tags + $1800 insurance + $1200 maintance + $12,000 fuel (not sure if this should be here) = $22,440 / (2000w/h) = $11.22 per/hr

The companys over head for building rent, office manager, phones, workers comp insurance, professional licences, computers, internet, etc... breaks down to $25 per/hr or $50,000 per/year.

All overhead above = $64.73per/hr + $25per/hr admin = $89.73per/hr (to show up)

Now what Im seeing (and please correct me if Im wrong) is that without taking into account airating/seeding/fertilizing/employee taxes this account is lossing money hand over fist... 34minutes/60minutes = .56% x $89.73 = $50.25 to break even on this job.

At 40 cuts annually this contract is bringing in $47.72per/cut or lossing $2.53per/cut not to mention its actually much more factoring in all other cost and potential profit for the company.

Can someone explain to me why lawncare companys basically breakeven or even loss money throughout the majority of the year to only realize a proof in the 2-3 months that they collect monthly money but dont actually do any work???

The job that follows this perticular job takes 9 minutes to get to.

Can someone review this and lend a helping hand and let me know what is right or wrong with my evaluation? Its my first post here and looking for some help. Thanks

[Steve]

Welcome to our forum.

Can someone explain to me why lawncare companys basically breakeven or even loss money throughout the majority of the year to only realize a proof in the 2-3 months that they collect monthly money but dont actually do any work???

Can you tell me a little more here about what you are meaning? I got lost.

Can someone review this and lend a helping hand and let me know what is right or wrong with my evaluation? Its my first post here and looking for some help. Thanks

I think this is a classic case of not knowing your operating costs. I bet you have done more analysis in the short time you have been doing it of their company than they ever have.

I would venture to say that most lawn care businesses have similar problems. It also seems the larger the job the worse the profit they make.

It seems all too often that lawn care business owners are so excited to get a commercial job that they don't take any of this into consideration and just shoot figures out without thinking about them.

What is your reflection now after you analyzed this data you collected? Have you figured out how many of the accounts either break even or are losing money?

Did you share what you found with the business owner to see how they explained it?

I'd love to hear more of your insight.

[b18bgone]

Steve,

thanks for commenting, what I mean about a lawncare company not profiting until the 2-3months that they do little to no work on a yearly contract would look something like this. The job is billed at (9mo) 36 weekly cuts at a rate of $50 per/cut, which is $1,800 annually and the customer is billed on a 12 month billing schedual of $150 per/mo. If the company profits $10 per/cut after all other expences are paid $40 worth of expences, 20% profit margin. That means it cost $160 per/mo to take care of that account during the 9months and the company does not actually see a profit until first full month of NO work. In essence you are floating your customers a loan throughout the year, when you are lossing $10 per/mo on the account (this money cost you money somewhere). This is just one account.

I have yet to figure out all the commercial accounts as to if they are profitable or not, there is a large scope of work and I have yet to document it all. I would assume that they are lossing money just like the residentual accounts. There are about 8 accounts where there is a large profit margin and what I have found is that they are the jobs with super small yards and the company is charging $45+ per/cut. All other individual accounts are lossing money, but in 3 cases there are 2 - 4 yards within zmower riding range and the combination of them all makes these jobs profitable. Even for myself to think that someone would have to charge me $60+ per/cut to relize a profit is just beyond me (I personally would have thought someone was trying to gouge me) but now I know better.

I see the clustering effect to be lucrative for residential clients, maybe get one in a neighborhood as a loss leader, and work the neighbors into signing up and if that doesnt work just stop the service for the first yard and leave that neighborhood. If your cost to show up is $50 and $60 is 20%profit, and you can get a yard for $35 as a loss leader, then sign up two neighbors at $35-$40 you can spread the overhead across 3 properties for one stop, and time to do 1-2 extra yards is minimal.

How many accounts do you/people have per truck/trailer 2guys per/week?

[Steve]

--> Let me walk through this one because it gets complicated and I want to try and simplify it.

thanks for commenting, what I mean about a lawncare company not profiting until the 2-3months that they do little to no work on a yearly contract would look something like this. The job is billed at (9mo) 36 weekly cuts at a rate of $50 per/cut, which is $1,800 annually and the customer is billed on a 12 month billing schedual of $150 per/mo. If the company profits $10 per/cut after all other expences are paid $40 worth of expences, 20% profit margin. That means it cost $160 per/mo to take care of that account during the 9months and the company does not actually see a profit until first full month of NO work. In essence you are floating your customers a loan throughout the year, when you are lossing $10 per/mo on the account (this money cost you money somewhere). This is just one account.

• $50 per cut.
• $200 per month for 9 months of the year.
• Total for the year is ($200 x 9 month of the year) = $1,800

Now because you are billing it with equal payments over the entire year the equation looks like this.
$1,800 total per year / 12 months = $150 per month

Your cost is to perform this service is:

($40 per cut) x (4 cuts per month) = $160 per month

Now my next question is this. How many cuts are you actually doing throughout the year based on the month? The reason why I ask is this. If you are not actually cutting in the early months then you would you have the labor costs? Are you paying the staff a salary each month the entire year?

Jan = how many cuts?
Feb = ?
Mar = ?
Apr = ?
May = ?
Jun = ?
July = ?
Aug = ?
Sep = ?
Oct = ?
Nov = ?
Dec = ?