Costing Out A Landscape Maintenance Job
|By BILL PHAGAN|
Would you give Tiger Woods strokes and expect to win? Of course not. Then why would you submit a landscape maintenance guesstimate and expect to win the bid? And if you
were awarded the job, would you know if you were making money, breaking even or losing money?
Estimating systems in use
Formulas are also popular, such as a dollar a minute or two times some vague unexplainable figure. Lots of people get information from a competitor about what they might charge. This may not be the best way to do it, especially since your competitor might not know either. He certainly doesnt know your cost of doing business. If you aspire to a six-figure income, dont get advice from someone making $18,000 a year!
After we utilize these systems to determine a price, the next step is typically to round down the selling price we give to the prospective customer, to satisfy them. After all, we want to get this job, so well further reduce our profits. We assume these techniques work. A monkey pulling numbers from a hat is just about as effective as these systems, and what do monkeys work for? Peanuts! Many of us do, too.
What are you trying to accomplish?
Well, howve you been doing so far? As an interesting exercise, pull out your tax returns for the last couple of years, and see how much you personally made in your business. Then look at how much the business made in those years as well.
How much time did you invest for that money? Now, we all know money is not the sole objective in our business we like the work; we take a lot of pride in it. We like the job satisfaction, even a compliment every now and then. If this is the way you think, you just may be very happy not making any money.
Mother used to say Money wont buy happiness, and as Ive matured to the ripe old age of thirty-nine, Ive discovered happiness doesnt buy money either. If we want to accomplish what we set out to do, weve gotta make some bucks! And too many of us dont make the bucks . . . been there.
What you should know before you give the quote
Before you take time to work on the bid, always ask yourself these two questions: Will this be a customer from hell? and Do I really want this job? Dont look for or accept problematic or unmanageable work. Been there too!
Now you have to determine what your production rates are for each mechanical maintenance service you perform and what your cost per man-hour is, preferably inclusive of
your overhead expenses. As you know, labor is our biggest expense; best know what it costs you.
How to figure your labor cost
Take all your costs to operate your business, including your salary, your truck expenses, office salaries, etc. Total them up and divide by how many field employees you have. I hope you have factored in the insurance costs, etc. This is a rough way to know what you have to charge for your labor. You can find this information in your Profit & Loss (P&L) statement, or you can have your accountant do it for you.
If you dont already have your P&L statement or other financial data to determine your cost per man-hour, an interim step would be to take your highest paid employees hourly wage, say $12 per hour, and add 13%, which will reflect payroll matching, etc., also allowing for a fudge factor. So far, thats $13.56 per man-hour. The tricky part now is to determine how much overhead expense or recovery youd like to add. I would suggest no less than 20%, totaling your cost per man-hour at $16.27, which may be closer to your true cost per man-hour.
Keep in mind, this may be completely wrong, based on how much overhead expense you have, but its a start. Ive seen the cost per man-hour as low as $9, to
a high of $65 per man-hour. Knowing this figure is critical in your estimating system and profitability.
Another thing to keep in mind is overhead recovery. To me, its a moving target; I can tell you six ways to do it and none are right. For example, lets say this month your overhead is $1,000 and you get three jobs. You would allocate around $333 per job to recover overhead expenses, right? What if next month your overhead is $2,000 and you have only two jobs? Therein lies the problem, so I believe in the K.I.S.S. System or Keep It Simple Stupid, referring to me, of course. Some people believe in micro-managing the numbers and their businesses; me, Im a believer in averages. Youll never be on the penny every time anyway, no matter how much scrutinizing you do.
Consider this formula for costing landscape management services
Now, lets define what the above items really mean. Direct job costs are all those things directly related to the job labor, materials, and equipment. Overhead expenses are those items that typically recur monthly, such as truck/equipment payments, insurances, phone expenses, administrative personnel, office equipment, etc. Then determine your cost per man-hour and again, hopefully including overhead expenses recovery.
And now, for your due diligence!
A good habit to get into is to look at the property as if you were the owner then, taking your green industry expertise, you can address the deficiencies and
what could and should be done to improve it. This information will help you tremendously in the sales process. Make written notes on all of the above to be considered in your bid, as well as any
disclaimers you may want to include.
Yes, there are some variables here. Your frequency of mowing may be less, or edging, or pruning or whatever. Again, take the production rate time, multiply the cost per man-hour by the frequency of that particular service; that should give you the cost to do the job.
Now, as for profits, how much you want to make, and how much must the business make to accomplish these goals is entirely up to you. However, in this scenario, all
profits should fall directly to the bottom line, which is net profit, not gross profit. And dont forget our ol Uncle Sam.
Please keep in mind, what is outlined is a very simple way of costing out a job. How can you give an estimate if you dont know what your true costs are?
I recommend you start keeping records on the properties you service. Time the work and do the measuring to determine your production rates. Begin to benchmark the information on all your routes and properties. This will really take the guesswork out of estimating for maintenance; more importantly, it will allow you to budget the man-hours per property or route.
Editors Note: Bill Phagan is a business operations and financial consultant to the green industry. He is president of Green Industry Consulting, Inc.