Accurate Maintenance Estimates
If you've ever sat around on a Monday night to watch a football game,
you're probably familiar with the term 'sports analyst.' Often a former
player, now a sports analyst,
gives his opinion on how well teams are playing, and makes predictions
about which team has the best chance to win. Sometimes, he'll even
estimate what the final score will be.
He bases these estimations on a variety of factors: his years of experience playing the sport, the stats of the players, how well they've been playing lately, how tough the other team is. While he's certainly only giving his opinion, he takes these facts and figures into account.
When you're bidding on a landscape maintenance job, what do you base your estimate on? I've found that a lot of contractors use the SWAG method -- sophisticated wild-ass guess.If you're only guessing at every estimate, how can you expect to win any bids? You don't have anything to back your numbers up!
If you're awarded the job, are you making money, breaking even, or losing money? Can you even tell? Far too many of us in the landscape maintenance profession could stand to improve our estimating and business skills. Estimating systems in use Aside from SWAG estimating, many contractors also rely on the 'going rate' for a specific area when creating a bid. This can range from $15-$45 per man-hour, or around $8-$25 per cut for residentials.
Formulas are also popular estimating tools, such as a dollar a minute. Lots of contractors seem to get information from a competitor about what they might charge. This can result in a blind-leading-the-blind situation -- your competitor might not know what to charge either! He certainly doesn't know your cost of doing business, and you don't know his. If you aspire to a six-figure income, don't get advice from someone making $18,000 a year! After we utilize these 'systems' to determine a price, we typically 'round down' to satisfy penny-pinching customers. We end up further reducing our profits because we want the job. Problem being, a monkey pulling numbers from a hat is just about as effective as these estimation methods, and what do monkeys work for? Peanuts! Many of us do, too.
What are you trying to accomplish? You have certain objectives in mind for running a business. You want to be your own boss and call all the shots; you want to be able to provide a quality of life for you and your family.
Well, how've 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. Are you making the money you want to be making?
Mother used to say, "Money won't buy happiness," but as I've matured, I've discovered happiness doesn't buy money, either. If we want to accomplish what we set out to do, we've gotta make some bucks!
It's not about being greedy or money-hungry, it's simply about being successful. You should be getting paid what you're worth, which is probably more than what you've been making.
What you should know before you give the quote First of all, you should know what your true labor costs are. If it were me, I would want to know when the job starts, so I can address seasonal cost factors. I'd like to know who the current contractor is, so I can keep track of my competition. Then I would like to find out how many quotes they will get, so that I can assess the odds of getting the job.
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?" Don't look for or accept problematic or unmanageable work. It's just not worth it!
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; you should know what your labor costs are.
You should know how many square feet of turf can be mowed per hour. Also, how many linear feet of edging can your average employee perform in one hour? How much time does it take to prune a shrub, do weed control, or clean up the property?
How to figure your labor costs Let's assume your average employee can mow 30,000 square feet in one man-hour with a 48-inch mower, and can edge 7,000 linear feet in one hour. If you had a total of 14,000 linear feet of edging, that's two man-hours, and mowing 90,000 square feet of turf takes another three man-hours, for a total of five man-hours. Now, what is your cost per man-hour?
Take all the costs to operate your business, including salaries, truck expenses, insurance costs, etc. Total them up, and divide by how many field employees you have. This is a rough way to know what you have to charge for your labor.
If you don't have financial data available to determine your cost per man-hour, an interim step would be to take your highest paid employee's hourly wage, say $12 per hour, and add 13%, to allow for a 'fudge factor.' So far, that's $13.56 per man-hour. The tricky part now is to determine how much overhead expense or recovery you'd 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 it's a start. If your cost is $31 per man-hour, should you base your pricing on $30 per man-hour because it's the 'going rate'? No, but I see it all the time.
To me, overhead recovery is a moving target: I can tell you six ways to do it and none are right. Therefore, 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; I'm a believer in averages. You'll never be on the penny every time anyway, no matter how much scrutinizing you do.
With that in mind, consider this formula for costing landscape management services: Direct job costs overhead recovery an acceptable profit to your company = the selling price to the customer or prospect.
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! Armed with your production rates and knowing your cost per man-hour, take your measuring wheel and visit the property. Begin by measuring off all linear footage for edging (include hard and soft). Then measure the square footage of turf, shrubs, areas that need to be maintained, etc. If you offer pruning, then you will need to get a count of the various trees on the property.
A good habit to get into is to look at the property as if you were the owner -- what are its deficiencies? With your green industry expertise, 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.
Now, back in your quiet office or inside your truck, start crunching some numbers. Start breaking down the time each service will take on each visit. For example:
Hard edging: 4 man-hours
Yes, there are some variables here. Your frequency of mowing or edging or pruning, or whatever, may be less. Again, take the production rate time and 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 the business must make to accomplish these goals, is entirely up to you. However, in this scenario, all profits should fall directly to the bottom line. And don't forget our ol' 'Uncle Sam.'
If you feel a little uncomfortable with the numbers or accounting verbiage, go buy the book "Accounting for Dummies" (yes, I have it too), or consult your CPA.
Please keep in mind, what is outlined is a very simple way of costing out a job. The key is knowing what your true costs are. You just can't give a good estimate without that kind of vital information.
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. And that, ultimately, will help you start
earning as much as you're really worth.
Editor's Note: Bill Phagan is a business operations and financial consultant to the green industry. He is president of Green Industry Consulting, Inc.