For people starting out in lawn maintenance, and even for veteran professionals, one of the biggest hurdles is figuring job costs. Oftentimes, it's a Catch 22: You can't bid accurately until you know your costs, but you can't determine the costs until you get the job.
What is one to do? The answer is to have a sound handle on both direct and indirect costs and to be able to overlay these costs on a new property. Easier said than done. But to turn a profit and grow a business, accurate job costing is not only a business requisite, it's the number one priority.
Equipment and labor costs are your biggest expenses on any property. Knowing what they are upfront and applying them with a degree of confidence will go a long way toward developing an accurate job cost and accurate bid.
Most lawn maintenance professionals figure equipment costs by the hour. For each mower, for example, they add the purchase price (including finance charges and insurance) to the estimated total lifetime maintenance and fuel costs of the unit. They then subtract the estimated residual (trade-in) value and divide the total by the estimated lifetime hours. Remember, when figuring maintenance costs, don't forget engine replacement costs, too. If your mower's engine will run 2,000 hours, then divide the cost of a replacement engine by 2,000 and factor the figure in your maintenance totals.
This exercise should be followed for every piece of equipment to be used on a job-site, from your mowers to your trimmers, edgers, and blowers.
Equipment costs, of course, are only half of your direct expenses on any job. The other is labor. Unlike equipment, labor costs are easy to determine and most lawn maintenance professionals have a good idea of what it costs them per hour for each employee on the job site. Still, when you factor in these costs, make sure to include benefits, taxes and other payroll expenses.
If you have a handle on these two direct costs for a job, then you can project with reasonable accuracy how much it will cost you to run any piece of equipment on a property. It will cost you X amount per hour to operate your rider, Y to operate your trim mowers and Z to operate hand-held equipment.
Estimating Your Time
Estimating how much time you will spend on a job is key to accurate job costing. Some lawn maintenance professionals measure every property they bid. Others know by experience how much time it will take to maintain a property. In both cases, estimates have to go beyond square footage to include terrain, nooks and crannies and other obstacles, and a breakdown of how much time operators will spend. with each piece of equipment.
Really, once you know how much time it will take to complete a job and how much it costs to operate your equipment, you'll be halfway to making a profit. Halfway, because you still have to figure in overhead recovery and profit.
What counts as overhead? Virtually every cost not directly related to performing a job. That would include building rent or taxes, liability and workers' compensation insurance, education, support salaries, postage, uniforms, telephone, and all other expenses. And don't forget your salary. If mowing is where you make your money, then mowing has to cover these expenses, in addition to covering the direct expenses.
Again, if you're starting in the business, this can be tricky to f1gure. But for argument's sake, assume you employ six people and estimate billing at 50 hours a week for 40 weeks. The total billable hours for six employees would be 12,000. If your overhead is $80,000, then your hourly rate would include $6.66 for overhead recovery.
The Bottom Line
You crunched the numbers and found out it costs you $5 an hour to operate a rider, $12 an hour for the operator and $6.66 for overhead recovery. You will need to get $23.66 per hour on a job just to cover expenses. And you need to make a reasonable profit, as well.
What's reasonable? That depends on your market and how competitive it is. But you're in business to make a profit and not, as the saying goes, "to buy yourself a job." So a reasonable profit is necessary. If you're in a tough market, maybe a 5 to 10 percent profit would have to suffice. If you're in a less aggressive environment, 15 to 20 percent or higher may be within reason.
When doing business there will always be additional hidden costs and other surprises. These need to be figured in to help guarantee that costs will be covered and a profit will be made.
Also, you will need to determine a minimum price for maintaining lawns. If your hourly rate is $30 and it takes 30 minutes to mow the lawn, then theoretically you would charge $15 for the job. A reasonable fee to be sure, but one that probably won't make you much profit.
The key point in job costing is to know your costs, all of your costs, and to know how much time each job will take. If you can recover your costs on each job and put some money away for profit, you're in business to stay.
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