The question is, “How much should I charge for lawn care and landscape services to make a profit? I am charging $25 per man hour but, a lot of people in my market are charging $20. Should I mark my prices up to $31.25 to compensate for taxes and credit card fees and such? Can I get away with that?”
I don’t know all the details to be able to really answer the question, so I’m going to cover what I can.
First of all, if we’re talking about $25, we’re talking about small, residential properties. We have to be. If a bunch of guys in your marketplace, are charging $20, I’d completely ignore them. There are a lot of guys that price that don’t have a clue what they’re doing. They’re generally individuals. Then there are some companies that are pricing low that have no clue what they’re doing. Just ignore those people. They’re irrelevant. They’ll cause you a little pain here and there and you’ll lose some business to them here or there. I wouldn’t get too caught up in that stuff.
Using our $25 example, if you are wanting to charge $25 but are now concerned about paying taxes and credit card fees on that, then what you’re telling me is that the $25 was a rate that you came to by just looking at the marketplace to see what everyone else was charging.
I may be wrong, but that’s what I’m wondering when you tell me that you now need to add taxes and credit card fees into this. Here’s the deal. If you’re requiring credit cards of all your clients, it’s going to cost you money. If all of your clients use credit cards, it will cost you roughly 3% of your gross sales.
Now, what I would argue is that you’re not going to see a massive run up in cost. Yes, you’re paying 3% of gross revenue, but you’re going to see additional efficiencies. You will have better cash flow. You will pay less money in interest on credit cards or lines of credit. You will get paid faster and have fewer collection issues. You will also get better quality clients that won’t nickel and dime you and that will stay with you longer. A lot of that stuff offsets this 3% you’re paying.
Sales tax, honestly, is outside of a pricing equation. It to me is a separate issue and gets passed back to your client. Federal tax is based on your income and how much profit you take out of your business.
There’s an entire tax game that’s going to take place at some point in your business where you’re trying to delay taxes and trying to minimize the amount of taxes you pay, where you’re buying vehicles and equipment and straight line depreciating them in one calendar year. I even take taxes out of the equation for pricing.
While you’re thinking about pricing, look for the guys in the marketplace that are pricing average to high. Look for the guys that are pricing in the top 40% of the market and start there. Then, you start to learn your numbers and do all those things I’ve talked about when you job cost.
Start tracking how long it takes you to do the job compared to the square footage. Start getting a feel for that, so that you can then adjust your pricing accordingly. When you’re first getting started, you’re making a number up. The only way to make up a number is to look at what the other higher priced guys are charging and match them.
Ignore all the lower priced guys. Don’t worry about credit card fees and federal taxes when determining your pricing. I budget things like payroll, equipment, trucks, office space…all that is part of overhead…when determining my pricing.
If you need more information, just send us another question and be a little more specific. Let me know exactly what you’re looking for, and we’ll be happy to answer it again. Thanks a lot.