Do I Have to Pay My Employees for Travel Time?

This question’s from Kenny. “When I pay hourly employees, do I have to pay for travel time?”

“When I pay my employees by the hour, should I be paying them for their travel time between jobs?  Do I need to pay them for the ride time between jobs? Exactly what should be included when I’m paying them by the hour?”

My perspective on this is that when you’re paying by the hour, you’re paying for every moment that they work. If you want to be within the law, you’re paying from the moment they show up at your office. You are paying them to drive to the clients’ properties as well as while they are maintaining the properties. And then, you’re paying them at the end of the day to ride back in your truck and unloading your truck. The moment they clock in to the moment they clock out, they’re getting paid.

You’ll see a model in the commercial world where they will write contracts with their employees or contractors, however they set it up, and they will pay for performing the job and not driving. I’m not sure how that fits within the law, but you will see that in the commercial side.

In this commercial model, there will be a driver of each truck and that driver is on the clock from the moment he arrives at the facility to the moment he returns to the facility to unload at the end of the day. But, the individuals in the truck with him are only being paid for any work performed at the shop and job time. They’re not being paid for drive time because their agreement stipulates that they should drive their own cars to every job and they’ll be paid for performing each of those jobs. They can hitch a free ride in the truck if they’d like, but it’s not paid time.

Before you go down a road and follow that type of model, you better be certain you’re double checking that will hold up in your state. You also need to double check that your employment agreements are written correctly and that they will hold up. I can tell you from my experiences in the cleaning industry when I used to own a company with some other partners that there were other companies that were competitors of ours that for years and years had certain payment practices of employees. When one employee became unhappy and sued them, it resulted in settlements for lots of employees.

Something creative around payroll might work out for you for 5 years but that doesn’t mean that when you do get hit, that you won’t have to make up for the many years of underpaying your employees. They don’t just slap your hands with a fine and ask you to do it right from now on. You get a fine and then have to pay a lot of back pay in payroll and taxes! Before you go down a road like that, be very cautious.

If you want to go down a road where you’re paying more for performance, then I would look at an alternative to payroll, meaning an alternative to hourly pay. I would look at piecemeal. I’d look at pay by the job, and then there’s plenty of things to consider even when you do that. You have to keep in mind overtime laws and a whole lot of other things. If you’re going to do something creative outside of just paying straight hourly time, you want to get counsel from somebody that really knows the laws in your state, to be certain that you can sleep each night and not have to worry about someday when you get hit with some big amount of money that puts you out of business. Good luck.

Variable Costs vs Direct Costs vs Fixed Costs

Learn the difference between variable costs (direct costs) and fixed costs in your lawn care & landscape business.

A lot of times if you do a Google search, or if you went to college and you studied accounting, a lot of the examples are based on manufacturing. They’re manufacturing examples or they’re the production of some product. It can become confusing.

There’s a lot of interchangeable terms.

Variable cost is a term that’s used frequently. More common, in the landscape industry, is the use of direct cost. I like to talk in terms of direct cost instead of variable cost. You will also hear, and you can watch my video on this, the term “fixed overhead”.

I’m going to go into a little bit of an explanation here. Let me first talk in terms of direct cost because we’re going to use that term instead of variable cost. Direct cost is a cost that varies based on production. As an example, if you win a design build job, you will incur some extra costs to complete that job. You may need to hire some contractors, rent a dumpster or a Ditch Witch, pay out a sales commission, or incur material costs such as plants. Those are direct costs.

Had you not won that design build job, you would never have incurred the material cost, the permits or the rentals. Therefore, it’s a cost that, again, is only incurred when you win the work and when you perform the work. If you’re looking at your profit and loss statement, these direct costs, are going to appear under your revenue at the top of your report in the cost of goods sold section.

What you do is, look at your revenue generated for whatever time period your P&L is looking at. You subtract out of that revenue, your sales revenue, your cost of goods sold. This is your direct cost. That leaves you with your gross profit margin. Your direct costs are going to be one of your biggest expenses inside your lawn care business because your business is so labor intensive. Or, if you’re in the design builder construction side of the industry, materials are going to be a huge cost to your business which falls under direct costs which is part of cost of goods sold.

Again, direct costs and variable costs are often used interchangeably when you’re reading accounting books or performing Google searches. Within the lawn care industry, the more common term is “direct cost”. Generally, what most people do is they take all of the other costs and they put them under “fixed overhead” or “indirect costs”.

There really are some other variable costs in the business that, oftentimes, will get lumped into fixed overhead or indirect costs, but are truly variable. You have to figure out what the standard is for your business, what the standard is for this industry. I would recommend following the standard for this industry.

Let me give you an example of what I’m referring to. You could have what might be considered a variable cost by some, for example, website hosting or maybe marketing. Some consider marketing a variable cost because if things aren’t going well, you could shut off all of your marketing. You could stop running pay-per-click ads or sending out direct mail pieces. Those costs are somewhat variable.

It’s far easier to stop those types of marketing costs than it is to exit out of a three-year lease or to stop paying for truck insurance. Those are fixed costs. Marketing is an example of a variable cost. However, what you’ll see oftentimes, is that a lot of companies will look at their marketing expenditure for a period of time. They will put it into the indirect cost section on their P&L.

What they do is, they take gross profit margin. Remember that’s your direct cost subtracted from your revenue. That gives you your gross profit margin. From that, they subtract their fixed overhead and indirect costs. Oftentimes, you’ll see marketing or advertising as one of those costs that get subtracted out. I wanted to make the point that as you’re reading and as you’re thinking through what is a fixed cost versus a direct cost versus a variable cost, marketing is a great example of a cost that will fluctuate. Therefore, it is somewhat of a variable cost.

For example, you might have website hosting, as I am showing here. That’s a marketing cost. You can’t really turn off your website and shut it all down. A lot of times, that’s obviously a fixed overhead or an indirect cost, whereas pay-per-click, where you’re paying for clicks in Google, you could shut that down by pausing your campaign in an instant. That is more of a variable cost.

The takeaway is that you need to sit down with your accountant and pay attention to what’s done in the industry to figure out if, even though there’s some variability in that cost, as in my example of pay-per-click, it might make sense to follow industry norms or the recommendation of your accountant. You might also hear the terms sometimes called “general and administrative costs.”

Those are some things to think about. Universally in our industry, you will hear “direct cost”. Direct costs are directly tied to the job. If you do not perform the job, the costs are not incurred. If you perform the job, the costs are incurred. That’s why they go into your cost of goods sold section on your profit and loss statement.

What is Fixed Overhead?

 

In your lawn care business you’ll have two types of overhead.  You’ll have fixed overhead and variable overhead.  I have a separate video that explains variable overhead.

Fixed costs make up fixed overhead.  An example of fixed cost would be rent, insurance, admin salaries, office expense, depreciation, utilities, and the cost of your estimators.

The characteristic of a fixed cost is, it’s one that doesn’t change very much and it’s not affected by activity. Whether you perform a lot of work this week or you perform very little work this week, your fixed costs, or fixed overhead does not fluctuate.  It remains fairly constant and it is fairly easy to predict.

You want to be very slow to add these fixed overhead costs because, if there’s a decline in your business, it’s hard to get rid of these costs.  If you go out and you sign a three year lease on an office space, it’s a fixed cost.  You know every month your office is going to cost you $1,000 a month.  If your business takes a significant decline, it’s very difficult to get out of that three year lease and eliminate that $1,000 a month expense.

Insurance on your office building is an example of a fixed cost because the insurance cannot be eliminated without eliminating the lease.  Therefore, that insurance cost doesn’t go away until the lease itself goes away.

Admin salaries are fixed.  Yes, you could let those individuals go but, generally to keep your business operating and running, you have to keep your admin team.  Therefore your admin salaries are considered to be typically allocated in your fixed overhead numbers.

Watch the video about variable overhead and also watch the video about an elementary way to calculate fixed overhead within your business.

Why You Never Make Money in Your Lawn & Landscape Business

Do you feel like you don’t make enough money in your lawn care & landscape business?

Are you frustrated?  Not getting ahead?

Watch this video to learn exactly why this is happening and how to finally make money in your lawn care business.

 

In your lawn care business, do you feel like you don’t make enough money? Do you feel like as you grow your company, things aren’t getting better, that there’s never money leftover?

I’m going to show you in this video exactly why that’s happening. I’m going to show you why the business doesn’t feel like it’s ever improving.

Some of the common complaints that we hear from guys are, they feel like they’re not pricing the work correctly, not making enough money, the business never gets better, there’s never any money leftover no matter how hard they work or how much they grow, and they feel like they’re just always scraping by.

When they started the business, things felt good. Then, as the company grew, they felt like they could never get ahead…feeling trapped by the growth.

I’m going to show you some numbers. Now, if you get caught up in the numbers that I’m demonstrating, you’re going to completely miss my point because I have not put the thought into this to come up with real numbers. Don’t be caught up on the numbers, they’re only to get you thinking and to illustrate my point.

Let’s say when you first started out, you were working for somebody else working 40 hours a week.

You were making $14 an hour, which means you were taking home about $560 a week. We’re ignoring taxes and all that. Let’s say you were in this industry and the company had some seasonality in it, so you worked this job and maybe another. Again, just keeping this simple.

You worked 40 weeks of the year, so you were making $22,400 per year. Then you decide since you have all the experience, that you can start your own company and make a lot more money.

You go out and start a lawn care company. Let’s say, overnight you sell 40 hours a week worth of work. You are now doing the exact amount of work that you were doing for your prior employer. You’re working 40 hours a week, but now you’re selling your work at $30 a man hour.

Whether you’re mowing yards or doing irrigation or installation, you’re selling that time on average for $30 a man hour. If you’re mowing yards, and you price the yard at $30, that means it takes you about an hour.

If you’re making on average $30 a man hour, and you’re working 40 hours a week, you’re making $1,200 a week. You’re doing way better than you used to when you had your job. You’re still working 40 weeks, but you’re making $48,000 a year instead of $22,400.

Things feel good. You think, “This is great. If I could just grow this business more, I could make a whole lot more money. If I were to go get more jobs and hire more employees, think of all the money that I would make.” You think growth is going to fix your problem and it’s going to let you have this really great lifestyle and you’re going to make tons of money. You run the numbers and think, “Man, if I had people I’m going to make a lot more money.”

This is where you really can’t get stuck on my numbers.

If you’re selling time at $30 an hour, but now you get a helper. If two of you are doing a job together and you sell that job for $30, that means you can only be on that property for 30 minutes because your 30 minutes plus his 30 minutes equals one man hour. That’s $30.

If both of you work an hour on the job site, you better bill $60 to make $30 a man hour. Now you’re selling your helper’s time at $30 a man hour. You think, “Oh, I could hire a guy for $14 an hour. I could sell it for $30 an hour. Think of all the money I’ll make.” But there are all of these costs.

Let’s say when you think about how many hours a week you work and you take the cost of your truck, the cost of gas, the cost of equipment, and you just divide those costs out by the number of hours you work a week to arrive at an hourly cost to run the truck, hourly cost of gas, hourly cost of equipment.

I’m going to say it for the fourth time…these numbers are not exact and are solely to make a point.

When you run the numbers, you’ve figured out that it cost you about $2 an hour to run your truck (these are working hours), $1 an hour for gas, and so on.

This employee now has a truck, gas expenses, equipment expenses, supplies, he has insurance on his truck, materials cost, and you are paying his worker’s comp and a storage unit. There are so many other costs that I didn’t even account for here.

On an hourly basis, if you were to look at all those costs, he’s costing you about $21.67, which is quite a bit more than the $14 an hour. That doesn’t even account for payroll costs, or what they call labor burden. That’s immediately another 8% of the $14 an hour.

Now you’re billing him at $30 an hour but you’re spending $21.67 on him. For every hour you work this guy, you’re making $8.33. If you are still working 40 hours a week, and now your employee is also working 40 hours a week, you were making $30 a man hour before, now you’re making $38.33.

You were getting to take home, in my very elementary example, $30 a man hour which was equating to about $48,000 a year. What’s great is, now you’re also getting to take home another $8 a man hour because you have a helper. Well, then you get another helper. The realty is that you have to go sell enough time to keep this other guy busy. You now don’t have time to work 40 hours a week. You have to be doing things to generate business.

You’re out doing estimates, answering billing questions on the phone, answering sales questions, and selling. Now, you’re really putting in 70 hours a week.

You’re worn out. You’re working weekends and most nights. The business is starting to get really stressful and frustrating. The only answer is, you’ve got to work a little less. You need to get off the truck for part of the week so that you can do all the other activities of the business and have your team now generate the billable revenue.

As you add more employees, all of these new things happen in the business that take all of your time. You can’t be out there doing as much work. Let’s say that you were to get out of the field, or start to reduce your time in the field. If you want to continue to make $48,000, or make an equivalent of $30 an hour, you now have to take these guys so that you’re selling their time at $8.33. You now need 3.6 of these guys.

You need almost four guys out there in the field doing the work, so that with the money leftover, you can make the $48,000 a year that you were making before when you did all the work yourself.

Basically, now you have four guys doing the work for you, but now you’re busy doing all the other stuff for the business and you’re not making any more money. That tends to be the exact problem that most guys get into. You have four guys, you’re swamped, and you have no where to keep all your equipment.

Keep in mind, in my example there’s no profit leftover, you’re not building any money in your bank to protect you for a rainy day, and you’re not putting any money aside to go buy new equipment. You’re not doing any of the stuff that you need to be doing. Your are simply surviving in this example.

Now, you sit down one night and you’re overwhelmed and beat down because nothing is getting better. You have four employees but, they break stuff and things happen. That cuts into that $48,000 that you were making. You’re not always truly making $8.33 per guy. Something’s always happening.

You think to yourself, maybe if you had eight guys things would get better? That means you better get out there and hustle and sell and do everything it takes to grow the business.

Pretty soon you’re so busy again and you’ve hit a brick wall. You’re back in that same spot again. If you’re married, your wife’s worn out with you. If you’ve got kids, you never see them. You don’t know what to do.

You think, maybe you should get an office assistant. If you got an office assistant, that person could answer the phone and do a lot of the smaller activities that you’re doing so you’d be freed up to go do the bigger stuff.

You get an office assistant. Now you need an office and phones and you need all these other things. Your office equates to about $1 an hour for the time you sell across your guys. Your office assistant equates to about $2 an hour for every hour of time you sell for a guy.

You also have about $1 to help pay for the office expenses. The utilities cost you about 50 cents. Now, notice what’s happened down here, your cost has gone up to $25 a man hour, and so now you have to have almost five guys to make the same $48,000 a year you were making.

This is the trap that keeps happening. This is what happens so often.

A guy starts out and he’s making decent money. He wants to grow the company. You look up three years later and you’re thinking, “I’m not making any more money than I was making before. Maybe I’m making less or barely more, but I’ve got all these people, all these trucks, and I’ve got all this stuff going on. Why is there no additional money for me?”

It’s because you’re still selling time at the same price you were selling it when it was just you. But now, you have all of these expenses you never had before. I didn’t even put in marketing expenses. There is a whole list of expenses that I didn’t account for. This, again, is a super elementary example. My numbers are all wrong, but you get the idea. This is exactly what happens.

Now look what happens if overnight you were to change your hourly rate to $40 a man hour. Now how many guys do you need? See? You’re now making almost $12 an hour for every hour you sell of a guy’s time. Now you only need about three guys.

Let me just illustrate that one more time because this is a critical point. I need almost 17 guys when I was selling time at $30 an hour. If I sell my time at $40 an hour, I need barely two guys to make what I was making before. Now imagine that I actually still had the 17 guys, but now I’m making $11.83 per man hour on my 17 guys. Let’s do that math.

For every hour that ticks by in the day that you have 17 guys out in the field making you money, making you $11.83 an hour, you’re accumulating $201 every hour that passes. On a 40 hour week, you’re accumulating $8,000 a week. Originally you were making $48,000 a year, and we used the example of working 40 weeks a year. Now, you’re making $321,000 a year.

Now, this is an exaggeration. With 17 workers, you’re not going to make $321,000 a year in take-home pay and be growing the business and everything else that it takes. My numbers are flawed, but can you see the difference in the problem?

Originally you kept your hourly rate at the same hourly rate as you were originally selling time for when it was just you and you felt good. You were making money. Then as you grew the business and you acquired all of these additional expenses, you didn’t consistently adjust your rate. As a result, you kept adding people, but the business wasn’t getting better. In my example, we were still selling time at $30 a man hour.

It was taking something like 17 guys to generate the same income that you were making years back. By simply adjusting our rate that we sell time for, look at the dramatic difference it had. You would go from making $48,000 a year to $321,000 a year. This is the power of constantly adjusting your rates.

Now, granted, you can only sell time for so much. You have to be competitive in your market. The trap is that so many guys go out and they build a company and everything’s going well. They keep adding more and more expenses to their business, but the rates aren’t going up. They’re either not becoming more efficient as a company, or they’re not adjusting the rate that they sell time for. Their margins keep getting smaller and smaller.

The only way to solve the problem is to keep hiring more and more people and selling more and more. You can’t sell your way out of this problem. You have to, at some point, correct your pricing. For those in commercial contracts, or those in residential contracts, the only way to fix the problem is to either get rid of all the work that originally built your company, or raise the pricing on all the work that originally built your company.

Oftentimes, the contract that you have doesn’t respond well to you taking as big a price increase as you need. If you realize three years later that you’ve been underpricing and you have to go back and raise prices 30%, that immediately gets most of your clients to go out and look for better pricing because it’s such a huge price increase.

Oftentimes, that’s the only way a guy can fix his business because he was underpricing his work from day one. This is maybe my final point. If you’re watching this and you’re just getting started in business, make sure that you’re pricing your work today, right now, at a price that will support your business as if you already have all of this additional cost.

Now, with that being said, if you’re pricing your work correctly today, when it’s just you and maybe a couple of helpers, then you should be making a lot of money. Don’t spend all that money. You should be putting it in the bank to help fund the growth of the company.

Let’s say, you’re out there with a couple of workers and you’re making $65,000. If you’re spending all that $65,000 to support your personal lifestyle, when you want to grow the company and you go through the phases of your business where you start to hire people and start to add costs, you won’t have the money to put in. You go through these ups and downs in the business where some of that money that you’re pocketing now is needed for the business. You can’t take quite as much out because you’ve got to invest a bit in the business to hire some people and buy some equipment.

My point there is that this is what happens. This is a common trap. A lot of guys early on make a lot of money when they’re pricing correctly. If they spend all that money to buy a house, a car, a cool truck, or whatever, if they’ve got kids, now they have no money leftover. They have to continue to make that 65 to 70 grand a year just to live personally.

These guys have no money to invest in the business. They aren’t able to take a temporary pay cut to afford all the expenses of the business to take it to the next level.

If you pay attention to these numbers from day one and you’re aware of them, you will grow so much faster and your business will be so much better.

Why Underpricing Work Hurts Your Clients & As a Result Your Reputation

 Stop Underpricing Work… It’s Critical to Your Reputation and the Future of Your Business.

If you are underpricing and undercharging for your lawn care work, you are doing your clients a huge disservice.  Let me explain.

I get a lot of pricing questions.  Companies aren’t sure how to price and new guys in the lawn care business have a tough time figuring out how to price.  Estimating is also challenging.  I get that. 

This is a different take on it.  It’s not the question I usually get asked, but I want to make a really important point.  If you are undercharging your landscape clients, you are doing your clients a massive disservice.

The reason I have this opinion is because most of us, and I’ve said this before, started out as the “low-ballers,” which is a word we use in the industry.  These guys are the ones underpricing and undercharging.  They’re the low-cost provider that’s screwing up their whole business because every time they go out to compete for a bid, they’re giving the ridiculously low price that makes it impossible for them to make any money.  That’s a “low-baller.”

If you’ve been in the business for any period of time, you’ve probably complained about this many times.  You’re fed up with the guys that are underpricing work.  They don’t know what they’re doing – blah, blah, blah.  There’s a temptation to adjust your pricing to match their pricing. But, what happens if you do that?  Then, you won’t make any money. This is the reason why it’s critical that you price right and do not undercharge your client.  It’s a vicious cycle.

For example, if you do not price your services correctly, you cannot afford to hire the very best people.  If you don’t hire the best people, then you don’t deliver excellent service to your clients. This is a huge disservice.  If you don’t price your business correctly, then you can’t afford to train your people. Therefore, the work you give to your clients is sub par. 

Worse, and an even a bigger sin, is the advice that you give your clients is wrong. If you tell your clients that they need something or you incorrectly diagnose a problem, you are wasting their money. If you are wrong, they could lose a plant, or a tree, or their turf could die. You have done them a huge disservice.

The way you give your clients great service is by charging them fairly and not trying to match your competitors that don’t know what they’re doing.  It’s your job to price correctly so that you can hire the best people, train your people well, put them into safe trucks that are insured, and hire licensed drivers to insure everyone is safe on the road.

I am not preaching here. The point I am trying to make is that you need to have confidence in setting the right price.  It’s absolutely the right thing to do…for your business, your employees, and your clients.  Clients want great service.  They want great quality.

Yes, you will lose some clients to the low cost provider. Eventually, they will get burned and they will be back willing to pay fair prices.

So many guys complain that they can’t get into their market because everyone is underpricing.  Think about one of the biggest companies out there. It’s TruGreen.  Their name and their marketing has supported higher prices than many companies actually charge. Oftentimes, TruGreen prices actually tend to be a little higher than the market.

There are plenty of examples of guys that are in the marketplace charging higher prices and succeeding in a massive way.  Your client wants a great product.  If you want your sales team to be highly effective, and you want your marketing to work, then invest in quality and service.

It’s kind of like a circle, it takes a little time for your sales and marketing to get going.  It takes a little time to reap the rewards of investing in great customer service. But, as the business gets a little bit bigger and there’s more word of mouth, and you get a little more marketing out there, it will all start to pay off. If you combine great service and fantastic quality, more people will see it and it will all start to come together.

Sales, marketing, customer service, pricing, quality, employees, your trucks, your reputation, how you dress…it is all connected.  The core of it all is pricing.  Don’t be concerned with what everybody else is charging.  You’re doing your clients a huge disservice if you can’t be the great service provider.

Low pricing in the short-term might give your business a boost, but in the long-term you will absolutely pay for it.  Have confidence to price work correctly.  Figure out how it needs to be priced.  Go out there and do it. Improve your marketing, your sales, and your customer support so that you can get the higher prices. 

Why You Should Stop Providing One Time Services (Such as One-Time Mowing or Fertilization)

 Should You Stop Providing One Time Services?

For example, providing one of any of the following: lawn mowing, bush trimming, fertilization, weed control application, pest control visit, spot ant treatment, etc. is generally not worth the time or effort,  ESPECIALLY for one-time clients.  Exceptions can and should be made for regular full maintenance clients.

I am not referring to a one time flower installs, mulch install, sod, landscape, spring cleanup, or leaf cleanup.

However, regarding leaf clean-ups in areas where the leaf cleanup is a small job, it’s typically not worth it.  In Northern states where the leaf cleanup is a large job and sometimes requires a vacuum truck, that is a different story.

Continue reading “Why You Should Stop Providing One Time Services (Such as One-Time Mowing or Fertilization)”

How To Raise Prices Without Making Your Lawn Care Customers Mad

Has it been years since you increased the price of your lawn care and landscape services?

In This Video Learn The 4 Keys to “How To Raise Prices”

The question is, how do I tell a client that I need to raise the price? How do I tell them that I need to charge more for the spring clean-up or for the initial mowing? How do I explain it to them without them getting mad?

I’m going to give you the four things to consider.

Remember how much or how little you knew when you got started. You think about this business every single day. When you wake up, you’re thinking about it. When you go to sleep, you’re thinking about it. You live it seven days a week. You think about it constantly. But, when you first got started, remember how little you knew about the business, how little you knew about the industry. Now think about how little your clients know. It’s so easy to assume that they understand. They don’t think about any of this stuff that you deal with.

Now, why did I say all of that? That’s the key to everything when it comes to explaining to a client why you need to charge more. They don’t know your business. They don’t understand it. They don’t know the challenges and the cost involved. As far as they’re concerned, if you’re in the lawn-mowing business, anybody can get a mower out and mow a lawn. If it’s tree-trimming, all he’s got to do is get up there and cut that limb off.

Basically, that’s how a lot of people think. They have no comprehension of what goes into this. They don’t understand all the costs behind the scenes. They don’t realize how much it costs just to get the truck to their house. So, when you say, “I need to charge this,” that means nothing to them. They don’t know why you arrived at that number.

Here’s how you’ve have to think about raising prices and explaining it to a client.

First, you have to educate your clients. You have to tell them some of this stuff. If you want to sell something, it’s about education. If you want to raise a price, you’ve got to educate them on why. Why is to their advantage? Why does it matter? Why are you doing this? You need to tell them that. Education is key. They know very little. You know a lot.

You need to teach them a little bit about what you know so that when you ask for something, it’s meaningful. They understand why you have to raise the prices or why it takes extra time to complete a job. A lot of times when you explain to them, you’ll find out people aren’t upset. They get it. They work, they have jobs, they do things, they understand when things take a lot of time. So, education is key.

Second, you’ve just got to be honest. I think that’s the absolute best approach in business in general. Lay out your case. Be honest. If you screw it up, come clean and just tell them. If you’re running behind, tell them why. Be honest. If you try to cover it, or if you try to make stuff up, your team sees you doing that. Then they do it. If you are dishonest with your clients, your people will be dishonest, and then you will be a dishonest company. Your company and your people mimic you. You need to be honest. Your need to be forthright. Tell people the truth.

When I say to be honest, it’s not always being honest about a screw-up or mistake. Sometimes it’s just being honest and saying, “Look, the reason we’ve got to raise the price is we thought it was going to take three hours but it takes five. For the last four times we’ve been eating the extra cost, but I’ve got to tell you we’re losing money every time we’re out here. We really love working with you. I really want to keep you as a client, but is there any way you can help me work this out? We need to make a price adjustment for this to make sense.” I’m not saying to say it that way, but it’s that kind of an attitude of just tell them the truth. Tell them exactly what’s going on. Explain your case. Educate them. Be honest about the situation and then propose a solution. You’ll be surprised how often that it will work out for you.

Third, explain it. That’s part of being honest. Just lay out your case. Tell them what’s up. Tell them why. Explain exactly why you’re asking for more money. It’s not because, “My wife and I decided we want to buy a Ferrari, and we figured out that if we charge every customer two extra dollars, we could do it.” You tell them the truth. “Look, we’re not making a ton of profit here. The reason we’re doing this is gas prices have gone up. The reason we’re doing this is because now that you’re having us mow the backyard, it costs us more time and money. The reason is because we originally came out and looked at your irrigation system and there was only one zone, but that was broken. Now when we come back, you have a second zone that’s no longer working. We didn’t anticipate this. We need to charge extra.” It’s all about explanation, education, and honestly explaining what’s up.

Finally, when you’re doing a massive price increase across a lot of clients, test it. Let’s say you have three hundred clients you want to raise the price on. You don’t just go out and raise the price on three hundred clients. You call up a couple of clients and you explain your case. Education, honesty, and explanation. If all three clients decide to cancel, you’ve got a problem. You don’t want to go to four hundred clients. If all three clients say, “Cool, I get it. No problem.” Go to all four hundred clients. If a couple of clients say, “Wait a second. Why now are you raising my price, because you just raised prices last year, and I can go down the street and get somebody else?” You listen to their concerns. You take those concerns, and then you go approach three more clients and tell them that you need to raise prices. But, now you know how to answer the concerns when you’re talking about why you’re raising the price. If you’re writing a letter, you can address the concerns you heard in the letter telling your clients why you’re raising the price.

These are your four tips when you consider adjusting prices or making changes. When you do this, especially when you test it and try it, it’s not so intimidating. Your clients will be far more understanding than you think they’ll be. Just remember, it all starts with explaining to them and educating them on your reasoning.

Good luck.

 

How Much Money Should My Lawn Company Make Per Hour?

 

This questions is from Jacob, and the question is, “How much money should I be making per hour as a business?”  I can’t tell you exactly, but I can give you some information that will probably help you.  Let me first give an example in commercial. Commercial maintenance, first you’ve got to understand there’s a lot of factors that go into this.  That’s why there is no real easy rule of thumb.  You could talk to one guy that’s predominantly commercial and you’re going to hear a lower hourly number; whereas, if you talk to a guy that’s residential you’re going to hear a higher number.

If you talk to a guy that’s doing lawn mowing, you’re going to a number; whereas, if you talk to a guy that’s doing irrigation, you’re going to hear a higher hourly number.  It’s all over the board.  That’s why I say there is no way I can possibly directly answer, but I can give you some clues.

Let’s start with commercial.  In commercial you might hear a guy say, “Yeah, we have to achieve a $25 per man hour number.”  You might hear somebody else say, “I need to achieve a $30 man hour number, or $35 man hour number.  That’s kind of a range, $25 to $35 is a range I’ve heard in the commercial space, and the reason you’re going to hear … But you’ve got to analyze it more than that.  A guy could be in commercial and he could say, “Our goal, we need to achieve $28 per man hour to be competitive in this market and at this moment in time.”

Things have changed over the years.  You could have a guy that got out of the business in 2002.  He could say, “Back when I was in the business in 2002, we were hitting $34 a man hour.  Well, now it’s 2013 and everything is different.  He may not be able to sell work at that same man hour rate if he was still in the business.  Now he might have to sell at $27.  Things have changed.  Things have tightened up and people are very competitive.  You have to be very careful that you’re talking to someone that’s talking in today’s prices.

Second, if you talk to somebody that’s in the commercial space and they predominantly serve smaller commercial properties where they’re going from property to property more like serving large residential.  That’s a totally different game than a guy that’s serving big commercial where he sends a truck to a job for the entire day, or he has a crew that services a property for 3 days, or he has 5 crews that go to a property for 2 days.  Totally different businesses and they’re both called commercial and, they’re, therefore, are going to have completely different hourly rates.

If I can send a crew to a job site in the morning, and they come home at night.  Then tomorrow, I send them to the same job site and they come home at night, or if I could send them to a job site in a truck and all their equipment is stored on site and they just drive back to their homes they don’t even have to come back to my office, I can build a lot lower rate than if I have to send them to one property, send them to the next, to the next, to the next, to the next because you have what’s called unproductive, unbillable time built in to your pricing in that second scenario.

In my first scenario, we’re billing straight time.  I send them out to the property.  We’re billing time all day long except for their break.   I don’t have the unproductive time of as much load and unload time.  I don’t have as much travel and drive time.  I don’t have maybe a time built in to send them on parts runs and material runs.  It’s a totally different game so I can look at the numbers different.

Now let’s say that you have a commercial … First, understand that I don’t have a whole bunch of cost so I could maybe sell work at $30 an hour, whereas, if I have a lot of drive time and unproductive  time, I might have to sell work at $40 a man hour when we’re actually performing the work because I’ve got to factor in the drive time and all that unproductive time.  Now I’m quoting 2 different rates when you’re talking to my comp-, me versus another company where we serve both commercial, but we have different types of commercial.

You’ve also got to know if this hourly rate includes drive time or not.  Again, in the commercial space I might say we need to achieve $27 a man hour.  For $27 a man hour, that means the moment we finish one job get in the truck and drive to the next one and complete that job, that’s all time on the clock.  That drive time is built in to the job time that follows, and, therefore, all of that time together, drive and production, for all of that time I need to be averaging $27 a man hour.

Then if you talk to a different commercial company doing the same type of work, they might say, “We need to achieve $32 a man hour.  When they say $32 a man hour, what they’re thinking is once we set foot on the job site from that moment in time until we complete that job,  I need to achieve $32 a man hour.  They don’t give you … They don’t have a number for that drive time in between.  That is a cost, but they’re not tracking that time and saying, “While we’re driving, we need to be achieving $32 a man hour.”  The $32 a man hour is only for the time on the job site.   They are not pricing in … They are pricing in, in a sense, but they’re not counting drive time in their hourly wage that they quote as a company, better said, hourly rate that they’re trying to achieve.  Hopefully that makes sense.

Whenever you’re asking questions in your market because by market pricing an hourly rate is different as well.  It’s totally different in Texas than it is in New York.  It’s totally different in Alabama than it is in Connecticut.  It’s totally different in California than it is in Florida; different markets, different rates, different employee costs, different everything.    When you’re researching this in your local market and you’re asking these questions, the questions to know to ask are, “Does your rate include drive time?  Does your rate include … Are you doing big commercial?  You doing smaller commercial?”

When you move into residential, it’s sort of the same thing.  If I can send a client … If I can do 3 large residential properties in a day, I don’t move my truck as much.  I don’t have some of the costs of the guy doing 35 little bitty jobs per day and so my hourly rate might be bigger.  If I’m doing pest control in their one-off visits, my rate has to be higher than it might be for mowing 7 yards in a row because: 1.  My pest control tech has a higher level of training, a higher level of licensing.  We’re using chemical.  He also is having to do more driving to get to each of these one-off jobs that are called in and booked by appointment, and so that rate’s higher.

A lot of times when you’re asking a company, “What’s your hourly rate?”  They might give you a blended rate across service offerings, but the real questions is, “What’s your hourly rate for mowing?  What’s your hourly rate for irrigation?  What’s your hourly rate for pest control?”  Those are the clues.  Those are the questions and that’s what you’ve got to ask.  I’ve heard $25 to in the $30s for in the commercial and I’ve totally seen for maintenance and for maintenance and lawn care, I’ve seen guys in the high $20s to well into the $40s, and $50s, and some in the $60s for residential.

I would add one more thing.  You will sometimes hear about a guy in residential or commercial and their averages are a really high number and I’m making this up, but I’m doing $50 a man hour.  Then you’ll talk to another company and they’re doing $42 a man hour.  These are made up numbers, but it communicates a point. Or you find a guy does …  Let me exaggerate that a little more.  You’ve got a guy that’s doing $40 a man hour in residential and then you compare him to another guy that’s doing $60 a man hour in residential.  Now I can tell you, for example, in Toronto, Canada, they bill at a lot higher rate than we do here in Texas.  That’s because a completely different area.

That’s one difference, but the other difference is, you might have a guy billing out at $60 and when you dig in the guy that’s billing out at $60 is running about a quarter million dollar a year business.  He’s been doing it for quite a while and he’s slowly acquired those clients; whereas, the guy that’s running a $9 million or $10 million company, he has to sell a lot more work and he has a lot more attrition he’s dealing with where he has to get more and more and more clients.  It’s harder to sell work so he can’t sell $10 million of work at $60 an hour.

There isn’t enough people to buy at $60 a man hour, but when you’re running a smaller company and you’re getting the business over time and you’re a little … You’re more able to cherry pick because you only have to sell so much work, you could sell more work at a higher price, but when you want to scale to $10 million, you’re not going to be able to sell at the same prices and scale that fast.  Hopefully, I’ve communicated that clearly in that you can if you’re very strategic and say, “I want to run a smaller company and I’m going to cherry pick the work and I’m going to sell it at a high price into very specific neighborhoods, or very specific types of clients, and I realize there’s only so many of them, so I can only grow this business so big, but that’s okay.  I’m going to achieve this high dollar per hour rate.”

If that’s your plan, that’s doable, but you’ve got to be, of course, in the right market.  But if your plan is you want to build a $10 million residential company, in most markets good luck selling at very high prices.  I’m not saying you can’t sell at higher prices that are very profitable.  I’m just saying you can’t sell at the extremes of the market and find enough people to build a $10 million per year business because they just aren’t out there.  You can’t sell at the very, very top of the market and get that much, that big of a percentage of the market.

Again, these are all questions as you’re thinking about this to ask yourself and ask others so that when somebody says, “Yeah, we sell at $25 a man hour,”  you don’t go out and copy the $25 a man hour.  You got to really dig in.  I hope that helps you as you’re analyzing this and researching it in your local market.  Good luck.