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.

How Much Profit Should You Charge For Lawn Care and Landscaping Work?

 

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.

 

Very Specific Advice On How To Price and Estimate? Part 1

Hey, it’s Jonathan Pototschnik.

I get asked every 3 days how to price lawn care services. It is that frequently asked so, I sat down and gave this some thought.

First, let me say, the answer I normally give is that you need to understand your numbers. You need to understand the relationship between square footage and time. You need to understand how long it takes for you to perform different tasks. How long does it take to mow a thousand square feet with the turf tiger? How long does it take to round a certain type of bush or, how long does it take me to trim up the base of an ornamental tree? You had 3 guys do the same task and you tracked their time. On average, it took 22 seconds to trim a bush of medium height. Whatever it is, you need to know those things. Those are the answers I like to give because that’s the accurate way to price.

Once you understand the relationship between task and time, then you can go out to a property, commercial or residential, and identify all the different tasks that need to take place at that property. You record all the different types of bushes, the linear feet of hedge rows, the square feet of turf and the type of equipment you will use to mow and edge, as well as the square feet of beds that need to be mulched, and the square feet that needs weed control and how often. Record all of that information to figure out how to price your lawn care services.

You’re identifying all the aspects of a property, all the tasks within the property that have to be maintained. Since you know the time by task, you’re adding all that time up and multiplying that time by an hourly rate to come up with the bid price.

It doesn’t matter if you’re putting 1 guy on the job or 10. That’s irrelevant when you’re bidding the price. It’s total man hours times your rate.

Granted, you don’t get into business having all of this knowledge. You have to get out there and get experience. You have to learn the differences between using the different equipment, how many obstacles you have to mow around, the spacing when planting flowers and how deep you spread your mulch. There are a ton of variants and you just have to get out there and learn it.

When you are just getting started, you will mess some stuff up. But, you have to get in there and start measuring everything from Day 1. You keep your records and eventually you will see your patterns and learn to price more accurately.

You will win some bids at first. You will under bid some stuff and you will over bid some stuff. But, you learn. One day down the road when you have say, 200 properties, and you decide you want to start putting some science to your bidding, you can use those 200 properties to measure, track, and record how long everything takes. You’re really fortunate because you have 200 properties to learn from and you can start drawing some conclusions and putting some science to your bid.

I’m not saying you never eyeball stuff, we still do it all the time. But, the way you build a systematized business where you can hire guys and have them do your bids and know they aren’t going to screw it up is by giving them formulas to follow. You have to have some science to your bidding.

That’s the example I always like to give because if I’m going to give you advice, I want to give you proper advice. I don’t want to give you something that’s going to harm your business. When I give pricing advice, that’s what I say. You’ve heard it before and I wanted to reiterate because it’s critical. You figure out your time, now you multiply it by the dollar per hour.

I think the question that’s really being asked is what to charge per hour. Many people get into the lawn care business and have no clue what to charge per hour.

When you start your business, you have virtually no overhead. You don’t have an office, you don’t have any employees, and you don’t have tons of debt. You don’t have all these things that go into running a company. You have minimal fixed cost. Fixed cost are things like an office that you have to pay whether you have clients or not.

Variable cost, on the other hand, are the cost that you incur because you do something. Let’s say you’re spraying pre-emergent on a property. Well, if you don’t have a job, you don’t spray a pre-emergent. The chemical cost of the pre-emergent is variable. It’s only incurred when you do the work. If you don’t do the work, you don’t incur the cost.

When you’re starting out, you might say to yourself, “You know what? I’d be really happy making 25 bucks an hour. If I could just go and make $25 an hour at every job, that’s like making 50 grand a year if I work 40 hours a week. I’d be cool with that.” This is kind of what you’re telling yourself as a hypothetical.

25 bucks an hour may work for you while you are starting out. But, once you start adding employees, trucks, office space, and equipment, it may not seem so good anymore. Your $2000 a month is eroded away by your bills.

 

 

How Do I Price Lawn Care Services?

The question is, how do I price a yard? I am going to give you a really fast answer on how you price a yard and this will apply to the maintenance side of both residential and commercial lawns.

Let us just break it down as simple as possible. First know the turf size. You must find the gross square footage of the entire property, then measure the turf square footage. I will give you an example. Let us say you are maintaining a property that is a 20,000 square foot lot but the turf is 5,000 square feet. That means there are a lot of flower beds or has a lot of concrete. It takes time for your workers to walk from the front of the property to the back and it takes time for your staff to blow off all the concrete areas. It takes time to clean up and weed eat the grass that grows up in the cracks of the sidewalks and the concrete areas. That all still takes a lot of time. So, even though the turf is only 5,000 square feet, it is still a larger property. There is time associated with that.

Next, you need to know the relationship of time to money. And, you need to know the relationship of square footage to production speed. I get that when you are starting out, you do not know all of that. I would study the market and comparison shop. I would also have friends and family hire your competitors to find out what they charge. You can start there as you begin to learn your numbers. Then, you can begin to price so that you get the profit margin you want.

To understand your numbers, you have to measure all of your properties and track your production times. How long does it take your crew to mow it? Are you making money? Once you start to understand the relationship between production time and square footage, you start to learn how to price so that you can simply measure a lawn and know exactly what you need to charge.

An easy way to measure a lawn is by using Google Earth Pro. You can also go out and measure it with a wheel or use tax records. We then price lawn mowing, and even fertilization, by per thousand square feet.

When it gets into trimming bushes, we still eyeball a lot of stuff. I hate to admit it because even as big as we are now, we are still having our estimators look at it and eyeball it. That is not really the right way to be doing it. We are trying to move towards a system where you literally know the time it takes to trim the different bush types based on the different sizes. The estimator will simply count the different bushes, at different sizes and shapes and measure the linear square footage, and plug the numbers into a spreadsheet to calculate the time. Then, it will multiply that times your billable man hours.

When you are bidding commercial properties, you need to make sure that you put the most optimal piece of equipment on each part of the property. For example, for the large areas, how big of a rider of zero radius could you get on there? You do not want to mow the big areas with the push mower because you will never be competitive. You want the best equipment on each segment of the property. Then, know your production speed on the different types of equipment. Once you know that, you can measure your properties, apply a time to it, and then apply the man hour rate that you need to achieve your profitability.

You want to move to a systematized approach where you can hire somebody that costs you less to go out to do the counts, do the measurements, and then a computer program puts the whole thing together and spits out a bid. A lot of work is involved in getting to this point. You have to do a lot of measurements and a lot of testing. You have to have multiple personnel trim the same things and mow the same areas so that you can get your timed averages. But, this is how you become efficient and prevent costly mistakes.

In the beginning, you have to start out simple. Begin by looking at how the market is pricing, but only use it as a benchmark to learn from. Then, gain some experience and learn your numbers.