View Full Version : Strategic business costs to determine profitability
04-04-2007, 09:46 PM
I'm a new (1st year) company doing chemical apps, and chemical apps only. No landscaping, no mowing, no lawn maintenance (aeration) or cleanup, etc. We're a legally formed company, with a tax #, insurance, etc. Trying to do it right.
I'm also, possibly unfortunately, very much a "numbers person". I like very much to know all my numbers (costs, etc), and I feel I should simply be able to accurately, and profitably, bid a job just by knowing these numbers.
I'd love to be able to have a spreadsheet / program where I enter the square footage, travel mileage, estimated time to complete, and property "difficulty" (A, B, or C), and be able to spit out a quote. This quote would cover my costs, add chemical profit, and hourly rate. I like this constant, consistent, by-the-number approach -much- better than the "you'll get a feel for it" method most others seem to use.
Of course, the basis for this is knowing my costs. Which is why I'm posting here. Specifically, it's why I'm posting in this forum, as opposed to the other forums, which are full services I don't offer (mowing, landscaping, etc). I figure the people here might have a better feel for what I'm involved with.
I know what my chemical costs and usage are (per sq ft, which gives me per 1k, per acre, etc). I know what my insurance costs are. I know fixed vehicle payments, and I know vehicle insurance. I know water costs (for filling the tank), cell phone / internet costs, business card costs, truck sticker costs. I know monthly banking costs, and I can guess on fuel costs. I can look through my receipts and find all my standard recurring (insurance, phone, internet, etc) or supplies (chemical, utility bills, etc).
I don't know my maintenance costs, as I haven't had to maintain anything yet (well maintained, used equipment). I'd like to budget a set amount per year for "maintenance".
I also, at this time, don't know how I would adequately amortize this out. I say this, because I don't know how many customers (or rather, billable acres / area) I'll have for this year.
I'm looking for ideas on:
1) Costs I may have missed
2) How to amortize this into a program with an unknown "# of acres for year"
3) Any type of program or spreadsheet layout that may help me with this.
I know this is a rather vague question, and I'm sure I'll be able to zero in on it as questions are asked. But for now...how would I go about implementing my "input info into boxes, and a quote is spit out" process?
04-05-2007, 08:47 AM
I really like the idea you have there. I think the first thing you have to realize is that, whereas most of your costs are fixed or definite many of them will be indeterminate (No way to know or predict how much emergency maintenance). Also, the end number that any program spits out is going to be a range and not a definite number. For instance, you are going to want a profit margin that is say 25% to 30% (example only). If you understand that your unfixed costs could come in at the high end then your end profit margin may be significantly lower (15% to 20%). If luck is on your side, and your preventative maintenance program is strong the numbers will be more in line. There are other unfixed costs besides maintenance though. What if there is a drought and you have to switch to a 75% slow release product. What about gas prices? Fert prices?
I guess my only point is that the best you can hope to do is target a range you want to hit. I think your plan is great though.
04-05-2007, 09:15 AM
Excellent post, turfscape. That's pretty much what i was gonna say. Moto, you will be successful but don't let the numbers get the best of you. There's too much else to consider as turf said. Competitive situations also. If you get a profitability % you want to try for, than always shoot for that. The job itself and other unforeseen things will determine if you get that % or not.
On a side note: i love meeting people that quit there desk job because they want a job outside. Like it's that easy. As long as you can predict the weather, economy, fuel costs, and deal with every type of person imaginable, than you are ready for this business.
04-05-2007, 10:17 AM
and deal with every type of person imaginable
Isn't that one of the interesting things about this profession? Dealing with the Doctor or Lawyer that forgot more about turf than we will ever know or the crazy lady next door that is going to sue you because you killed every tree in her yard, or her 15 year old cat died. Could old age done that?
04-05-2007, 10:48 AM
Turfscape and all,
Thanks for the input. I don't mean to imply that I'm a slave to the numbers, or that I'm incapable of running a business on my own. To the contrary, I've been successfully self-employed (in the motorcycle parts industry) for the past 7 years.
I understand that a profit "range" would be the end result of this "system" I've requested. I also understand that each situation is different.
What I'm looking for, I guess, is something with a little more of a calculated base than "how much can I stick them for?". I'd love to be able to calculate a standard, baseline number, that will be consistent from job to job. Then, if I need to adjust up or down for other factors, I can do so. But at least I'll be within a consistent range for each customer.
I realize each job is different, due to climate, weather, location, geography, and the "ease" of dealing with the contact person. What would be nice about this system, would be it's adaptability. If we had a drought, and I had to go with a slow release product, I could enter the new costs into the system, and have a new bid basis.
I just want to provide high-quality service to my customers, at a reasonable, consistent, profitable price point. Too many other people (at least that I've dealt with) seem to have a "stick it to them for as much as I can" mentality. I'd rather have a target base number, that would remain consistent for each job.
If my bid is lower than others...that's great. I'm still turning my profit #'s. If my bid is higher than others, I can decide how much I'm willing to shave off my margin to get the job, and at what # it's not worth taking the job.
I just want to run this like a professional business, vs the "stick 'em for every dollar" mentality I see in so many others. That's really what I'm looking for, and I think a system as I've described would be a great tool. I'd love to be able to tell customers that I know my costs to the square foot, and be truthful in saying this.
04-05-2007, 12:28 PM
Like I said, I like your approach very much. I just wanted to suggest that your profit margin is dictated after all of your expenses are met, which happens long after you price your jobs. There are many unpredictable factors, but if you continue to readjust the numbers as factors change you may be able to fall within a tight percentage range of say 10% + or -.
I agree that licking your finger and sticking it in the wind is a poor way to determine your pricing. Just keep your input variables fluid and you'll do well. I'll be watching this thread closely as I see a lot of potential here to learn.
04-05-2007, 01:12 PM
Thanks again for the input. I realize that profit #'s aren't truly determined until the year's end. It's at that point that you can actually take your gross for the year, take out your expenses, and determine your true net / profit. I also feel, however, this situation applies to every other business out there; not just the Green business. Every business has unexpected expenses, and as such, they try to build in a suitable buffer to their numbers. That's really all I'm looking for.
I also understand my ability to plan / budget / bid will become more and more refined, as I have "prior experience" behind me. I'll have a better idea of yearly maintenance costs, application time (hour) estimation, when something breaks, and other variables. Experience is still the best teacher. :) Until that time, though, I'd like to have a system that is reasonable, repeatable, and should help me weather any mistakes I may make early on.
Take this first year, for instance. If every bit of my equipment was broken or stolen, I'm out...say...$9k. I've got a used spray rig with quality components. A several year old truck, that is maintained well and is very presentable. On a budget, but maintaining a professional appearance and capability. I'm not a "need a new truck every year" guy, until tax purposes dictate such a move. I've got a modest home with a modest payment, and my toys (motorcycles, water craft, other vehicles, etc) are paid in full. I was able to put a significant % down on my home, and I could make my house payment by working at McDonalds, should I need to do so.
I'm starting slow and with minimal capital outlay. This has worked wonderfully for businesses I've had in the past. I've taken a loan out on one business (my first), and that went poorly. Scratch one for the "traditional" route. Since then, I've started businesses slowly, within my on-hand capital and capabilities, and grown slowly and by word of mouth only. And those businesses have been very successful, and very profitable.
I plan on growing relatively slowly, as I'd rather provide a small # of customers with outstanding service, vs a large # with mediocre service. As I gain experience and "real world" knowledge, I'll be able to expand accordingly and keep my quality service. I'd rather have a relative few very satisfied customers to help in my expansion, which I should be able to do with a small, but quality, operation. This opposed to growing too fast, and trying to re-win previous customers who thought I did a mediocre job. As the saying goes, you only get one chance for a first impression.
I'd rather have a small outfit where all my customers have a positive first impression, vs a medium / large outfit where most of my customers have a mediocre first impression, because I'm trying to play "catch up". I realize that more clients isn't necessarily better. In fact, that can sometimes be the worst.
I feel a system as I envision would be a useful tool to achieve my goal. This system would help ensure I provide fair, reasonable, repeatable, profitable pricing. It would also be a "safety net" to ensure I keep my head above water, so to speak. It could help ensure each job is profitable, and it would prevent me from feeling badly about passing up jobs that aren't profitable. If it's not a profitable job, I should be glad I didn't get sucked into it.
I would also like the idea that it'll keep my bidding relatively constant from year to year. If the "finger in the wind" method has me upside down on a job this year, how will the customer react to a 25/35/50% increase next year? As opposed to a more reasonable sub-10% yearly correction? Again...this is mainly to protect and guide me during the first year or 3. After that point, I should have a better idea of my costs of doing business, and I can add that additional information into my "formula".
I appreciate the input, and I certainly look forward to any assistance that may be offered. For now, while it's windy and cold, I need to go and bid a few more jobs. :)
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