Man hour rating (Job Costing)

[djagusch]

Originally Posted by Sean Adams

No one can give you this answer. Only you, through breaking down your numbers, can determine what you should be charging per man per hour.

This is a rough example, but follow me here....

Company 1 has 4 employees. They have two trucks that cost the company $500 a month each. All of their equipment is financed and that costs them another $1,000 a month. They rent a garage for $800 a month. They pay all of their employees $15 per hour. They pay an accountant to do their payroll, they spend a lot of money on advertising and in general, the business is unorganized and not very efficient - neither are the employees.

Company 2 also has 4 employees and two trucks and the same equipment, but the trucks are paid for and so is the equipment. They do not rent a garage space and all of their employees are paid $12 per hour. The owner does all of the payroll work and they use the internet and word of mouth to advertise their business, which costs them next to nothing. ON top of that, the company is run well and the employees rarely waste time.

If company 1 and company 2 are going to bid on the same mowing job for example, who do you think can bid less?

Company 2

If company 2 can bid less and provide as good (if not better) service than company 1, who is going to get the job.

Company 2 all day long....

What happens to company 2 when all the paid off equipment is worn out? Do they either:

Raise rates to cover new costs?

Take money out of their already lower net?

Remember when they lower their rate do to equipment being paid off they are not putting money aside for replacement due to the lower rate.

Doing payroll in house should cost the owner money also either paid to himself or a employee. Doing it yourself and lowering your rate due to it doesn't cost money says your time isn't worth anything. Paying an account reduces the risk of doing something incorrect and also gives you more time to sell or improve biz systems.

[Sean Adams]

Originally Posted by djagusch

What happens to company 2 when all the paid off equipment is worn out? Do they either:

Raise rates to cover new costs?

Take money out of their already lower net?

Remember when they lower their rate do to equipment being paid off they are not putting money aside for replacement due to the lower rate.

Doing payroll in house should cost the owner money also either paid to himself or a employee. Doing it yourself and lowering your rate due to it doesn't cost money says your time isn't worth anything. Paying an account reduces the risk of doing something incorrect and also gives you more time to sell or improve biz systems.

It was a very quick, very rough example just to give some insight, but you are correct, the only thing constant are variables when it comes to expenses, employees, etc... As far as doing payroll in house, years ago this did not make much sense but with the software that exists today, it does not make sense to overpay an accountant who is just plugging your numbers into similar software themselves. Payroll entry is a much less painful process (and considerably less time) that it was just a few years ago.

[djagusch]

I guess my payroll for 7 or less employees runs $50/month and another $70 for the qtrly deal. They also do the year end taxes for under $300. So under accountant expense of $1,250 it's under .3% of total sales and always answer questions I have. For the cost and service I recieve it's not worth it in my situation. ADP and have contacted me in the past giving quotes what was much higher so I don't know if I have a rare accountant(cpa) that is reasonably priced or not.

[cpllawncare]

I guess my point was, I think some over estimate their worth, just because you own the company doesn't automatically make you worth $60 an hour.

[coolluv]

Originally Posted by Sean Adams

No one can give you this answer. Only you, through breaking down your numbers, can determine what you should be charging per man per hour.

This is a rough example, but follow me here....

Company 1 has 4 employees. They have two trucks that cost the company $500 a month each. All of their equipment is financed and that costs them another $1,000 a month. They rent a garage for $800 a month. They pay all of their employees $15 per hour. They pay an accountant to do their payroll, they spend a lot of money on advertising and in general, the business is unorganized and not very efficient - neither are the employees.

Company 2 also has 4 employees and two trucks and the same equipment, but the trucks are paid for and so is the equipment. They do not rent a garage space and all of their employees are paid $12 per hour. The owner does all of the payroll work and they use the internet and word of mouth to advertise their business, which costs them next to nothing. ON top of that, the company is run well and the employees rarely waste time.

If company 1 and company 2 are going to bid on the same mowing job for example, who do you think can bid less?

Company 2

If company 2 can bid less and provide as good (if not better) service than company 1, who is going to get the job.

Company 2 all day long....

No offense...but this is a terribly ignorant post that in my opinion is why most lawn boys fail. Don't give out bad advice or information if you have no clue what you are talking about.


Dave...

[coolluv]

Originally Posted by Sean Adams

It's always going to be difficult to compare apples to apples. I work with one landscape business owner who is dominating his area because his expenses in general are so low - no facility rent, vehicles and equipment paid for, low labor rates. When we determined what he needed to charge per man per hour to break even, he was in the $24 per hour range.

The area in which he works in general seems to have most companies charging somewhere in the vicinity of $42 per man per hour.

As you can imagine, he can come in with his bids in the $35 per man per hour range, charge a much lower price, and still make a significant profit.

That's all well and good until that same company has to grow to keep up with demand and is forced to have that facility to rent and all of the overhead that comes with growth.

You don't price your jobs for where you are...but for where your headed. If not you soon realize you can't afford to grow without raising prices....and those customers who are used to that low price will look elsewhere when you raise them to where they should have been in the first place.

You advocate the typical road to failure so often seen around here and on this site. BTW....just because equipment is paid for doesn't mean you don't have to replace it and the overhead for that just goes away. You lack the basic understanding of how a business works and you pass that ignorant information on to new guys without a clue. Stick to managing a website not doling out bad business advice.

Bad advice.


Dave...

[Darryl G]

I think you're being a bit harsh on Sean, but you make some good points as well. My goal is to have lower expenses AND to get away with charging more by providing exceptional service. The challenge is in finding the customers who are seeking that level of service.

[coolluv]

Well, when you see post after post after post over the years stating...."I have no overhead because my equipment is paid for". it gets tiring after a while.

I haven't found those trucks that run forever...nor equipment that runs forever. Whether new or used the overhead remains relatively the same. You pay upfront or you pay out over the years in repairs. In the end it comes out the same.

I was just at an NTB getting new tires on my truck. Talked to the manager about the maintenance for the property. She said they just replaced the old landscape company with a new company because they raised their rates 20%.

Now why do you think that they had to raise their rates 20%? Pretty big jump don't ya think. They were probably lowballing the job and either breaking even or not making much of a profit and were forced to raise rates by such a large percentage.

Then along comes the next newbie and the cycle continues. Price your work for where you need to be so when you get where your going you are not scrambling to make a profit.

I know of a local guy (my neighbor) who after 13 years of being in business is downsizing to himself and a helper....after having 4 crews and over 250 accounts. Why? because everything he owns is wore out and junk and he is to the point of making less money than if he was a smaller company.

Why? Because he is cheap. Has a route full of bi-weekly's and cheap customers. He is busy as hell....works 7 days a week....constantly fixing junk and broke down. He is the perfect example of "I have no overhead because everything is paid off." mentality.

You can go broke working your @$$ off or you could go broke laying on the couch.

I know of other supposed successful companies around me that appear successful....but can barely make pay role from week to week. You would never know from looking at them.


Problem is most companies have the "I gotta grow fast mentality" and then soon realize that once the get what they wanted.....the I don't have any overhead reality kicks in and they are gone.


Harsh? Maybe.....but it gets under my skin.


Dave...

[Duekster]

Originally Posted by Sean Adams

It's always going to be difficult to compare apples to apples. I work with one landscape business owner who is dominating his area because his expenses in general are so low - no facility rent, vehicles and equipment paid for, low labor rates. When we determined what he needed to charge per man per hour to break even, he was in the $24 per hour range.

The area in which he works in general seems to have most companies charging somewhere in the vicinity of $42 per man per hour.

As you can imagine, he can come in with his bids in the $35 per man per hour range, charge a much lower price, and still make a significant profit.

What happens when he needs a new truck or new equipment. Even if your stuff is paid for you have to charge for the next piece of equipment.

I would not put 40K in the bank and not expect a return on my investment?

[Darryl G]

Yeah. A lot of guys make an initial investment in vehicles and equipment and fail to consider recouping those costs. I have a friend who makes it his goal to bid 20% less than the competition and to make it up in volume. I'd rather be 20% over the competition and sell myself on quality and service. He has a lot of work but there are times when he can't afford to put gas in his trucks without asking his wife for some money (she has an unrelated retail business). The other thing I see is guys starting out under capitalized, to the point that a $500 truck or equipment repair puts them out of business.