# Calculating Operating Cost

Discussion in 'Business Operations' started by milsaps118, Jan 20, 2007.

1. ### milsaps118LawnSite Senior Memberfrom Elk River, MNMessages: 559

For the old pros out there and for those who have a good business sense, how are you guys/gals figuring out your operating cost? Example..how much it cost you per day, hour, month or which ever, it cost you to operate? What factors do you use to determine this?

I want to determine an accurate and realistic dollar amount of my "REAL" operating expense's to project an accurate gross/net profit margin. I've been in this business going on 8 years now and have always looked at it like, "If I'm making enough money to pay the bills and have some left over then I'm doing OK". But now I want to keep a tight leash on what my true margins are so I can grow as a "PROFITABLE" business. Not only that, but to have the ability to bid on jobs that will turn a profit based on "MY" company.

2. ### YardProLawnSite Gold Memberfrom coastal NCMessages: 3,567

if you have been in business for a few years is is not too hard.

add up all your insurance, shop rent, loan payments, repairs, fuel, add in some percentage for vehicle/equipment replacement.\
also add in all payroll for any nonbillable times...

divide those yearly totals by the number of hours you can actually work in a year... this is your overhead per hour.

3. ### UranusLawnSite Bronze Memberfrom MassMessages: 1,624

Take out your profit and loss statement. Divide your losses by 12 gives you mothly cost, divide by 52 gives you your weekly rate, divide bye 365 and it gives you your daily rate. Now if your like me and take off 4 months out of the year you have to find out how many days you worked and divide by that to give you your daily rate. Also I use 8 months to figure out my monthly rate but still add in expences from vacation/winter.

4. ### milsaps118LawnSite Senior Memberfrom Elk River, MNMessages: 559

YardPro..I think I understand this part of your response, but to be 100% clear, would you relate this to drive time, picking up supplies, etc...anything other than actual time spent on a job producing revenue?

5. ### johndeereguyLawnSite Memberfrom IowaMessages: 220

You cannot figure in that rate for drive time, picking up supplies, working in the shop, on the phone, or making out bills. Those hours are billable hours, not working hours. This is where a lot of people make a huge mistake. You may work 80 hours a week, but how many of that was billed to someone.

6. ### tjsquickcutsLawnSite Senior Memberfrom AtlantaMessages: 943

You said it best....Profit / Loss Statement....You can even use your Pro/Lo spread sheet to estimate your projected income for the following season....
But I do agree, that things like Phone time, windshield time, etc are not and should not be taken into account when figuring operation cost. I got sick looking at my Operation Budget for 07, but I have to realize that the more money, the higher the operation cost.....

7. ### milsaps118LawnSite Senior Memberfrom Elk River, MNMessages: 559

This may seem true but really, how accurate is it when I pull my P/L sheet(Quickbooks) and some factors that determine my losses(expenses) are things such as entertainment/meals, rental, printing/reproduction, discounts/sales, contract labor, just to name a few. These numbers fluctuate from year to year so if I used my losses to determine my operating cost it would be inaccurate.

Maybe to clarify my original post, basically what I'm looking for is how do I figure out what it cost me to go out and work all day. What factors influence "REAL" operating cost for that day or particular job. Hope I'm not making this to confusing.

Thanks!

8. ### tjsquickcutsLawnSite Senior Memberfrom AtlantaMessages: 943

Below is my Pro/Lo from this past year....minus the numbers from my second truck I start mid summer.....

But my daily over all cost are about \$489.94....That covers gas, payroll, advertising, repair maintenance, cost of goods, supplies, fert and squirt supplies, etc.....My salary is included also, therefore what ever my business saves just adds equity to my company....my monthly costs are \$9796.80, and my weekly cost are \$2449.20. Does this help?

9. ### Az GardenerLawnSite Gold Memberfrom Phoenix, AzMessages: 3,899

There is a saying "ask a better question get a better answer". The question you asked is really simple as most have explained in one form or another. Is that really what you want?

The number for your overhead as it is today is not nearly as important as what would your operating costs be if you were running the kind of business you want, not the one you have. If you only charge enough to get by how will you grow your company into the business you want?

If you are working out of your house now and you want a office and yard you need to figure a cost for that and plug it into your equation. So you can begin to make the money to cover that cost.

If you calculate the cost correctly and look at it and realize my business will never be able to generate that hourly income. Well at least you know now and are not blindly plodding along hoping something will change.

When I figure my costs I use a Utopian theory. Plan big find the costs and use that as my target hourly rate. This includes labor wages, equipment costs everythng.

Just looking at it from a different angle.

10. ### YardProLawnSite Gold Memberfrom coastal NCMessages: 3,567

yes, this covers those..

this is a good approxamation of your overhead costs. if next year you actually do less billable work and more of the materials pickup, meeting clients, etc.... then you will have to readjust this fgure.