Cost of Goods

Discussion in 'Lawn Care Business Management' started by ken56, Aug 8, 2013.

  1. ken56

    ken56 LawnSite Member
    Posts: 12

    I am wanting to buy a local lawn care business that does mowing and lawn and tree spraying. As I go over the P&L, it shows that their cost of goods is running 17%, which seems high to me. Am I wrong, or should that be an area of concern for me?

    Thanks in advance for your help!
     
  2. RigglePLC

    RigglePLC LawnSite Fanatic
    Posts: 12,096

    For a spraying operation--it seems low to me. I worked at a major lawn spraying company years ago. They were trying to keep our "Cost of Goods" down to about 19 percent. In other words, they thought the fertilizer and weed control for lawn treatments should be about 20 percent or less of the price charged to the customer (sales). In actuality the treatments including crabgrass control were well above that figure, but treatments later in the year with an inexpensive fertilizer compensated, because they were cheap. Labor was the highest cost at around 40 percent. Overhead, equipment, and gas added a few percent more.
     
  3. ken56

    ken56 LawnSite Member
    Posts: 12

    Thanks, I appreciate the response. I guess I should be happy with 17% then. Thanks again.
     
  4. foreplease

    foreplease LawnSite Bronze Member
    Posts: 1,918

    I agree with Riggle. It could vary wildly depending on how much of the revenue is derived from chemical and fertilizer applications versus mowing. I don't break it out that way - I work by cost plus - but my gut feeling is anything under 20% is a very tightly run ship.

    Two things come to mind:
    -The industry norm of every visit/application being the same price is bad for somebody every time.
    -If it were me looking at this business I would assume there is not too much, if anything, I could improve or make more efficient over 17% COGS. I would be concerned that I (speaking for myself, not you) would not be able to manage it tightly enough to keep it at 17%.

    Good luck with your decision.
     
  5. ken56

    ken56 LawnSite Member
    Posts: 12

    Good information, thanks!
     

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