Costs: Charging "per man hour"

Discussion in 'Starting a Lawn Care Business' started by Grits, Oct 10, 2006.

  1. Grits

    Grits LawnSite Silver Member
    from Florida
    Posts: 2,994

    I was going over my costs and figured I need to make $49.80 per hour with no employees and paying myself. I was thinking, "Gee, I would have to charge double that if I hired just one employee." I have seen many people on here claim they charge their hourly rate for each man on the job to figure a "per man hour" charge. It seems this may not be the correct way to keep the customer's cost down. Wouldn't you simply add the employee's hourly wage plus any other cost the employee is to the company to arrive at a "per man hour" charge? Or am I missing something? Or is the fact that the job should be getting done twice as fast allow us to double the "per man hour" charge and it will actually be the same cost to the customer...just as if One man did a job in 2 hours or 2 men did the same job in 1 hour = the same cost to the customer. If this is the case, it would appear you would make a LOT more money with even 1 employee. Would anyone like to elaborate on this subject?
     
  2. Total.Lawn.Care

    Total.Lawn.Care LawnSite Senior Member
    Posts: 841

    In most scenarios, the theory is that 2 people can get the same job done in half of the time. In reality, this is not quite the case. When you figure time for communication, lunches, breaks, etc, you really only get about 80-90% effeciency rate with hired help. Does, it still make a difference, yes!!!. However, if you hire someone for $8/per hour, figure the 80% effeciency, then you are really paying them $10 per man hour. Now, if you charge $45 per man hour, then the job you estimated at 2 hours (you alone) at $45 an hour, becomes about 1hr 10-15 minutes with two of you, and you cost increased $12. You have to ask yourself if that 45 minutes of extra time saved was worth the $12. I can tell you that it is nice to have help to do things like finish loading the trailer, blow the drive, last minute little things while you prepare the bill, handle the paperwork and mentally prepare for the next job. That can save another 10 minutes right there.

    So the short anser is that yes, having extra people should save time and still charge the customer the same money. Once you get all of the employees to a certain effeciency level, you will start to see your overall costs go down a little because they are getting much more work done in the same amount of time. But you have to be the BOSS and ensure they are getting the work done. Good help is hard to find and it the reason so many LCOs are solo, they do not want to deal with the hassles of the extra cost and hired help.
     
  3. eruuska

    eruuska LawnSite Senior Member
    Posts: 454

    Grits,

    That is precisely the point! That's the beauty of employees, the ability to multiply your hourly income with only a small increase in your costs. I can't believe the guys who charge maybe $40 per hour for themselves, and if they bring a helper they only charge the customer what they're paying the helper. That's just plain ignorant.

    I'll be hiring my first help in the spring, and frankly I can't wait until I've got a few guys working for me and I can leverage all their collective abilities:weightlifter: to really make some dough.
     
  4. PMLAWN

    PMLAWN LawnSite Gold Member
    Posts: 3,535

    A job is a Job is a JOB!!!! If a job takes 20 hours to do you need to charge 20 hours of expence for doing it-- I do not care how many people show up to do the work. 20 hours work is 20 hours work. Business 101 kids..

    You are not in business to save the customers money---you are in business to make it!!
    and I am not talking about being unfair to them. This is how business is run
     
  5. Down2EarthLawns

    Down2EarthLawns LawnSite Member
    Posts: 191

    If this is the case, it would appear you would make a LOT more money with even 1 employee.

    This is one of the reasons we like to have our companies GROW. If you are not looking for that, sorry. Charge whatever you want. It's YOUR business.
     
  6. Mr. Vern

    Mr. Vern LawnSite Senior Member
    Posts: 632

    Lots of good responses here that get to the point. I would add that the key to making money with employees is to keep them working on billable items as much as possible. It is generally considered acceptable to get 70% labor efficiency out of a production employee. This means that 70% of the time you are paying them for is billable to a customer. 80% would be considered operationally excellent, and 90% is extremely rare. You have to consider that loading tools, safety meetings, employee communications and breaks are all "non-billable" hours, so you will never see 100% labor efficiency. Now if you consider that you can bill $45/hour for yourself, if you add another guy at that rate you will be profiting on any amount above what that employee costs you. Let's look at some potential numbers:
    Salary - $10/hour
    Labor burden $3.50/hour (35% - includes taxes, workers comp and insurance ...)
    At 40 hrs /week this employee costs $540.00/week
    At 70% labor efficiency they will generate $1260/week (70% of 40 hours X $45/hour)
    You will have a gross profit of $720/week on that employee
    Understand that this assumes that the employee is as good as you are and that you can rightly charge for their full production time. If you are bidding at a firm/fixed rate, you can easily improve on this by increasing the employee's productivity, and of course you can do much worse by allowing the productivity to degrade. (productivity and efficiency are not the same thing)
    Remember that adding this 1st employee will take you off of production and reduce your personal "billable" time due to the need to handle payroll, bid twice as much work, and all of the myriad of other responsibilities that will creep up on you. Bottom line is you will not net that big of a difference on the first employee, but every subsequent one will pay better dividends until you reach to point of diminishing returns.
    This is intended to be a very basic primer to get you thinking. If you need more detailed questions answered you can pm some of us, or you can get some great books on basic business at any good book store.
     
  7. Grits

    Grits LawnSite Silver Member
    from Florida
    Posts: 2,994

    Great responses. I've been planning on growing the biz and this just validates it that much more. To me it only makes sense to add employees...more employees equals more money. Like PM said,we are in business to make money...

    Quote PMLawn:If a job takes 20 hours to do you need to charge 20 hours of expence for doing it-- I do not care how many people show up to do the work>

    Not sure I follow: 20 hours of expense...it does matter how many people show up to do the job. Is this a 20 hour job for 1 man or a 5 hour job for 4 men. HMMM, I think I see what you are saying...both still equal 20 hours of expense..am I understanding you now? (20 x 1 = 20 hours of expense and 5 x 4 = 20 hours of expense)

    Quote Down2earth: This is one of the reasons we like to have our companies GROW. If you are not looking for that, sorry.

    You speak as if you are an old pro at this...yet in your profile, under experience, you replied "new". How many companies have you GROWN?
    And I am "looking for that", sorry.
     
  8. MudslinginFX4

    MudslinginFX4 LawnSite Bronze Member
    Posts: 1,170

    I agree with everything said about costs and employees making you more money. Employees have been my best asset to my business, but at the same time my biggest headache and hardest part of the business.

    Wait until you have a big job lined up, and your employee(s) quits. Or wait until you are underbid by another guy that doesn't know his costs, and does it for less then you are charging for yourself. Whatever you do, when you get employees, keep your prices up and never lower them just to get work! It will kill you. It's better to send your employee home with less hours then to bid work at the wrong price just to keep busy, I've seen lots of guys doing this lately.
     
  9. TNT LawnCare Inc.

    TNT LawnCare Inc. LawnSite Bronze Member
    Posts: 1,157

    After you've accomplished what you need to make per man hour then figure in your profit margin you want to make of each job,or each lawn your crew is on.
     
  10. Tn Lawn Man

    Tn Lawn Man LawnSite Senior Member
    Posts: 479

    Finally a thread that actually discusses lawn care a business and not a job!!!!!


    Too many people look at this industry as a side job where they can make a good hourly wage. The fact is that this is a business to be grown and make a profit.
     

Share This Page