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Figuring overhead

Discussion in 'Starting a Lawn Care Business' started by Blade Runners LLC, Aug 27, 2013.

  1. Blade Runners  LLC

    Blade Runners LLC LawnSite Member
    Posts: 8

    Hi everybody!!

    I'm new to Lawnsite and cannot believe how much I have learned already!! Kudos to everybody helping us newbies out in the business.

    Now on to my question. I have been working with my uncle with his lawn service and various other jobs to get some experience because this is the field I want to start my business in. But I keep having this reoccuring question come up that I cannot figure a proper answer for is coming up with my overhead costs to figure into my lawn pricing. I will be starting solo but want to grow this into a major company, but the right way by pricing ahead and planning for the future!!

    Any help would be much appreciated and happy mowing!!!!

    :dancing:
     
  2. 32vld

    32vld LawnSite Gold Member
    Posts: 3,984

    Have you asked your uncle?

    I am solo. My expenses were very little the first year. The next two years my gross increased and so did my costs. More income allows more equipment purchases to be made.

    Had some jobs were extra man power was needed so some temp labor costs. Next year maybe no temp help costs.

    Same with equipment. Say last year you bought the last thing you need. This year you make no equipment purchases. You may think your costs went down but you still have to set money aside so the money will be there when something has to be bought the next year.

    Health insurance?

    Auto insurance?

    Gas and oil?

    You base hourly costs on working 40 hours. Though you may only have 20 hours work. Now you will be using half the fuel then you thought.

    There are too many variables to come up with an accurate estimate. Just record your costs.

    Also build in setting aside money to buy major equipment as a new truck.

    Try to find out local pricing. Shoot for $60 an hour. Even if your costs are $10 hr and everyone else's is $30 do not drop your prices and leave money on the table.
     
  3. RedSox4Life

    RedSox4Life LawnSite Bronze Member
    from Mass
    Posts: 1,409

    This $60 an hour number has always perplexed me. When I cut grass for my father 15 years ago this was his target number. He had 2 beat up old toro walk behinds and a junky pick up truck.
    I have nice new trucks, riders, standers.....insurance and taxes that he never had. And people are still aiming for $60 an hour.
     
  4. magicmike

    magicmike LawnSite Senior Member
    Posts: 266

    I struggle to get $60 an hour, my area of operation is highly competitive hopefully as I gain a reputation for better service I can get more but being new and trying to get 60 is a struggle. The difference between now and 15 years ago there wasnt 5 companies located in one town, and the economy was better.
     
  5. Blade Runners  LLC

    Blade Runners LLC LawnSite Member
    Posts: 8

    Thanks for the replies guys, I really appreciate it!

    So i understand basing prices hourly and off of a 40 hour work week, but how do you figure cost like you said of health insurance, auto insurance, gas, and oil, etc? Are you dividing the total costs of all overhead by the number of accounts you service a month?

    So for example if all overhead totaled to $300 a month and i have 15 weekly accounts then I add $5 onto my estimates for future jobs to cover overhead? And then add say an additional $5 per account for future purchases such as truck, shop etc?
     
  6. JCLawn and more

    JCLawn and more LawnSite Fanatic
    from MI
    Posts: 5,204

    Ok first break down your yearly costs into daily cost and then break them into hour cost. Then add you truck fuel into a hour cost and then break down your replacement eqipment costs into a hour cost and the rest of your fuel. Then add $15 a hour to all that. Even though your working solo your business is paying yourself and you consider that an expense because your taking the roll of an employee. I am going to bet your for getting close to $30 for your break even point. Now add how much you want to make and how much you want your business to make. If you did $10 and $10 then your looking at $50 a hour. So for example you would need $300 a day to break even and $500 a day to make pretty darn good money and now you would have to translate this into billable hrs.
     
  7. Bryan27

    Bryan27 LawnSite Member
    Posts: 148

    Overhead is all the things you have to pay the same amount regardless of how much work you do. Things like truck and equipment payments (even if they are paid for already, their value should be figured into overhead for estimating), rent, insurance, etc. Stuff you own already, estimate its useful lifespan and divide that into its cost of replacement.

    Figure your yearly cost for all these things, example:

    Truck note $6000/year
    Rent $4800/year
    Insurance $4800/year
    Mowers $3600/year
    Hand helds $500/year

    Total $19,700 per year in overhead, that's what you need to take in per year regardless of if you even do one job.

    Now divide that by the number of days you will work per year, plan for getting rained out, etc. Say 200 working days per year. $19,700/200 days = $98.50 per day in overhead. Divide daily overhead by the number of billable hours you have per day, plan on working 8 hours? $98.50/8 hours = $12.32 overhead per billable hours. Now when you go give an estimate, add your hourly overhead, variable costs, company profit and your pay rate/percentage and multiply that by the number of hours you will take to do the job.

    Since overhead per hour is based on your own estimations of number of billable hours you can get in per year, you need to be pretty darn realistic and accurate with that number. Overhead without the sales to support it will eat a business alive. Know your numbers and make a BUSINESS decision when you are taking on more overhead.
     
  8. 32vld

    32vld LawnSite Gold Member
    Posts: 3,984

    I was not doing this 15 years ago.

    People that were left this business because the influx of illegals, bad economy, to just name two things, has only caused the price structure to not grow much. And in some areas to drop.
     
  9. JCLawn and more

    JCLawn and more LawnSite Fanatic
    from MI
    Posts: 5,204

    I mind you excivation companies and gravel trains charge $60-$100 a hour here.
     
  10. RedSox4Life

    RedSox4Life LawnSite Bronze Member
    from Mass
    Posts: 1,409

    I wasn't knocking what you charge or how you do things. I guess I was just trying to bring to light that there are so many variables in this business that it's impossible for everyone to charge the same $60 an hour, even only as a rough guideline.
     

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