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Know You Costs To Be Successful

Discussion in 'Lawn Mowing' started by Oldtimer, Jul 8, 2008.

  1. Oldtimer

    Oldtimer LawnSite Bronze Member
    Posts: 1,458

    Everything you purchase is priced according to what the seller paid for it and an LCO cannot price his work without knowing his costs. This doesn't apply to a scab without commercial insurance on his business, who doesn't pay taxes and runs a cash business.

    Asking another LCO to tell you how much to charge for a job is like going to the Ford dealer to purchase a truck and he calls the Chevrolet dealer to find out what to charge you.

    In the past I have recommended that everyone in business should have a written business plan and know exactly what their costs are. I get very little response from these posts and I don't claim be an industry expert but the following article is from an industry expert so maybe a few people will believe him.

    You can lead a blind hog to water but you can not make him drink

    This is an article from Lawn & Landscape Magazine

    INDUSTRY BUZZ: Three Secrets for Managing Fuel Costs
    By Tony Bass

    Each and every day I talk to owners and managers of landscape companies. We talk about solutions for mobilizing people and equipment.

    With diesel fuel around $5.00 per gallon, fuel consumption is always part of the discussion. Fuel mileage varies based on the type of truck you drive and the load you put on it. Often, the conversation heads in another direction: how to be a success in this business even when uncontrollable costs rise quickly. Here are the secrets for dealing with this rise in fuel cost.


    Each week, our industry experts will tackle a variety of topics that affect the industry and discuss how those issues can impact you as a green industry professional.

    Be sure to share your thoughts on the Lawn & Landscape Message Board. Let's get the buzz going!

    Successful companies have one thing in common, they know their costs. And when you know your costs, you will know that even when fuel is $5.00 per gallon, it is nothing compared to the amount of money you pay your employees for their services. Labor makes up 30 percent to 40 percent of the direct cost to provide lawn and landscape services. Fuel costs, even in today's prices, makes up 1 percent to 3 percent of the direct cost of providing a lawn service.

    So pay very close attention to what I am about to say. If you think your business profits are being squeezed by fuel costs, you're wrong! Here is what you need to know.

    In order to be a success in this business, you are going to need to know three things:

    You have to know your costs in order to price your work correctly.
    You must learn how to become a better marketing and sales person.
    You must be proficient in finding, recruiting and retaining super star employees.
    The most powerful strategy you can deploy within your company to improve profitability is to improve the productivity of your labor force. If you are able to improve productivity by just 10 percent (six minutes per hour) you can grow your profits by almost 50 percent.

    Your Company Can Become a Great Company

    Knowing your costs is the very first step to building a really profitable company. There is no substitute for preparing an accurate operating budget each year.

    However, building a budget is not enough. You must track your costs as the year progresses and make adjustments along the way. During the summer months you make crucial decisions as you hire people, price your jobs and mange the workflow. Changes in economic conditions such as rising fuel costs may require you to raise prices. The most successful companies I encounter only raise prices when they know exactly how much to raise them. Furthermore, these successful companies know which accounts are the most profitable and only raise prices on the least profitable (or losing) accounts first. Secret number one has been revealed!

    Your marketing and sales efforts must be effective. You must be able to generate enough leads to maintain gross sales volume and you must sell the jobs at the same price levels or higher as competition heats up and your prices rise. You must be prepared to deal with common price objections brought up during the sales process.

    Get mentally prepared to sell your company's services even when you are not the lowest priced option. Learn what to say when you present your company's proposal and the prospect takes in a big gasp of air. This takes sales training. Anyone can learn how to improve their sales results. One strategy is to provide prospects with two to three pricing options on every proposal your company provides. Your sales will improve instantly. Secret number two has been revealed!

    Hire quality people and properly equip them to be efficient workers. It is true that some people outwork others. When you surround yourself with top performers, they can simply produce more work in less time.

    When you properly equip your people, they can get more done in less time. When you invest in training, your people get more done in less time.

    You must spend more time planning. You must meet as a team to plan your day, your week, your month and your entire year. How much time have you spent planning lately? You must discuss potential problems and common solutions to those problems. Forgetting to load the necessary tools and supplies onto the truck each day can rob your profitability. So, get your crews organized and stop time-wasting events. When you take these simple steps, you can save 10 percent on labor (just 6 minutes per hour) even if you don't have super star employees. Secret number three has been revealed!

    The Solution for Rising Fuel Costs

    For many small business owners, the enemy is time. How do I find the time to do the things that can transform my company into a great company? The transformation requires hard work! But the best news is that the steps you take to work on your business will be infinitely more financially rewarding than working in your business. As long as you are guessing at how much to raise prices or guessing which accounts are not profitable, you are out of control.

    If you are reading this article I would be willing to bet that your company is doing quality work, you have a good client base and you have been in business for years. I would also be willing to bet that you could be doing a lot better. You are likely making a mistake in at least one of the three critical areas of business outlined above. Even one mistake is holding you and your company back from its true potential.

    I have to break the news to you. Rising fuel costs is not your biggest problem today. It may be the easiest problem to talk about. It could become the proverbial "straw that broke the camel's back" but it is not your biggest problem.

    Pricing your work correctly, marketing your company efficiently and effectively, and putting quality people on your team will always be your greatest challenges. Super successful company owners hire experts (also known as consultants or find a mentor with a track record of success) to help them get more accomplished in less time and with fewer mistakes. Their business grows. They earn more money. They gain more freedom from their daily work. They maintain better relationships with their families while spending less time at work.

    Company Owners Share Information

    Learn from others who are going down the same road you are. Recent case studies on super successful companies can be found here: Robbins Landscaping in Virginia, AAA Lawns in Arkansas and Phillips Landscape Contractors in Maryland. You will hear straight from company owners who have faced challenges and found ways to profit greatly.

    Tony Bass is president of Super Lawn Trucks and Tony Bass Consulting. He can be reached at 866-923-0027 or tony@superlawntrucks.com

    Monday, July 7, 2008
  2. topsites

    topsites LawnSite Fanatic
    Posts: 21,653

    I do agree with everything except the percentage of fuel costs, I see fuel costing closer to 10 and even 20 percent of the total and I can try and charge more and see where it lands me... I also agree that to price correctly one must know one's costs yes, but the price of a product or service isn't just what the seller sold it for, the price of a product is also what the buyer is willing to pay for it, and what most buyers are paying for a similar product or service, too.

    I see it, too, in my daily affairs I watch some stores charging far more than most others for the same or similar product or service but what happens? Try it and see, I can guarantee most customers go elsewhere, simple as that, so one can not just price arbitrarily based on one's own cost... That knowing one's cost is essential I'm not arguing, but what if my cost is twice what my competition's cost is, can I just charge double their rates, and how does that work?

    So it goes further than just that, the price of a product lies somewhere between the lowest and the highest rate that all the competitors are charging for it... For example what is the cost of a gallon of milk?
    The cost of a gallon of milk is somewhere between what most grocery stores sell it for, that is the cost of that gallon and since most of them sell said gallon for $4 to $5 that is the consumer's cost of a gallon of milk.

    Certainly there is a buyer for anything, I can take a pile of dog crap and put a thousand dollar price tag on it and sooner or later someone will buy it... But what exactly am I getting at here, even with effective marketing wouldn't this simply translate into yet another bright idea on how to shove an unwanted deal down someone's throat?

    The simple fact is, I can't just buy 10 gallon bottles of milk at the store for say $4.50 each and then factor in all of my costs so that I can re-sell said gallons for say $6 each, that isn't going to work when nobody out there except for myself charges as much... And it doesn't work when the customer's mind is fixed on a 4-5 dollar price then I'm not getting 6 out of them and if I do somehow finagle the deal through 'effective marketing' I might as well watch out because best of luck getting paid!

    Yes sir, but I do agree prices here are between way high and way low, too... And I'm sorry but this excuse of prices varying throughout the country, I don't see that much of a difference in the price of most things from one state to the next, how is this any different? So somewhere, somehow, some are full of it, but as you said we don't sell Fords by calling the Chevy dealer neither, we are all providing our very own niche service and hence our prices vary and thus my price likely will not work for you and vice versa, yes, agreed.

    Just my point of view, I do agree a plan and a budget and all what was said is essential, but there's a lot more to it because I'll just send over some real classic customers and get into a face-to-face with these folks so I can about guarantee all that fancy talk falls right flat on its face. :p

    Peace out, and good luck
  3. Az Gardener

    Az Gardener LawnSite Gold Member
    Posts: 3,899

    Like preaching to the choir. I know what you mean the best threads have little response. I have made a point to get in contact directly with like minded people and businesses on site here and we communicate about once a week too see how different projects and things are going.

    Check out the 4 day work week thread and you will see what I mean. Numbers don't lie and the majority or at least the more vocal participants say it can't work for them because their employees are already working 50 or more hours per week :dizzy:

    Some people just don't get it. They are like the Obama cult... err I mean supporters, you show them all the faults and they just ignore the facts because they have made up their minds.
  4. Richard Martin

    Richard Martin LawnSite Fanatic
    Posts: 14,700

    I agree. You must know your costs and be able to project future costs as well as be able to compute whether something will be profitable or not.

    I have been considering numerous options for reducing fuel costs. I looked at every possible scenario for rerouting that I could and came up with a total fuel savings of 3/4 gallon per week. That's not worth screwing up a good work schedule for.

    I looked at replacing my tow vehicle with one that got better gas mileage. Not an option given how many years (well in excess of 5) the fuel savings would take to overcome the initial purchase price of the new vehicle including recovery on the old vehicle.

    I looked at a smaller mower with a smaller engine. My current mower isn't exactly a pig on gas at 1.2 gal per hour. It also has a 60" deck. A smaller 48" with a 17 or 19 hp engine will burn only 3/4 gal per hour but it will take me longer to mow with. It's a wash there.

    I even looked at replacing my tandem axle 16 foot 2,000 pound trailer with a smaller 12 foot 1,000 pound trailer. I presumed that I may be able to increase fuel mileage on my truck by 3 mpg and using a $5 a gallon average price it would take me over 3 years before I would notice any savings.

    I agree with Topsites to a degree. I too am a solo but don't even try to downplay me because I am. My fuel costs are well in excess of 1 to 3 percent. I talk to a lot of other LCOs and they are well in excess too. I suspect the example above is for a Landscaper that may do some LCO work but who's main business is landscaping which won't have as high a percentage of fuel to income ratio.
  5. bohiaa

    bohiaa LawnSite Fanatic
    Posts: 5,220

    the only issue with this is that, when you purchase a NEW mower the 1st cut is the most expensive, there is NO way "other than what the manufacture states" to know how long equiptment will last......

    reminds me of the Garden story, "Very Famous story"

    a man purchases some land 1 acer, he pays 5,000.00

    now he purchases a tractor, he pays 5,000.00

    he fuels the tractor and plows the field,

    he plants tomatoes, he water's and cares for the land

    his crop is now ready to harvest.

    his 1st tomato cost WHAT ??????

    the answer is for each person to figure out .........
  6. topsites

    topsites LawnSite Fanatic
    Posts: 21,653

    I'm not disagreeing but that stuff was just a bit too fancy and it doesn't take into account a lot of variables either... You can't just tell a brand-new guy to figure out his costs for the simple fact he doesn't know his costs and that's all there is to it.

    But the other thing is you're not selling a $30 lawn for no $45 and if you do then it comes back around in other ways but that's just for starters, too!

    The simple fact is the more expensive the service or product the less of it you will sell, I see this everyday in an online marketing scheme I fool around with... Now you can mow 8-10 $30 lawns a day but you're neither selling NOR completing no 8-10 $300 lawn renovations in a day, you see what I'm getting at?

    That and lawns need mowed every so often and that's all there is to it, every other service out there is more sporadic and even more nichefied which means less and less customers...

    I'll get into this pricing scheme next post...
  7. topsites

    topsites LawnSite Fanatic
    Posts: 21,653

    Here has been my experience, the cheaper the product or service the faster it sells,
    it isn't even so much a matter of how comparatively priced it is but that, too...

    The sick of it is the biggest profit margins are made on the cheap stuff, the prices vary
    farther and it sells good, but there's no money in nickels and dimes so what happens
    once we get into the higher priced stuff?

    I have in this online marketing schematic 20 open slots I can use, when an item sells it opens a slot which has to be refilled, long story short the idea is to buy low / sell high, sound simple enough?

    Start with widgets, they run about 2-3 dollars each and on a good day of shopping I can relatively easily find around 20 widgets for just under 2 bucks which I can then resell for just over 2 dollars... Say I bought them for 1.75 each then I re-sell them for 2.25 each, that's a 23% profit margin and I usually sell 20 of these in 8 hours with relative ease but since the slots move inventory they need maintenance...
    And unfortunately in terms of dollars that's 50 cents times 20 over 8 hours, you do the math.

    Can't make no money like that, right?
    So one quickly earns enough profit to get into gadgets, these run about 20-24 dollars each and suddenly we hit several interesting walls:
    1. Not everybody sells gadgets because they require more money.
    2. There is less supply, the pricing is tighter too, wonder why?
    3. They are harder to find much under priced so it's more of a fight to buy them around $20 and try and sell them for $22-23'ish because much higher and they don't sell...

    So, we've cut our profit margin to around 10-15% but I figure it's more dollars than cents and the good news is gadgets don't move as fast so they require noticeably less maintenance.
    A good deal?
    Unfortunately there also exist less buyers, once again because it takes more money.
    On a good day I can sell 4-6 gadgets thou now the pc can sit idle since I don't have to work the silly system as much but what have we here, 5 x $2 over 8 hours is this more profitable?
    Don't forget mistakes cost more, too.

    I can totally foul up a 2-3 dollar deal, what have I lost?
    Now we get into 20 dollars suddenly it gets interesting, one typo and that $20 item just sold for $2 and I lost $18...
    This takes WEEKS to recover :laugh:

    hmmm, less work for more money, that must be how this works...
    So we get into trinkets, these run around $200-$210 each, you see the price margin tightens up even further as the items rise in price and now it's first a royal day of shopping just to try and find the few trinkets required to fill some slots, honestly you don't need 20 because you won't sell them all anyhow.
    On a good day I sell 1-2 trinkets, the profit margin on these is around 4-5% and we're once again into this mess of 5 dollars per two over 8 hours... But the good news is, one trinket usually earns me a quick 20 bucks profit, the bad news is sometimes a trinket hogs a slot for months, no kidding.

    That, in my book, is how it works.
    And be it an online scheme with widgets and gadgets and trinkets,
    or be it about lawn mowing and renovations and sprinkler system installs,
    it all boils down to the same basic rules:

    1. The cheap stuff sells all day long, you work your tail off but it keeps bread on the table.
    2. As we get into the more expensive stuff the mistakes cost more, the pricing is a lot tighter and so are the profit margins.
    3. And, the higher priced the product or the service, the less raw numbers we have insofar as interested customers.


    STRINGALATION LawnSite Senior Member
    Posts: 777

    i hope i get good enough to understand TOPSITES i'll have it together then. LOL
  9. topsites

    topsites LawnSite Fanatic
    Posts: 21,653

    See what I'm saying is there exists a price for every thing, be it a car or a lawn mow there is a price on it and that price is somewhat fixed. A 30 dollar lawn is going to go for 25-35 and anywhere in between is fine but you ain't getting 45 for it, at least not for the same service.
    Sure you can get 45 for that 30 dollar lawn if you throw in all kinds of extras, but I'm talking without the variables here.
    And yes you can try and do it for less but we know what happens then, right?

    Look, a gallon of milk is $4.59 at Food Lion, you can go check I can just about guarantee that is how much you will pay for a gallon of milk.
    So, do you think we can just open up a store and sell gallons of milk for $6 each?
    Remember, just because someone puts them on the shelf doesn't mean they're selling!

    And yes I see them at the Convenience store for that much but that still doesn't mean they are selling!
    Granted, SOME folks buy that gallon there, but you see most go to a grocery store...
    So, who is selling the bulk of the milk, the convenience store or the grocery store?
    I'll spare you the dime, I can assure you most folks are buying the $4.59 milk.
    I figure a grocery store sells an easy dozen gallons of milk a day, probably more.

    That's what I'm getting at, you can price it as high or as low as you like, but in the end your pricing schematic directly affects supply and demand and I don't give a rat how good of a salesman you are because if you pull a fast one just to move the stuff that ain't no good either.

    So we can't make no money off milk right, why lets get into cars because it's more money, sound good?
    Yeah, now how many cars do you think we can sell in a day?
    Do you think a car dealership sells as many cars in one day as a grocery store sells gallons of milk?
    I doubt it, I bet with brand-new cars we'd be lucky to sell somewhere between one and maybe a FEW cars a day.
    Because it takes more money.

    All I'm saying...
  10. Az Gardener

    Az Gardener LawnSite Gold Member
    Posts: 3,899

    I don't know what your smokin Toppy but if someone was to spend half the time estimating their costs as opposed to trying to decipher your last couple of posts. They would be days ahead business wise.

    Estimating costs is not that difficult its just time consuming and not much fun. Just like eating an elephant one bite at a time.

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