Man hour rating (Job Costing)

Discussion in 'Business Operations' started by Ghopper3345, Dec 31, 2012.

  1. coolluv

    coolluv LawnSite Gold Member
    from Atlanta
    Posts: 3,767

    Thank you for the post and understanding where I'm coming from. I may have jumped the gun in my post and I'm man enough to admit when I'm wrong.

    No disrespect to you either Sean.

  2. wz2p7j

    wz2p7j LawnSite Member
    Posts: 50

    Avg $15/hr payroll including crew leader and overtime in busy season

    Purchase $14,000 mower and dispose of for, say, $4000 after 2500 hours (if lucky) that's $4/hr

    Mower gas, a little over a gallon/hr - call it $4

    Repair and maintenance on all equipment, mowers, trucks trailers about $5/hour

    Purchase a truck for say, $35,000 and dispose of it for $10,000 after 150,000 miles - that's about $2.5/ man hour (assume 3 man crew, 15 miles per day)

    Truck gas per day/man hour - about $1 (again assume 3 man crew, 15 miles per day)

    So, let's add it up

    $15 labor
    $5 mower depreciation
    $4 mower gas
    $5 repair maint on all equipment
    $2.5 truck depreciation
    $1 truck gas
    $32.5 Total

    Charging $35/man hour with those expenses results in a return of about 7.1%. You'd be better off playing the stock market.

    Note that my numbers are all direct costs. They apply to a small company, a big company, a leveraged company or your auntie's left nipple, it doesn't matter.

    On top of that, real companies have real fixed expenses. For example:

    Office manager - $20,000
    Rent - $24,000
    Insurance - $20,000
    Utilities - $6,000

    At a 7% gross profit margin you'd need to do about $1,000,000 in business just to cover your fixed costs.

    Maybe I don't know what I'm talking about but I own 2 landscape companies (only one shown in my sig, need to update it) doing about $1 mil yearly each and have a masters degree in business.

  3. Sean Adams

    Sean Adams LawnSite Gold Member
    Posts: 3,597

    That's one "man". And I am not sure your numbers make sense regardless. Maybe I am not understanding what you are getting at, but keep in mind every scenario is different, with different expenses, different types of work being done at different prices, with different number of employees working at different speeds with different types of equipment, not to mention how well your routing, scheduling and field efficiency is handled.

    It also depends on how many weeks you are working in a season and how many true "billable hours there are in a working day.
  4. AintNoFun

    AintNoFun LawnSite Bronze Member
    Posts: 1,807

    company 2 is like most small companies that think that just because the owner is doing the work (payroll in this case) it doesn't have a cost. but your working for free and taking away from time that could be dedicated to better suited tasks. at least go work for another company, at least you'll get compensated for your time..
  5. Sean Adams

    Sean Adams LawnSite Gold Member
    Posts: 3,597

    Everything an owner does has a cost, but as an OWNER you are not merely trading hours for dollars. With every task performed, with every day that passes, you are building equity in a company that you OWN. On top of that, no one assumed or suggested that an owner who does his own payroll works for free. It's difficult for an owner to pay himself hourly, which is why I suggest most owners pay themselves a set salary. Yes, at times that owner is working for less money than he should, but owners get perks that employees do not, on top of the access to profit and the equity previously mentioned.

    I am not suggesting anyone micromanage their business, but when a business is starting out and in the initial growth stages, saving money on an accountant makes perfect sense. On top of that, when an owner learns the accounting software their company uses, it is that much easier for them to teach an office employee when the time comes to hire one.

    But if you want to go and get a job working for someone else, I guess that is your option....
  6. djagusch

    djagusch LawnSite Platinum Member
    from MN
    Posts: 4,231

    That is how I have figured it also in the past.

    I have had people talk about how they take the expenses of the biz side and divide by the billed hours for that year. Then take those numbers for figuring out a hourly rate.

    That way averages out the trimming, shrub, leaf blowing, labor times and such and averages it out. How I have and you figure out the cost is by looking at the most expensive machine ($14k ztr) and don't take in account for trimming, etc which costs less per hour. I guess our way we never underestimate while their way takes historical averages for their biz to bid tighter.
  7. wz2p7j

    wz2p7j LawnSite Member
    Posts: 50

    The discussion surrounded "man hour rates" so I normalized everything to one man hour. The assumptions were stated as a 3 man lawn crew on a route of about 15 miles total drive time for the crew per day.

    I can assure you the numbers "make sense." "Efficiencies" are really irrelevant. If you quote at $35/man hour but your efficiencies are, say, 1.3, you're effectively quoting at $45.5/MH, not $$35/MH. Since quoting is never exact, there needs to be a feedback loop like tracking your times over the course of a season to modify the contract for next year as necessary.

  8. Duekster

    Duekster LawnSite Fanatic
    from DFW, TX
    Posts: 7,961

    Some bid jobs will hit high but only cause the job went as planned or easier than planned.

    There is a risk reward factor you have to account for when bidding. Lawn mowing has little risk and little reward.
  9. Efficiency

    Efficiency LawnSite Bronze Member
    from zone 6
    Posts: 1,551

    wouldnt it be more accurate to split all your expenses into 1 of 4 categories?
    direct variable
    direct fixed
    indirect variable
    indirect fixed
  10. snomaha

    snomaha LawnSite Senior Member
    from midwest
    Posts: 897

    Good discussion on a relevant topic.

    My experience has been that between start-up and $1,000,000 in revenue the owner is wearing many hats and takes sweat equity in lieu of a fair market wage. Once that 1m in revenue hits you better be profitable and paying yourself a fair market wage because you no longer can handle all the functional roles of the business - seems like around the 20 employee mark this happens.

    The next jump from 1m - 3.5m in revenue is tough. You are adding management infrastructure to continue to grow which drives down profitability. I think this is one of the most important points i discuss with my accountant - you have to have capital in the business to survive the push from 1m - 3.5m. Live off your wage and leave the profit in the company to fund growth. This is also the point when many realize that managing the balance sheet is just as important as managing the P & L statement. Try and get a line of credit increased or consolidate equipment debt if your balance sheet is out of whack - banks don't like it!

    just my 2 cents for now.....

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