Need some help from my numbers guys (Please)

Discussion in 'Business Operations' started by pasto_guy, Jul 23, 2008.

  1. pasto_guy

    pasto_guy LawnSite Member
    from VA
    Posts: 119

    OK, so after countless hours, really days, I have finally computed my total costs of doing business. Total overhead, wages (mine included), insurance, taxes, you get the point. I need to be charging 38 dollars per man hour to realize a 30% profit. My question is, for our mowing crews some places we mow we are making up to 90.00 per man hour, and some we are only making 12.00. My break even hourly wage is 27.00 per hour. Any suggestions on what to do about these accounts. I think that the customer might get a little up set if I tell them that their 55.00 cut needs to really be priced at 75.00. I know that it is my own fault for bidding it low, not my intention, just a screw up here and there. It really is amazing to see what yards you think you are making good money at verses what yards you really are making good money at. I have found that we do much better mowing smaller 35.00 yards than mowing the 120 to 150 dollar yards. I really hate to drop the accounts but is it the right thing to do? My first approach would be to try and increase the price, but more than likely that will result in my loss of the yard. Please weigh in, thanks in advance.

    Also what other numbers are you guys computing to help you realize better efficiency. I'm big on numbers but quickbooks just doesn't have enough for me.
     
  2. lawnjocky

    lawnjocky LawnSite Member
    Posts: 184

    The $38 sounds ok but it depends on your particular cost's. Everyone's is different.
    Under priced customer's will drag you down badly. Also in my experience the temptation to cut corners and do poor work is strong and their complaint's big or small will bother you more. You need to raise their price or replace them. Try to have uniform pricing for all customer's unless there are issue's. For customer's who are 1/2 of what they should be you may need to drop them and tell them you are cutting back account's. You will have a hard time doubling their price and you may create hard feeling's while you're at it. Later they may call you back or you can contact them yourself with the higher price. For the customers who are 25% under try to raise their price and consider a lower profit margin if they are a good customer (pay on time, no complaint's, etc). But sooner or later you need to get that price up. For the people you are overcharging find out if your rate is in line with other's. If not, do extras and endear yourself to them. Otherwise you are at a high risk of loosing that account to a lower priced competitor. If you find out other LCO's are charging more than you then raise your rates to reflect the market pricing. You can still charge less but don't leave a lot of money on the table.

    For efficiency, keep your route's tight. I also like uniform equipment. If can have several of one machine that allows fewer spare parts and a faster learning curve on repairs and maintenance.
     
  3. hoyboy

    hoyboy LawnSite Senior Member
    from Chicago
    Posts: 346

    When you say your break even point is $27 per manhour, I'm curious how you come to that. You should not be using overhead expenses when figuring your breakeven point...only direct costs. Only then can you determine if you need to drop a customer, increase their price, etc. Your rent is not going to change if you lose a customer, so that cost should not be a factor in determining a particular jobs ability to contribute toward covering overhead and making a profit.

    A true "breakeven" point is not an hourly rate, but a quantity. In other words, I need to work X number of hours at $27/hr. in order to cover overhead and make a given profit. The X is the breakeven point. If I have $1000 of overhead, and my direct costs are $24 per manhour, I would have to work 333.3 manhours to cover my overhead if I charged $27/manhour. (1000/(27-24)). My breakeven point is therefore 333.3 manhours. The higher the rate, the lower the breakeven point.

    It sounds like you know your overhead numbers. Just don't include them in your direct costs, otherwise your profit percentages will really be screwed up and you may be raising prices (and possibly losing customers) for no reason at all.

    Dan
     
  4. Az Gardener

    Az Gardener LawnSite Gold Member
    Posts: 3,899

    Now that you have some numbers at least you know where you are on the map, congratulations. Now if you have calculated everything you probably realize that you have money budgeted to replace equipment as it wears out, breaks down etc. I don't know anyone who actually sets that $$ aside in a separate account and I don't imagine you will either. So what you have in your account should look better than than the actual situation.

    Lets face it some $$$ is better than no money. If you are not turning work away and the jobs are not off the beaten path I would probably continue to do the work. As you bid new work you know where you need to be. When your route gets full/near full that's when you go to the losers and have them pay up or move on. If they are truly losers way out of the way etc. then you would probably be better off to dump them. It all depends if you have covered your nut.

    If you have not already, check out my "production %" thread to calculate how many production hours you have in a day. It will have some effect on your hourly rate too.
     
  5. lawnjocky

    lawnjocky LawnSite Member
    Posts: 184

    AZ Gardener has a good post but I disagree with "Lets face it some $$$ is better than no money." If you're at that point then your business is in deep trouble and you need to get out or make big changes. All cost's need to be recovered and unless your in this for health reason's, there needs to be profit on every single job done.

    Hoyboy's post is also good info. I do it a little differently but it takes me to the same place.
     
  6. Az Gardener

    Az Gardener LawnSite Gold Member
    Posts: 3,899

    I should clarify myself. If 70% of your accounts are loser's you have problems, ignore my previous post.

    If 15% of your accounts are loser's and they are within very close proximity of money making accounts and the alternative is going home and cruising lawnsite :laugh: well I say get what you can. Maybe you can't get the 30 you are seeking but shoot for a 10-15% increase.

    I never do anything across the board. I start with my least profitable accounts and even those I only make changes on a few a month.

    Like nobama "I refine my policy" as I see which way the wind is blowing.

    I sell a lot of extras so even if I don't make what I want on maint I still have the opportunity to make a profit on my improvement sales.

    For example my break even # for 2-3 men crews (which is where I am at) is 55 per hour. The market just wont bear that here, especially given the quantity of hours I sell each client. 40-48 is about the most I can get.

    I still managed to grind out a small profit last year. I didn't get anywhere near 55 per hour. But I did sell a lot of flowers, fertilizer, lightbulbs and so on.

    When I get to 3-3 men crews (Next spring) my break even # will be 37 per hour and then I will begin to look much better on paper.

    9 men X 172 hours per month = 1548 hours, at 80% production ratio = 1238 production hours x my meager $3 per hour profit = $ 3715 profit, plus all those extras I will continue to sell :clapping: Thats why I stay in the game. After that point it only gets better as I am just duplicating a winning system.

    I should add I haven't been in the field for years and I draw a reasonable salary already and it is computed in my #'s
     
  7. pasto_guy

    pasto_guy LawnSite Member
    from VA
    Posts: 119

    Thanks for all the great info. That is a good point that some money is better than none, as long as I don't continue to make a bidding mistake. There are only a few of these and I think it happens to everyone from time to time. I am really getting excited seeing where I'm at and how I got here, and even more importantly where I'm going. This is the first year that I've finally stepped away from a lot of the physical work. I still like to mow one day a week, but I thought that if I didn't start to get organized than I won't be able to grow. So now my main focus is nailing down my business numbers, implementing procedures for work, and finding better ways to be more efficient. Do you guys make your crews write down time in and out of a property. If you do how do you calculate their drive time?
    An example: Crew A leaves the shop at 6 and arrive at property 1 at 6:30 they then leave at 7:30 and arrive at property 2 at 7:45 and leave at 8:00.
    When calculating your time it takes to mow do you call property 1 one hour? and prop 2 a half hour.
    If so then maybe you can take travel time from shop to prop 1 and travel time from last prop back to shop at end of day and divide that time by number of properties completed. That seems to be a good way to find true costs per property.
    Just my thoughts, but I'd like to see if thats how you do it.
     
  8. Az Gardener

    Az Gardener LawnSite Gold Member
    Posts: 3,899

    I have worksheets my guys fill out at every job but we do much more than mow so we need something more detailed. If you are mowing exclusively you could just have a schedule with your proposed schedule on one side and they could fill in the actual time on the other side.
    Like this

    Proposed----------- in----------out----Total hrs
    7:00-8:15 Bales _______---_______ ______
    8:25-8:55 Ober _______---_______ ______

    The how to figure drive time is part of the production ratio problem. Your guys are on payroll for 10 hours but they were only productive, aka generating revenue 7.5 hours thus a 75% production ratio. Its your business so you can do what you want but I don't charge my client's that way per say. I calculate that as well as my time to inspect properties etc into my hourly rate. Everybody needs to get paid. The good news is you are asking the right questions :clapping:
     

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