Operating costs as a percent

Discussion in 'Lawn Mowing' started by JeffW0011, Jan 5, 2008.

  1. JeffW0011

    JeffW0011 LawnSite Member
    Posts: 178

    I have searched this site and have been unable to find an answer to this question. What is an optimum breakdown on the cost of business as a percent. What percents of total revenue should variable cost, fixed costs, labor and profit each comprise?
    Would a goal of
    25% V/C
    25% F/C
    40% labor
    10% profit

    be reasonable?
     
  2. dutchhook

    dutchhook LawnSite Member
    Posts: 93

    Would a goal of
    25% V/C
    25% F/C
    40% labor
    10% profit

    be reasonable?

    Jeff,
    the reason you don't see much on this is because it isn't understood by hardly anybody.
    lets go to what's good

    If you have questions, please reply or email back and I'll attempt to help further.

    You USUALLY CAN use percentages to figure labor and profit. You USUALLY CANNOT use percentages for Fixed Costs and "Variable Overhead Costs".

    That's what makes bidding and management so difficult, because those fixed costs always make your decisions on a sliding scale. You have $100k in fixed costs and sales of 1 million. Your fixed costs are obviously 10%. But what happens when you add 400K in sales? If they're true fixed costs, then you're costs are now 7%. That number will always slide up and down, so it's hard to pinpoint a number.
    You sound like you have financials. The way to look at your income statement is this: For Cost of Sales items, manage by the percentages, not the dollars. This way, if you sell a landscape job at 3 times materials, or labor at $40 per hour, that important part of your financial should closely follow suit. Your bidding and budgeting should be very close

    For Overhead, FORGET the percentages, focus on the DOLLARS. In other words, if you have $1 million in sales, and $20,000 in rent, then that $20K will have to be recovered. It doesn't MATTER what the percentage is. Because rent isn't dependent on sales and sales isn't dependent on rent!

    I hope that helps. There are 2 other things that might help you. PLANET or at least ALCA use to release an annual operating cost survey that had a wonderful breakdown of all of the numbers you're looking for. Even if they don't have a current one, try to find one that's 5 years old, it'll be worth it!

    It'll really open your eyes, and also surprise many people about how getting bigger means being LESS profitable (as a percentage!)

    The second thing is something called Variable Overhead Recovery, It's really hard to explain, and it's been championed by Charles VanDerKooi out of Colorado. He's a consultant, and a member of PLANET, but this will clear up the V/C which I assume you mean variable costs and how to recover these dollars.
    As a matter of fact, hold on while I look under my night stand. (What a nerd!) I have a publication called Pricing for the Green Industry 2nd Edition by PLANET and written by Frank Ross, who is SO GREAT. There was also a $2 winning lottery ticket in there, so I'm glad I looked. I guess it pays to help others.

    By the way, one other change in perspective you might find beneficial is to turn your goals upside down. Decide NOW, in JANUARY, that your profit will be 10 or 15% and put that at the TOP of your spreadsheet financials, instead of at the bottom. It's just a mental picture that helps you remember why you're going through all of this in the first place!

    Hope this helps,

    Steve Hoogenakker
    Steve@Landscape.Pro

    Would a goal of
    25% V/C
    25% F/C
    40% labor
    10% profit

    be reasonable?
     

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