Discussion in 'Lawn Mowing' started by lawrence stone, Feb 11, 2000.

  1. All lawn maintenance contractors who do not have any formal<br>or OJT business and marketing training should go and<br>buy as many of Phil’s books as one can afford.<p>For what I seen in this forum many of your are let’s<br>say “challenged” when it comes to real world economics.<p>The first thing you need to know is to figure out your actual<br>cost of doing business. Then you need to learn how to figure<br>out how to calculate “gross profit margin”.<p>If you cannot answer the following question correctly you<br>are not long for this or any other business and if you done<br>educate yourself you will be back to working for wages shortly.<p>If your costs for a particular job are $29 and you want to make<br>35% gross profit margin what is the selling price?<p>If your are in the mowing maintenance business you need to<br>be able to control your equipment costs. The demise of many <br>starts with the purchase of your first “new” ZTR commercial riding mower.<br>This starts a chain reaction that leads to a big crash.<br>The weight and cost of transport from job to job is a factor that<br>is not discussed in the forum. <p>Two ZTR machines weigh in at about 2000 lbs. So you will need a<br>tandem axle trailer with brakes. Plus you can’t leave those machines<br>out side in the rain and thus have to buy a new enclosed trailer for $3800.<p>Now that your trailer and equipment weight is 5000lbs.+ you need<br>to buy a one ton dual wheel whatever with a big block V8 (8 mpg) to pull<br>this traveling side show. Now your setup is so big it won’t fit into a residential<br>customers’ driveway and you are forced to work low margin commercial jobs.<p>One the other hand a smart contractor in touch with the reality of the mowing<br>maintenance business will go out and buy one new gear drive walk behind for<br>$2k to use as a front line unit and will buy used but not abused walk behinds<br>for spare machines. He adds aftermarket sulkies and his production rates are<br>very close to the ZTR machines in a residential setting. His two machines weight<br>in at about 1000 lbs. and he uses a 6x12 open landscapers trailer he bought used<br>for $500 and uses a 10 year old ½ ton pickup (V6 15mpg) that he paid $3k.<p>Now let’s compare the hard facts of doing business comparing these two<br>schools of thought as I have outlined above. To simplify the example<br>let us say that we have two contractors working as owner operators in<br>lawn mowing maintenance in the same market.<p>Let us call the first contractor “Mike”. Mike went out and bought a new 52”<br>Toro ztr with the liquid cooled Kawa with a $1.5 vac system paid sales tax<br>on the unit and financed it for 48 months at 13%. When you add up<br>the initial cost of the machine, fuel costs (1 ½ gal/hr), maint. costs<br>(you have to go thru the dealer for replacement parts on new equipment<br>just released on the market), inland marine insurance, etc your costs per<br>hour to operate this machine is $7.36 per hour over 3000 hours.<p>Now let’s call the second contractor in our comparison “larry”.<br>He buys a 13 year old Toro gear drive walk behind with a 52” deck<br>(same deck as the ZTR above) with a Toro bagging kit and about<br>500 hours on the clock for $500. He rehabs the unit for $200 and<br>adds a $300 sulky for a total cost of $1000.Now we take the initial<br>cost of the unit plus fuel (1 gal/hr), cost of maintenance is low for<br>aftermarket replacement parts are obtainable for a total cost per<br>hour of $2.18 over 3000 hours usage.<p>Now we are bidding on the same residential one acre job. Our<br>production rates are the same. Our labor costs are the same.<br>“Mikes” equipment cost is $7.36/hr add $15.00 labor cost for<br>a total cost of $22.36. He adds 35% GPM for a total sell price<br>of $34.40 leaving him with $12.04 in gross profit.<p>Now “larrys” equipment cost is $2.18 plus $15.00 labor cost for<br>a total cost of $17.18. He adds 41% GPM to the costs for a<br>selling price of $29.22 with the same $12.04 in gross profit.<p>To eliminate “Mike” from the local market “larry” can go <br>one step further if need be. Since he has a pesticide license<br>(and makes 50%+ GPM on pesticide apps) and he mandates the customer buy a complete lawn care<br>package he can make his mowing a “loss leader” to<br>attract “mikes” existing customer base. Larry only adds<br>20% GPM to his mowing costs for a sell price of $21.47.<p>The hard cold facts are there are a LOT more K-mart customers<br>than there are Lord and Taylor customers. <p>Would YOU buy the exact same item from store “A” at $34.40<br>or at store “B” at $21.47? <br>
  2. mountain man

    mountain man LawnSite Member
    Posts: 141

    The key to any business is cash flow management. Having all the knowledge in the world about landscaping is worthless if you do not know how to handle cash flow.<p>
  3. Finecut

    Finecut LawnSite Member
    from IL
    Posts: 177

    Lawrence,<p>Lots of K-Marts closing and company trying to restructure! What is Lord and Taylors financial situation?<p>Think big Lawrence or you'll be a small fish in a big pond forever! That shark will get you!<br>
  4. mattingly

    mattingly LawnSite Member
    Posts: 136

    hats off to lawrence for pointing out some more important info. Sad thing is i doubt 20% of the people in this field can do what he just described or better yet are doing it. I am currently in a class at my University that is discussing these things it is called &quot;Bidding and Contracting.&quot; For those of you who need someone to walk you through the in depth steps these types of courses are excellent. For those of you who adapt a little faster I am sure Nilsson's books will help greatly. I'd love to get a couple books myself but, as a student I am struggling to pay for my class books as it is. Maybe one day I'll get some of those Phil.<p>----------<br>Integrated Landscape Solutions<br>Lexington, KY
  5. lbmd1

    lbmd1 LawnSite Senior Member
    Posts: 462

    Larry, you are too funny! Any good economics teacher would check his facts first without all that assumption in your fictional tale of yours. Lets assume contractor one , lets call him &quot;Mike&quot; buys his flashy new z rider at $6900. Seeing that he lives in a sales taxincome tax free state, he pays no sales tax. Because he knows how to cut lawns properly, he doesn't have to rely on a bagging system like contractor two, lets call him &quot;Larry&quot;. Due to the fact that contractor 1, &quot;Mike&quot; is a lessor gyspy contractor, he pays cash for his flashy z thus saving any financing charges. (He can pay cash due to his large Lord & Taylor customer base) So when I divide all of that, it doesn't add up to $7.36 per hour for operating costs? Lets just say for contactors 2's sake &quot;Larry&quot; that we'll call it $4.36 and hour. Lets not forget that contractor 1, &quot;Mike&quot; 's new flashy z will need little maintenance over the 3000 hrs due to a 2 year warranty. Well, you get the picture. One thing contractor 2 leaves out of his equation. Due to the fact that the a flashy new 25 hp 62&quot; z rider will cut mowing times faster than contractor 2, his hourly production rate is higher. Also while contractor &quot;Larry&quot; is driving 60 miles to his next lawn, &quot;Mike&quot; is cutting yet another Lord & Taylor Home right next door thus increasing his profits dramatically. Not taken into the equation also, is that while contractor &quot;Larry&quot; shows up to client &quot;A&quot;'s Lord & Taylor style house with his productive yet grimacing looking equipment, he could only quote a measured wheel &quot;bid&quot; and be on his way awaiting a phone call. Contractor &quot; Mike&quot; pulls up in his reliable leased nice looking 98 GMC 3500 pulling an open tandem trailer (by the way, we have garages to store equipment in) showing off his flashy new z riders. Customer &quot;A&quot; seeing this impressive image (which by the way is above the price issue from a Lord & Taylor customer standpoint) and hearing that contractor &quot;Mike&quot;'s quote is higher, is reassured of his professional image and accepts the higher bid, thus eliminating contractor &quot;Larry&quot;'s loss leader bid. So again, you asked what? would customer &quot;A&quot; in a Lord & Taylor style life pay more from contractor 1 &quot;Mike&quot; in his not threatening attire and mannerism, or from contractor &quot;Larry&quot; who's mission statement is &quot; get the most money out of a customer for the least amount of work&quot; . The answer is clear! If you present yourself in a professional business attire, you can charge more than those lessor gypsy contractors with all their licenses and degrees. By the way, contractor &quot;Larry&quot; would never be estimating residential clients, only as a last resort. All names used in this economics lesson are ficticious and any likenesses are purely coincidential. There were no animals (like geese) hurt or mis-treated in the writing of this lesson. This forum is too much fun!!:)
  6. fireball

    fireball LawnSite Member
    from ne Pa
    Posts: 172

    Boy! after being attacked like that I don't feel qualified for the rebuttal. Well LARRY if we get Phil's books like you suggest(I suggest it too)the words LOST LEADER wouldn't even come up in your vocabulary. There are only profitable and more profitable jobs. Your cold facts are true but why do you have to be attracted to the K marts(I think the blue light has something to do with it)Don't worry about them until you run out of Lord and Taylor's to work for. Remember it is just as easy to work for rich people as it is to work for poor ones. So go work for the rich one and buy yourself a new truck every year because they deserve it(after all, they are paying for it)
  7. lbmd1

    lbmd1 LawnSite Senior Member
    Posts: 462

    Hey Fireball, <br> These are just friendly JABS, not attacks at all!!!! :)<br>
  8. JJ Lawn

    JJ Lawn LawnSite Senior Member
    Posts: 350

    -friendly jab mode on-<p>Larry, think of poor Phil, you are certainly not the best spokesperson for his products. You sound like a Cal Worthington commercial. Keep poping up on every channel and saying the same thing.<p>Hmmmm, on second thought, maybe I will buy a couple of his books. Don't want to end up riding a hippo to mow my yards.<p>jim<p>-friendly jab mode off-<br>
  9. GroundKprs

    GroundKprs LawnSite Bronze Member
    Posts: 1,969

    However you figure it, you need to know the numbers. There has been no national economic crunch for a long time. In the 70's price of living more than doubled. It was so dramatic that I actually bought a car part one Fri, found it was the wrong part, and when I went back to store on Mon, the price had doubled! I was in a different business then, and had to watch P&L semi-monthly to keep our prices up to where we could survive.<p>If you have not had to maintain a business thru that type of economy, you should take the time now to learn what L. Stone and others are trying to teach. In the history of the USA there has been a major depression every other generation, approx every 50 years. Other economic activity also follows general 50 yr cycles. The depression of the 1980's has not happened yet! How will your business survive when the Lord & Taylors start to spend only at K-Mart, and the K-Mart shoppers quit shopping? I'm not trying to be a doomsayer, but if you think you can survive in this situation, prove it to yourself on paper.<p>----------<br>Jim<br>North central Indiana
  10. Retro67

    Retro67 Banned
    Posts: 207

    I know how much an hour I need to make, Period. I don't care about percentages. It makes no matter how you come up with your numbers, only that they are profitable. I see from past posts that my numbers are, in fact, more profitable than some of the numbers I see &quot;professionals&quot; have gleaned through literature. Of course, this is residential work which the same &quot;professionals&quot; stay away from. If I do two of those residentials in an hours time, at a $30 charge apiece, I have grossed $60 per hour. Equipment costs are low since a walkbehind is sufficient, A ZTR, icing on the cake. Obviously, I must charge more for my ZTR's time since there is an increase in costs. However, this fact is offset by the fact I can outproduce my 48&quot; hydro walkbehind on a production basis, 2to1 anyplace it will fit. &lt;p&gt;I don't pay any labor costs, though. Also have more than enough capability to do as much work in a week as some people with a 3 man crew.&lt;p&gt;It doesn't make a difference in the world what percentage profit I make if I'm not making what I need to make hourly. Based on two employees, paid 7.50 per hour and a 40 hour workweek, I would have $600 more in my pocket per week. &lt;p&gt;Not that crews are a bad idea, just wait until you have a full work week for yourself producing at full capacity (not with lower production machines which can earn you the high-production machines you previously couldn't justify and/or afford) before you hire on help. Otherwise, they are literally taking money from &lt;b&gt;your&lt;/b&gt; pocket. If you hire a helper &lt;b&gt;after&lt;/b&gt; you have a full work week, and can add enough work to pay his salary; you profit by every hour he is working, then you have a winning proposition. &lt;P&gt;John

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