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tipping point in the lawn industry?

Discussion in 'Lawn Mowing' started by MowingIL, Nov 27, 2012.

  1. BradLewisLawnCare

    BradLewisLawnCare LawnSite Senior Member
    Posts: 279

    Now, in my essay re landscape safety. That helps establish you safety procedure. Then you train your man in te field on an easy day. We like taking potential weed wacker guys out to a 4 hr cemetery to see their skills and show them everything. We have written down procedures to weed wack a property. They read that before getting into the training field. That is where the get the #1 and # 2 of quality control. Knowledge and standards. Knowledge an standards are changing. Everything changes. We review them frequently. #3 is all about culture and motivation. Are you a dick to your employees? Are you hypocritical? Do you randomly take them out for lunch/dinner? I bought all my guys carhartt jackets for Christmas. Just my personal touch. No one has to do that, but you have to establish a culture. We don't allow any form of disrespect between employees, no smoking, uniforms, no drug with random testing. Then we practice team building frequently. That covers #3.

    That being said. We are deficient in some things, but that is an outline to maintaining control while not being in control. You can't manage people. You have to have standards from day 1. Too many owners have a hard time understanding that they are not gods gift to cutting grass. Go into town and look left and right. Everyone in town can operate a car. Some well some not well. They all drove there. If they can learn to drive, you can teach them to mow. I mean IBM has more people making computers than I do mowing. Why is there more people making computers than you can trust on a mower.. My thought is the knowledge in your head is only coming out a small piece at a time rather than in a well written pamphlet on how to do it.
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  2. BradLewisLawnCare

    BradLewisLawnCare LawnSite Senior Member
    Posts: 279

    Oops. Sorry. Took it in a different direction. Thought you meant you can't manage qc when you grow.
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  3. BradLewisLawnCare

    BradLewisLawnCare LawnSite Senior Member
    Posts: 279

    And I didn't mean your processes suck, just whoever fits the conditional phrase
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  4. Duekster

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

    Go back to your driving example. Some people can and some people can't.

    I have seen companies grow very large but their reputation starts to suffer.
  5. BradLewisLawnCare

    BradLewisLawnCare LawnSite Senior Member
    Posts: 279

    Ok let's build further. the people that can't need to be trained better (assumption). The training costs money. Marginal costs increase when law of decreasing marginal returns sets in. http://en.wikipedia.org/wiki/Diminishing_returns.

    So the marginal cost curve will decrease initially with specialization of labor (guys getting good and learning the properties better). Then the costs start rising everytime you hire a new guy. So Lets assume your marginal revenue (per hour) is roughly the same since price discrimination in the US is illegal. Say it is $45/hr for mowing per man. You should continue to mow lawns until your marginal cost reach that level. Marginal cost is the cost associated with producing one more cut. So when we finally get to the level at which we can not train new guys effectively because they just plain can't grasp the logic, we hit the "tippin point". effectively meaning the training should be a certain number of hours up front and continuous going forward.

    I have found In albany, there are a large number of college students. They posess the intelligence to enable me to grow. Labor is relatively easy. I know that I am not in your worlds, but I know that the MR = MC rule is important. http://www.youtube.com/watch?v=qaQRM6WIxpA

    In short, know your costs in the short run and future costs.
  6. Duekster

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

    I think he would have made more making 4 of those units.

    It has been a while since I was in business calculus and studies min max.

    I often train my guys with another crew then split the crew. 3 people are not three times as productive as 1 on Residential units but they are on commercial units and in fact 4 or 5 might be better depending on the size of the jobs.

    Windshield time will kill you but at the same time your marginal cost do go down as the cost of the truck is spread out over 2 or 3 people units of production
  7. BradLewisLawnCare

    BradLewisLawnCare LawnSite Senior Member
    Posts: 279

    everything is bigger in TX :).

    Marginal is the cost to produce one more unit. In the short run the truck cost is fixed. In long run planning you have to account for the growth. In long run everything is variable.

    Most of us have the truck and If it going to drive to do the route, no matter how large your crew it is not part of your marginal cost. The gas and depreciation is if you go further away from your route. The government calls that $0.60/mile? It won't cost you anymore in truck expenses if a neighbor says I'll give you $20 to blow off my driveway. So you have to be careful in classifying costs.

    Now, the problem enters that you don't want to cheapen your product or discriminate in pricing. I see the truck cost being averaged between two employees as a way to eliminate purchasing another truck in the short run. If people plan to grow, start looking for another truck now.

    people need to put together a biz plan and figure out their costs. Then go get a expansion loan. That loan will help you grow. Maybe one day, when I figure it out myself I can get into consulting...
  8. McFarland_Lawn_Care

    McFarland_Lawn_Care LawnSite Bronze Member
    Posts: 1,402

    I am in the middle of ironing out a lot of these issues now. I need to set systems in place on paper for everything and get much more organized and plan specifically for growth and how to manage it. Lots of good info here, thanks.
  9. Duekster

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

    In my mowing world. Every cost is represented by an hourly rate or added as a percentage of an hourly rate to build up that hourly rate.

    Residential I do at 1500 hours per year to recover overhead and commercial I use 2000.

    I break down the truck cost buy 10,000 hours and add in inflation, insurance, maintenance and Finance. Small equipment, I include my internal labor rates to maintain that equipment for 3 hours per week over the life of the equipment which is estimated to be 6000 hours.

    So lets say my internal cost of one crew is $50.00 per hour that is $150 per week to sharpen blades, change oil, air up the tires, put in gas at the gas station. This is $22,000 over 3 years just to deal with maintaining line trimmers, blowers, mowers and truck
    just over
    Lets say excluding the truck I have 25K of equip on the rig.

    Now we are are at $47K - 6000 hours That is 7.84 ( always round up. )

    Now that means I need to recover $16307.20 plus my annual cost of insurance, interest and inflation cost to replace the equipment.

    Lets say the completive rate for a small business loan is 6% even if I pay cash for it, I want my interest on the equipment in there.

    Insurance seems to be about 6% but price it and perhaps self insure.

    978.50 interest
    978.50 insurance

    So you add all these things together. ( sloppy example and everyone needs to play with there figures on a spread sheet)

    Lets say I now need to recover 20K a year for the small tools and maintenance of those tools.

    On a commercial account that pays year round I would use 2000 hours and on residential I would use 1500 hours

    20K / 2K = $10
    20K / 1.5K = $13.34

    Now to be fair, you might want to take the 12K tractor off the Residential cost calculation but lets stick with these numbers to compare.

    Jumping a head lets say we have a truck cost of 8 per hour and I could break and do break down residential versus commercial rates for overhead recovery. Include everything

    Some cost are directly related to the service rig and some cost are overhead and applied as a portion. IE - shop rent/utilities, advertisement, overhead labor, and such is applied as a share to each truck.

    I have an average total wage and allow 20% for OT and I apply burden to it, taxes, insurance, vacation, suta ,futa.
    To this total I add 10% for windshield and slow production but should consider 20%

    I add my hourly cost of the rig.
    I add my hourly cost of my overhead
    I add 3% for taking credit cards
    I add profit as a percent.

    Lets say I am now at 250 an hour with 5 field service personal or $50.00 per man hour.

    The two man crew needs to generate 100 per hour and the 3 man crew needs 150 per hour.

    These numbers and the exact method is completely factious but is a simple over view of how to break down cost.

    You have to be careful when and where you break down what cost and how many hours you have to recover your overhead based on the type of work you are doing. Also be careful about adding percentages to percentages

    There is a lot of room for tweaking but the main thing is to account for cost and break them down to production. Production does not change but cost do. Managing those cost and allocating them properly will make you successful. Know most your cost can be assigned to field labor. I think it is a dangerous game to assign overhead to product / materials unless you can clearly identify how having those materials increases your overhead such as additional storage space to hold stuff.

    Bottom line is you can average your cost between the entire operation or you can break it down by production hours available. You can average some cost and break out others specific to the recovery period.

    You can cost / profit share too. IE you put up so much for equipment but share some of those savings if the crew takes good care of it without spending excessive time on it. Same with profits on the job if they are production without quality concerns. Lots of ways to manage growth while maintaining quality
    Last edited: Dec 8, 2012
  10. Duekster

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

    To add a little further.

    Some equipment is job specific and only need to be billed for time or use on the job.
    For example you would not really want to charge mowing customers for a skid steer.

    The more accurately you can recover the cost and charge accordingly the more successful you will be. This is particularly true for installation jobs, there are no formulas but people try to apply them. Those formulas such as two time material cost for labor might serve you well half the time. The other half they make you a low baller or cost you a successful bid. One bad bid can cost you your reputation and worse. Start off small and learn how to estimate based on what you learn on smaller jobs.

    While bidding is a mix of art there are some good tried and true methods. I wish it was as simple as a Mitchel's book for auto repairs. Some times I just throw a number out there based on general experiance about the pain threshold the client might have and I do not get full boat on my labor.

    If I know my cost for labor and the truck I can safety take on extra work and even pay some over time without raising prices. Why, because if I am in overtime then I have already recovered my overhead for that week.

    There is a saying that you do not make a profit until about Sept and then the work starts to fall off in landscape business.

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