Try'in to figure it all out???

Discussion in 'Starting a Lawn Care Business' started by jake65, Dec 2, 2006.

  1. jake65

    jake65 LawnSite Member
    Posts: 75

    THIS WAS TAKEN FROM AN EARLIER THREAD SEVERAL YEARS AGO. i AM CURRENTLY TRYING TO FIGURE OUT MY HOURLY RATE, OVERHEAD COSTS, AND HOW TO ESTIMATE THE PRICE OF A LAWN BASED ON MY RATE AND FACTORING IN MARKET VALUE. IS THERE ANYTHING SOMEONE ELSE CAN ADD TO THIS OR DOES THIS SUM IT UP?:dizzy:



    When a homeowner or property manager asks you for a price they don't care whether you use a 21" or a 48". That is the justification for sq ft pricing! But to get to a sq ft pricing I have to use an hourly rate. And an hourly rate is different for everyone based on their situation.

    Just like T.E. said using a flat hourly rate doesn't make sense when you change equipment or gain efficiency.

    If 10,000 s.f of turf is worth maybe $60 in ABC town. Mow in two hours with a 21" and you have $30/hr. Mow it in 60 minutes with a 48" and you have $60/hr. It's still 10,000 sq. feet and it's still worth $60!

    But if you can get to the point of a price per square foot, THEN you can compare your rate to someone else. IF you know your time and cost to mow 10,000 square feet you can ask someone else their time and cost for the same coverage. Then you know if you are more/less efficient.

    Instead of worrying about others hourly rate, try to determine yours. An example:
    ________________________

    1) Your hourly wage rate ____. That is what you could be earning working for some other business doing the same thing. As an employee you get 40 hours work, but as an owner you usually work more than 40 but often bill for less than 40. If your annual salary could be $28,000 working for someone else and you have to earn that in 1,500 billable hours it is $19/hr (for example) + taxes = $22 bidding. Add a min. $2 for health insurance. And another $2 if you want a retirement benie.= $26/hr
    That is for someone who could be earning $28,000 as an employee for someone else. If you would be working for someone else at $8 as an entry-level worker your bidding (billable) can be justifiably lower. Do you work as a technician operating a mower, or are you a manager of 10 people?

    2) Your direct cost of operations. The costs “to do the job” on site- equipment, fuel, trimmer line, fertilizer, chemicals, etc. This is should be an exact dollar amount. Gas used in 1 hour, line, etc. = $2.00.

    3) Your equipment cost. It is the cost divided by the useful life. Another measure is what would it cost you to rent that equipment per hour if you had to? This is the big difference for different people.
    Example a $900 21" lasts 3 seasons for 4,500 hours = less than a buck an hour. But a $9,000 rider for 4 seasons (6,000) = 1.50. Plus all the other equipment on the trailer. Estimate $3/hr for a full trailer. Bidding for applications and installation this obviously sky-rockets.

    4) Your indirect costs of operating. The cost of bringing your truck to the curb and related expenses related to that job (payment, insurance, fuel, dumping fee for waste & clippings, time to bid it, bill it monthly, customer service along the way). Truck + maintenace $3/hr.

    5) Your overhead costs of operating. Those things you pay just to be in business and are not for any specific job: Licenses, cell phone, office electricty, renting garage space from your wife (parents)(self), storage space from your wife, advertising, etc.) Take the total of these for the whole year and divide by the # of hours you work. $10,500 / 1,500 hours for example. = $7/hr

    6) Then you add your planned profit. If you could be making $28K as an employee you should be getting 'extra' for being in business of 10$-20% more ($2,800- $5,600). $4,500 /1,500 hours = $3 each hour for profit. Let's see how that totals up.


    HOURLY that is:

    $26 Wage
    $ 2 direct expenses
    $ 3 equipment used
    $ 3 truck & indirects
    $ 7 for overhead
    $ 3 for profit
    ___________
    $44 per hour.

    ________________

    With the equipment in this example, the owner can mow 10,000 sq feet in an hour so the rate is $4.40 per 1,000 square feet. If they equipment was faster and takes only 40 minutes = $2.90/1k.
    _______________


    Owner gets compensation of $29 for each hour worked. = $43,500. But working a real 60 hours a week for 42 weeks and easy street for 2 months. = $17/hr.

    Going the other direction>>>
    If an owner has a full schedule to achieve 1,500 hours of billable hours in the year:

    $66,000 Gross
    $ 3,000 fuel, trimmer line, and direct expenses
    $ 4,500 equipment
    $ 4,500 truck, ins, & maint
    $10,500 overhead exp
    $28,500 wages
    $ 4,500 S.E. taxes PAID
    $ 3,000 insurance PAID
    $ 3,000 IRA contribution
    $ 4,500 profit
    ___________


    These are NOT exact figures. It is only an EXAMPLE of a process one can use to get to their hourly rate and then to a budget based on projected billable hours.

    The budget can then be used as a balance against the hourly. Does it seem reasonable to spend $4,500 on a truck for one year? $375/mo average. or $400/ for 9 months and $300 for 3 months of winter. Looks good here, but how about for YOUR situation.

    Does 1,500 billable hours seem reasonable for YOU? If not divide the annual amounts by whatever you can work to determine your hourly.

    Notice there is A LOT of room for fluctuating in the wage and equipment expense. Based on the cost of you equipment ($5,000 or $50,000) the HOURLY rate can change dramatically. That is the difference between guys not accounting for their equipment or overhead and coming in with a low bid but they think they are doin great 'cause they put in $20/hr for themselves and figure that is a good rate.

    How does one go from $30 up to $60 and justify it? Either more expensive equipment, hirer rate for their wage, more overhead, OR less hours to bill. This example has $66,000 of expenses. IF an operator has only 1,000 hours for work to recover that, the rate has to go up! Or if you start off charging $55 and can get it, you only have to work 1,200 hours instead of 1,500 to make the same cash! Of course if one can bill for more than 1,500 hours then the fixed costs like a truck payment can be spread out over more hours in order to either lower the rate or make more profit.

    If your market rate is higher than your cost based rate, GREAT that’s money in your pocket. Charge as much as you can! But also know the minimum you have to charge to make money and use it when you need to be “competitive.”

    **************************************
    My POINT is a person has to go through their costs, their wage requirement, and their expected budget to come up with the numbers. Using someone else's rate is the same as throwing dice.

    And someone who just pulls $60 out of their butt without having some numbers to back it up ought to be in politics! And someone accusing someone else of paying themself $15/hr as too low needs to evaluate the market for a wage for a person chasing a mower.



    Pay yourself a wage, pay expenses, recover equipment capital casts, get a return on your investment, and make a profit.

    Pricing is simply adding the components together and being sure to include ALL components.


    For those quoting $60/hr, I’ll guess its based on charging $30 for a 30minute mow or something like $44/hr with a $10 base = $32 for a 30 minute mow. $60/hr for a small job may be common, but try bidding $60/hr for a 32 hour job and see where you place with other bidders. And then figure your close rate. Win some, lose lots???

    The bigger the job the more your hap-hazard bidding will affect you.


    THANKS FOR READING. MOW, IS THERE ANYONE WHO CARES TO ADD TO THIS

    THANKS
     
  2. jake65

    jake65 LawnSite Member
    Posts: 75

    Bueller? Anyone? - Bueller??
     

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