What would you price this job (details)?

Discussion in 'Landscape Architecture and Design' started by bigpoppa85, Oct 15, 2013.

  1. FLCthes4:11-12

    FLCthes4:11-12 LawnSite Senior Member
    Posts: 284

    Materials + 20% for handling+freight (u or them)+10% (for warranty)
    Equipment cost. (Yours or rental)
    Labor. I charge 25 per hour for laborer and 75 per hour for mine

    This is never broke down for a customer they receive a nice neat proposal with a lump some.
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  2. JimLewis

    JimLewis LawnSite Fanatic
    Posts: 6,841

    Clipfert has a lot of good advice.....

    Yes, you are marking up product WAY WAY WAY too much. I wish we could mark up product like that and still land jobs. Maybe if I had a labor rate that low it would sometimes work out. But that's the wrong way to do it.

    First of all, you have to stay somewhat competitive. Nobody else is going to be marking up materials 200% or 300%. That's ridiculous. What are you going to say when a customer asks you what portion of your "lump sum" bid is materials? You going to lie to them? Make something up? Give them the real cost? Either option is a bad way to go. It's best to just mark it up by a percentage that is fair and then make your money on the labor.

    Now what is a fair mark-up? Well, your customer isn't going to want to pay a whole lot more for materials from you than he would on his own. He may allow you to charge a little more for your procurement time. But not 200%. There's a really easy rule-of-thumb for how to charge for product: Charge what the customer would pay on his own if he were to buy that same product. In other words, they pay you RETAIL PRICE.

    What that means is that sometimes you'll make a really good mark-up, because the price you can get things at is at a deep discount. Other times, it means you don't make as much, and then you may have to add 20-30% for your procurement time (and warranty).

    Plants, I am able to buy for about 50% off what the customer would buy them for. But I can't even sell plants at full retail because most of my competitors sell them for less than retail. So in order to remain competitive, we mark up plants only 30%. That's more than fair. We make a good profit on them and it covers our procurement time. Actually, there's very little procurement time. Maybe just my time ordering them, because the nursery I use delivers them straight to our jobsite.

    Raw materials like barkdust, soil, gravel, aggregate, sand, mulch, etc. I can only mark up maybe 20% in order to remain competitive. But that's fine. 20% is a totally fair and normal markup in our industry.

    Irrigation parts & materials I can mark up quite a bit. Because I get most of them at 50% off and they have nowhere to buy them that cheap. So I can mark them up at least 50% over my cost and still be under what they can buy them for. Let me provide an example. Let's say a rotor head lists for $20.00. I get them for $10.00. I can mark them up 50% to $15 and still be under what my customer could buy them for. So irrigation materials mark-up is about 50% for us on install jobs.

    Sod, I cannot mark up too much. For one, because we only get like a 10% discount. For two, people call and find out how much sod costs and if I marked it up too much, they'd call me on that. So we mark up sod about 20% from our cost. And 20% is still a decent markup for something that takes only one phone call and is delivered.

    Outdoor lighting is our biggest profit margin item. We get about 60% markup on that product. Which is really nice.

    Our labor rate is $60 an hour and that will probably go up to $65 in 2014. That is where we make our profit and cover overhead. Anything else we get on material mark-up is just bonus.

    Also, giving a "lump sum" bid might work if all you're ever going to do is small jobs in the $2,000-$10,000 range. The main problem with the "lump sum" price is that people feel you are not justifying how arrived at that number. A lot of people are going to be thinking, "What??? $7,500 for some planting beds??? How the heck??? That seems outrageous!" And they'll start shopping you. In the end, they'll probably find out that the price wasn't too awfully bad, but now that they've talked with several other contractors they decided they liked another one better. So you lost the job because you scared them off, initially.

    I eventually learned that our customers like our bids broken down by detail. Then they would look at my bid and think, "What??? $7,500? How the heck.....Let me see.....Ok....$1100 for the plants... I guess that sounds about right....$2200 for the trees....yep.....$400 for planting soil, Oh yah, I guess we need that.....$50 for planting fertilizer, yah, I guess we need that.....$250 for bark mulch to finish off the beds, guess that makes sense......$340 in irrigation materials, yah, I guess that seems fair since there aren't any sprinkler heads over there..... and $3160.00 for labor.... I guess that sounds about right. Wow! That all adds up to $7500, huh??? I guess so. Ok. I guess this seems fair." Then we have a better chance of landing the job, because we broke it down for them and they can see all of our pricing is fair and well thought out. We're being completely up front about every cost. Customers like that.
  3. PaperCutter

    PaperCutter LawnSite Bronze Member
    Posts: 1,943

    Like Jim said, some things are better margin than others. I'm a dealer for outdoor stainless steel cabinetry and appliances, and the margin is good there. If I don't get a discount, though, I have a purchase agreement that I give my client that says their cost is retail plus 25% for me to acquire it on their behalf, plus installation and setup. It's simple, it's transparent, and it makes negotiation easy.
  4. JimLewis

    JimLewis LawnSite Fanatic
    Posts: 6,841

    That's why I like itemized bids. It's easy to show my customer that I thought of every single cost and itemized all of the costs for them to see. Otherwise, I used to have the customer come to me with stuff like, "Whoa! $3400 in materials??? How much am I paying for the sod?? How much are each of those trees???" etc. Now I never get those questions. They see how much each price is and if they bother to check how much those items are on their own, they will find that I am selling them for a fair price. Maybe sometimes a little more than they'd pay. But not much. And that's understandable, since I'm handling all the ordering and procurement.

    This also eliminates people trying to negotiate with me. I used to give the lump sum bids and for a $7500.00 job I'd have people say to me, "We like your company. But the cost is higher than we can afford..." (Which is often code for, "we have the money but we want to see if we can get you to do it for less so we can use the extra money for that nice vacation we're hoping to go on"). "..... Could you guys do the job for $6,500? If so, I think we have a deal."

    I don't get stuff like that anymore. Because they can see there isn't much room for negotiation. When you just give them a lump sum bid then they're thinking you've built in all sorts of extra wiggle room (which you have, I guess, if you're charging 200% or 300% mark-up). When I give one of our bids they can see there isn't any wiggle room. It's not like I marked up stuff excessively. And it's not like my labor is unfair. It's obviously a fair bid and they can take it or leave it.

    Another really nice benefit to giving itemized bids is it often makes us look better than the competitor. If they get another bid that maybe doesn't mention each of the materials (e.g. lump sum bid) then they'll often take my bid and ask that other guy about each of the items in my bid. Often times, they find out that that other guy didn't plan on using that big of a tree, that much soil amendment, any mulch to finish off the job, etc. So they start to realize that we've really thought it through more thoroughly than the other guy has.
  5. PaperCutter

    PaperCutter LawnSite Bronze Member
    Posts: 1,943

    When I bring a contractor in to my clients, I prefer to see an itemized proposal. I know some guys like to shoot for the moon so they can be the hero and throw in all kinds of "extras" throughout the job, but I've seen that massively backfire. I designed a project for a poolbuilder back in '08-'09, and his costs (materials, subs) would've been $66k. So I assumed that since everyone was tight on work in that area at that time, he'd price somewhere around $110k, and that would've been fair for the job (pool, engineered walls, etc) and while a stretch, not way past their budget.

    So I present the design, homeowners love it, and I turn it over to the poolbuilder. He does a little warm-up spiel and then says "folks, this project is $194,000 but if you sign today I'll do it for $176,000." I almost fell out of my chair, and if I had I would've landed on the floor next to the clients. There was nothing to discuss, nothing to value engineer or phase in, he just whipped out a lump sum, flung it against the wall, and tried to make it stick. It didn't, and not only did they not move forward with him, they wouldn't return any of his phone calls OR any of mine. Had he gone through a line item proposal they would've probably not liked the # at the end, but they would've at least been able to see where they could reduce. Moron.
  6. TTS

    TTS LawnSite Senior Member
    Posts: 615

    With your financial wisdom am I correct in assuming you have a fair math background? Here comes a math lesson.

    You posted revenue- expenses = profit but were not trying to find the profit you're asking for the price or in the words of the equation revenue. To solve for revenue you have to add expenses to both sides of the equation. Therefore to find revenue = profit + expenses. If I were to put it in context of your job price = materials + labor + misc + profit

    We have now appropriately solved the equation that you posted and came to the same conclusion as the other posters.

    Thats all for today class, tomorrow's lesson is multiplication
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  7. hamiltonenterprising

    hamiltonenterprising LawnSite Member
    Posts: 62

    Unfortunately you will probably be one of the statistics.

    People should not have to teach you business Mr Finance. But here you go. We as business owners have to make a hourly WAGE if we are lucky enough we have payroll. Then the rest of the expense you should know the rest that goes along with it.
    THEN on top of all that your BUSINESS needs to turn a PROFIT. Ie RETURN ON INVESTMENT or PROFIT MARGIN.
    Where all the rest is just EXPENSE. Do you see where I along with all these other people are going with this ??
    Last edited: Jan 23, 2014

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