How Well Did You Bid?

Discussion in 'General Industry Discussions' started by Sean Adams, Jan 15, 2013.

  1. Sean Adams

    Sean Adams LawnSite Gold Member
    Messages: 3,597

    There are only 24 hours in a day. There is lots to do when owning a lawn care and landscaping business, especially one that you are constantly trying to grow and improve. I know that sometimes there are things that you know you SHOULD be doing, but just aren't all that thrilled to do it, so you just chalk it up as another task that didn't get done because you are pressed for time.

    There is one particular task I know a lot of lawn and landscape business owners do not like doing - that is going backwards and determining if you accurately bid your work.

    This is somewhat easier to do with actual landscape installation work than it is with maintenace since maintenace is an ongoing service and can change week to week based on a considerable number of variables (employees, efficiency, equipment, mother nature, etc.).

    In the next blog post I will break this down for maintenance.

    Here we go....

    For example, a prospect wants some landscape installation work performed. Let's say they want three new beds installed, 12 trees planted, 24 shrubs planted, some sod layed down, irrigation lines re-routed and 15 cubic yards of shredded mulch put down.

    Obviously you should be well equipped to handle this bid - meaning you know what all these things are going to cost your company to purchase and turn around. Depending on delivery or pick-up, mark-up and desired profit, you will have these numbers down as well. Then it is only a matter of estimating how long it will take 4 employees to do the work.

    So just for the sake of this example, let's say that we have determined:

    1.) Each tree cost you $150, you are picking them up and delivering them yourself ($15 per tree) and you are going to mark up each tree 15% ($22.50 per tree) meaning each tree costs the client $187.50 multiplied by 12 trees, that totals $2,250.00.

    2.) Each shrub cost you $29, you are picking them up and delivering them yourself ($4 per shrub) and you are going to mark up each shrub 15% ($4.35 per shrub) meaning each shrub costs the client $37.35 multiplied by 24 shrubs, that totals $896.40.

    3.) The sod costs you $435, you are picking the sod up and delivering it yourself ($45 delivery) and you are going to mark the sod up 15% ($65.25) meaning the sod total cost to the client is $545.25.

    4.) The mulch costs you $225, you are picking up the mulch and delivering it ($75 delivery) and you are going to mark the mulch up 15% ($33.75) meaning the mulch total cost to the client is $333.75

    5.) You have also determined that you need 20 yards of screened topsoil to build the beds and do the plantings and the soil costs you $640, you are picking up the soil and delivering it yourself ($100 delivery) and you are also going to mark up the soil 15% ($96.00) meaning the soil total cost to the client is $836.00.

    Therefore, the total cost of goods for this job for the client is $4,861.40.

    Then upon estimating all of this work, you determine that it is going to take 4 laborers a total of 16 hours to do this job, which totals 64 man hours. Since you have already determined your hourly rate to be $44.50 per man per hour, the total labor cost is $2,848.00.

    The total you have bid for this job is $7,709.40.

    Once the work is finished, it is time to go backwards. Were you correct on your pricing for the materials? Were you correct on the amount of materials needed? Did it actually take 4 laborers a grand total of 16 hours to do this work?

    All the little numbers add up, and let me show you how.

    On mark-ups you stand to make $569.40, but let's say that things did not end up costing what you estimated they would cost. Let's say that the trees cost you $158 each instead of $150, and the shrubs cost you $33 each instead of $29, and the sod costs you $457 instead of $435, and the mulch costs you $240 instead of $225, and the soil cost you $683 instead of $640. Well, you already gave the bid to the client so obviously it is too late to go back now.

    The money you were supposed to make on the materials is now down from $569.40 projected to only $297.40 actual.

    Then let's say that when all the labor time associated with this job was added up, it took 20 hours for 4 laborers instead of the projected 16 hours. When you created the initial proposal you determined that the labor cost would be $2,848.00. If you are projecting to generate 20% profit from each man hour ($44.50) that means you were projecting a profit of $8.90 per hour. So out of that $2,848.00 in labor cost, you projected you would profit $569.60.

    But now that the work took 20 man hours instead of 16, you have to do more math.

    If all 4 employees were being paid $15 per hour and you add on 25% employee load for taxes, etc., the estimated actual cost of each employee per hour was $18.75 per hour. Since it took 4 additional hours to do the work (16 man hours), that means it cost you an unexpected additional cost of $300 in labor.

    So now your projected profit from labor goes from $569.60 down to $269.60 actual profit.

    Add it all up and compare. Your initial projected profit from this job was $569.40 materials and $569.60 labor for a total profit of $1,139.00.

    But since things cost more than you estimated for and the job took longer than you estimated for, the profit from the materials was only $297.40 and the profit from the labor was only $269.60 for an actual total profit of $567.00 - that is $572.00 less than you anticipated making.

    Before you can move forward, you must look backward. Estimating is a science - a science that you can perfect if you check back and see if what you have bid was accurate.

    Many business owners submit the bid, do not keep accurate records of expenses for jobs and do not directly connect labor hours and move on to the next task at hand. The work gets done, the invoice is submitted, the client pays, and you have a big fat check for $7,709.40 in your hand and you are all smiles.

    Keep track, look back.

    To read this blog post and more like it go HERE
  2. cpllawncare

    cpllawncare LawnSite Silver Member
    Messages: 2,659

    Sean on install jobs how much depth should you go into as for showing cost on your proposals, I like to show labor and materal cost seperatley or should I just show one price for the entire job?
  3. alldayrj

    alldayrj LawnSite Gold Member
    Messages: 3,793

    One price! Always!
    Posted via Mobile Device
  4. knox gsl

    knox gsl LawnSite Fanatic
    Messages: 6,251

    Is it really normal to only markup 15%? I markup 60% on small projects and 50% on larger. We get contractor pricing at our suppliers which leaves the customer's price close to retail while still making money.
    Posted via Mobile Device
  5. cpllawncare

    cpllawncare LawnSite Silver Member
    Messages: 2,659

    Thx allday I was afraid I was doing it wrong.
  6. alldayrj

    alldayrj LawnSite Gold Member
    Messages: 3,793

    I've just found that people have a problem with us making money. If you tell them its a 1000 in labor and 200 in matl, they will inevitably ask how long will it take. If you say a day they will backflip thinking you will "make" 1000 in a day.
    Posted via Mobile Device
  7. Sean Adams

    Sean Adams LawnSite Gold Member
    Messages: 3,597

    Never indicate profit. One price is all the custoer needs to know. If you break things down the client will feel it is an open invitation to haggle on price.
  8. Sean Adams

    Sean Adams LawnSite Gold Member
    Messages: 3,597

    I was just using that as an example. It really depends on what you are buying and who you are buying it from. If you buy mulch often for example from one supplier, you may be able to get a significant discount of let's say $12 per cubic yard for double shredded, treated dark mulch. If the client is accustomed to seeing/paying $20 or more for the same product, then you are not out of line charging as much as 50%+ for mark-up. It truly is about buying power.

    The problem is the internet more than anything. If you think about it, 20 years ago, consumers had no idea what goods in this industry cost. Now with the internet, they can lok things up (incorrectly usually) and assume they know what things should cost. The Home Depots of the world don't help either. A consumer assumes that "grass seed is grass seed" and if they see a Penn State mixture of seed on the shelf at Home Depot for $20, they assume all seed is equal.

    Bottom line, the better prices you can negotiate with your vendors, the more you can mark up your products.
  9. cpllawncare

    cpllawncare LawnSite Silver Member
    Messages: 2,659

    One price it is, from now on. I've heard so many people say "you make more than I do and I have a college degree" Like a landscaper can't have a college degree LOL! GEEZ!
  10. TriCityLawnCareLLC

    TriCityLawnCareLLC LawnSite Bronze Member
    from Ohio
    Messages: 1,025

    Sean, I'm in this game to win, so please feel free to correct me. I bought your book in 09' when i first started and it's been big help. I follow your fixed and variable cost structure to help me every winter in determining pricing for the upcoming season. In your example you gave, it doesn't include employee payroll or payroll taxes, so i simply put them on my "fixed income" chart. With 1 employee, an office manager and all other expenses i need to make $27.83 per billable hour to cover cost, working 250 days per season at 9 billable hours per day. Included in my fixed costs is the salary that i will start paying myself this year (first time trying it). It's very meager, only $500/week plus monthly bonus dependent on what the business profited that month. So to cover expenses (including myself and employees, I need to be making $27.83/hr with mark up to $60 and hour making profit $32.17 that goes back to the business. This, in theory should put me at $135k gross income in 2013, roughly. Am I on the right path so far?

    Since this year will be my first year with a part time employee (my retired father helps out for free roughly 3 days per week, per his desire.This really helps save me money, he's a great worker too), first year paying myself a salary, does it sound like i have my billable amount per hour correct (without looking at all my number)?

    Secondly, since I've calculated my salary and my employees wages and payroll tax into my fixed expenses, and I'm charging $60/man hour, if a lawn takes us 1 hr to mow should i be charging $60 or $120? I guess i don't understand "per man hour" perfectly. I get that 4 guys working at $60/hr, it takes 1 hour to complete project but total would be $240.

    I hope i haven't confused you. I've put my scenario out there because I don't mind being shown if I'm wrong-I like to make progress. Thanks Sean.


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