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Let's talk R.O.I

Field King

LawnSite Senior Member
Location
Indianapolis
Lets talk a little about R.O.I or "return on investment" I see a lot of guys grossing 20K per season and financing 30K in equipment, I know we cannot discuss every little nuance like mileage, fuel cost, how many rakes the crew breaks etc. but I would assume buying a 10K mower to do 20K gross is not gonna work in the long run, I am a stickler for cash only purchases for small operators, your thoughts?
 

AzLawnMan

LawnSite Senior Member
Location
Glendale, Az
I agree 100%. I see and read lots of people going out and spending $30k on truck and equipment, all to go out and do 5 yards. Doesnt make sense. Build slowly, build capital, build a cliental then gradually make the big investments.
 

2low4NH

LawnSite Bronze Member
Location
NH
thats what im doing! i went out and spent 4k on used equipment as far as a mower and trailer. bought all my trimmers blowers new. first year did my clean ups with rakes and tarps. 2nd year i had a truck loader. this year im advertising and bought a plow truck. im hoping to build enough of a clent base to buy a Z this year. i spend what i have and keep overhead down and pass the savings on to the customer. i am fair with prices and i am making "good" money doing it. CASH FLOW is key to a biz surviving and in a downed economy its even more important
 

DoetschOutdoor

LawnSite Bronze Member
Location
S. IL
I financed my ztr at 3.9% and my walk behind at a low rate, dont even remember exactly. Im not against or for financing, just depends on your status and timing. I was 19 years old when I got the ferris walk behind and the 125$ monthly payment was alot better of a deal than taking $3300 outta my account, likely didnt have that sitting around as I was full time college student. Paid it off 6 months early on a 2 year note, paid very very little in interest. Same deal with the zero turn I got two years ago. 3 year note, will be paid off in 2.25 years, paying very little interest. Total about 10k in two mowers, very good ROI.
 

Rivervalleylawns

LawnSite Member
Location
Oklahoma
I honestly do not understand alot of the mowing guys with 30-50k trucks. I mean yea its nice to have a cool truck but it in no way is economical. And no matter what you say, you have to pass on the cost to your customer. I could by three nice trucks at 10 a piece. I just got a 03 1500 ram crew cab for 7100 and its a beast. Between too crews I might have 60 grand in investments, and can pull in 350k in sales easily. The 60 grand including trucks,mowers,trailers, everthing only has to be replaced every 5 years. so 1.7 mil in sales to 60 k invested. This is hypothetical as I would not release me earnings on a public forum, however very much in line with what my real numbers are. And once again let me clear it up, the 60k is for the big ticket items.
 

djagusch

LawnSite Platinum Member
Location
MN
I think people here are mistaking going in debt to ROI.

ROI: How long to operate the equipment to start showing a profit after the investment costs.

My mowers (new) take less than 3 months before they have covered their costs. Truck is about a year (new work truck).

It's all about knowing your costs and how they are assigned to the equipment and figured to your accounts.

So lets stop talking about buying new or used it's personal preference and market dictated.
 

Richard Martin

LawnSite Fanatic
Location
Greenville, NC
I think people here are mistaking going in debt to ROI.

ROI: How long to operate the equipment to start showing a profit after the investment costs.

My mowers (new) take less than 3 months before they have covered their costs. Truck is about a year (new work truck).
Specifically, how are you computing this? It can be extremely complicated to figure ROI and take a significantly longer period of time to recoup costs depending on the situation. For example:

Johnny already owns a 48" mower. The mower is paid for, in good shape and needs little in repairs. Johnny can cut 1.5 acres an hour (just an example) with his 48" mower. Johnny decides to buy another mower, say a 60" mower. He will keep his 48" mower as a backup mower and there is no recovery on it. His new 60" mower will cut 2 acres an hour. His increased productivity is 1/2 acre an hour. Johnny spent $8,000 on his new mower. Now bear in mind that these mowers aren't the only machines helping him make a profit, they all share in helping him make a profit. How would you figure ROI?
 

scotlykins

LawnSite Member
Location
kentucky
Specifically, how are you computing this? It can be extremely complicated to figure ROI and take a significantly longer period of time to recoup costs depending on the situation. For example:

Johnny already owns a 48" mower. The mower is paid for, in good shape and needs little in repairs. Johnny can cut 1.5 acres an hour (just an example) with his 48" mower. Johnny decides to buy another mower, say a 60" mower. He will keep his 48" mower as a backup mower and there is no recovery on it. His new 60" mower will cut 2 acres an hour. His increased productivity is 1/2 acre an hour. Johnny spent $8,000 on his new mower. Now bear in mind that these mowers aren't the only machines helping him make a profit, they all share in helping him make a profit. How would you figure ROI?
Your example has more to do with productivity than ROI, or Return On Investment. ROI is a % of net money gained, or lost, relative to what you invest.

There are many factors which contribute to this %, including productivity as in your example. You have a new mower being 25% more productive than the used. Mower to Mower, with the same size deck and engine, we have found, a new mower will only increase production by 10%, assuming the used mower is in normal operating condition.
 
The du pont method is a little more technical but shows assets deployed. ROI is simple though. Net profit / total investment × 100 = Return on Investment. That is the SIMPLE formula...
Net profit of 1000/10000(new ztr) x 100 = 10% return on investment...which is crap.
 
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