Net profit percent

Discussion in 'Business Operations' started by turfman59, Dec 18, 2001.

  1. kris

    kris LawnSite Bronze Member
    from nowhere
    Messages: 1,578

    Simple way for me to explain "Loss leader "

    A store buys milk for 3 bucks a jug ... turns around and sells it for 2.50 a jug ... it takes a loss to get you into the store to buy other goods.

    NO we don't do mowing as a loss leader. We do it to compliment our Landscape construction ( our main bread and butter ) We would not do maintenance if it lost money.
  2. Thanks Kris, that's a loss leader.

    I was trying to show it as a low profit way.

    Although my mowing is my bread and butter to lead to the other work it does not lose money. It does make up a good portion of my income. But If I could get all the extra work done (labor is scarce) i would be doing very well.
  3. turfman99

    turfman99 LawnSite Member
    Messages: 212

    The term loss leader and the word loss should be banished from everyones volcabulary. No reason at all in this business to do anything at a loss ever. You can make a profit in mowing and a good one if you keep on top of the numbers.

    It's all about hours that you work and that you pay for your employees to work. Know how many hours you will work and you know how many hours you need to sell. Base your direct costs and overheads on those hours, add your net profit, track the time (hours) daily, weekly, monthly and you will know where your at for any given time frame.

    Utilize tools that allow you to change scenairos for labor and equipment payments and you can see what impact any labor or equipment decision makes upon your hourly rates and profits.

    Production rates are consistent in mowing,and there are fewer subjective numbers in mowing so that you should be able to establish accurate numbers for actual production. If you track your support times and properly add them back to your estimates, you should be able to recover and bill out 100% of your hours you work and your employees work.

    Set up a bonus program based upon production and 100% quality and you could end up billing more than 100% hours.

    Example of that would be if you buy 5000 hours from employees and your company billable rate is $ 35, then your gross sales should be $ 175,000. Anything less than that and you are not making your net profit numbers and are accepting less net profit than you planned for. More than that, and you are over 100% labor efficient.
  4. Ok then show how to bill for shop time, drive time, repair time, breaks, etc...

    I for one wouldn't pay guys to take a break if I were the paying customer.

    How can you bill for 100% of your employees time, NOT possable.

    But you can sure try.

    I don't run as a loss leader, many larger LCO do.

    But it is true, mowing you are just giving your self a job. Your not going to make your self rich, just a job. And I feel like it is most of the time.
  5. turfman99

    turfman99 LawnSite Member
    Messages: 212

    It is possible to bill for every employees hour. It is more difficult to do if your billing the customer on an hourly basis instead of a CONTRACT price. It can be done on an hourly basis, but it takes extensive record keeping and knowledge of your efficency rates in order to speculate on how to recover those costs.

    I gave an example of how it can be done in the estimating process. In my estimating spreadsheet, I total all hours and then divide by my KNOWN labor efficency to determine the number of support hours to add to that job based upon the number of hours required to execute the service on site. That then gives me a total number of hours that job will require over the season and you can determine the monthly cost for the number of months that you bill for, which is 12 months in my case. The spreadsheet also can calculate billing over 9 and 10 months as well.

    Billing on a per hour basis limits you to a known amount of revenue based upon number of employees and labor efficency. If you can determine how many hours your employees are going to screw off or need to perform support labor, then you can estimate that, convert it to your billable rate if your sure that is accurate and then some how apply that to your hourly charge.

    It's very hard to cross check and prove for accuracy, and I don't have any idea on how to do it, nor do I have any inclination to figure out how to because it's not as exact as assigning the support hours based upon a known history of performance.

    If you do not bill 100% of your employees time, then where is the money you pay for non billable hours coming from ??

    It is coming from the margin you make on the hours you do bill, be those margin or net profit hours. If those hours are required to support services performed on that clients property, the client should be paying for those hours in the price of the service.

    This is why CONTRACTED PRICES for service gain a big advantage over a per cut or per service price. Both are based upon an hourly rate, but if your billing the client on a per hour basis, that is what you going to make per hour, regardless of how much you increase your efficency, use better equipment, creat bonus's for employees increased production and 100% quality, and increase production rates with efficency gains, over buying more equipment and vehicles. That way you end up working more efficently with the same capital expenditures.

    Consider this:

    If your estimating process is accurate and your costs are accurate then it stands to reason that,

    1. You can only mow grass or perform services at X amount of time. That is a constant and given and will not change unless you change equipment or procedures.

    2. What you can change is the 20% or 25% or whatever support time is required. You do that by looking for inefficencies in all portions of your operations, how you do everything, how the opertions flow works and on and on.

    3. If you create a bonus program for employees that rewards increased production with 100% quality control, you can be damn sure those employees are going to find ways to increase efficency that you never though of.

    You then begin to bill more hours or execute more contract services WITHOUT adding any more employees or equipment and vehicles. SALES AND MARGIN GROWTH WITHOUT CAPITALAZATION, and with your current cost structure.

    Any time you tap your margin for money to pay employees that you are not billing clients for, you will hit your net profit.

    It's your money, keep it and keep more of it....
  6. scott's turf

    scott's turf LawnSite Senior Member
    from NH
    Messages: 949

    "But it is true, mowing you are just giving your self a job. Your not going to make your self rich, just a job. And I feel like it is most of the time."

    That is why I have a full time job and run this on th side. After all expenses (not including my wage and tax on my wage) I make another 25% of my full time salary. Which I can't complain because I only worked 300 hrs this year actual labor. It just seems to difficult to make it with all the overhead. Having both jobs works well for me. No health insurance to worry about and 3 weeks paid time off is rare running your own business full time.
  7. SprinklerGuy

    SprinklerGuy LawnSite Bronze Member
    Messages: 1,778

    Actually, it is not rare. I think I am able to find approximately 4-6 weeks off total during the year. All paid because I do not contribute to the revenue stream directly, I just manage the stream. Yes, without me there sometimes the sales team falters a little or some customer service stuff doesn't get done, but for the most part, most stuff gets done and gets done right. But, that being said, it has taken 7 years to get to that point and when I get home from that week or so off, nose to the grindstone and work hard to catch up!!!

    But, I am not an LCO, might be different.
  8. kris

    kris LawnSite Bronze Member
    from nowhere
    Messages: 1,578

    I totally agree. Well said turfman.
  9. Kent Lawns

    Kent Lawns LawnSite Senior Member
    from Midwest
    Messages: 870

    I used the term loss leader and I put it in quotes because it has the least profit margin.

    In the markets I'm familiar with, you better have this mindset. If you try to turn it into your profit center:
    You will not be competitive in the commercial market.
    You will direct your company into a residential contractor.
    You will wind up taking "mowing only" accounts.
    And most importantly: You will miss out on the profitable "add-on" work that comes with commercial mowing.

    ~Don't look at the Mona Lisa and focus on the frame.
  10. Now take what Kent posted and look at the BIG picture!!!!!!

    Mowing is a numbers game.

    You can make a living mowing, I know I have, but you get stuck running your tail off to keep the mowing up. There are real profit maker in this BIZ and they are not mowing. If you specialize in mowing, then you specialize in a maybe 30% profit margin. But you are going to be just mowing and maybe some other stuff but you have to keep mowing to make any money. This is why it’s a numbers game, you take what you didn’t make off the mowing and add it to your “other work”. Most big LCO’s run somewhere around 20% on their mowing but close to 40% on their other work. One because they are not limited to just mowing, two because they have many other things to supply to their customer, three they have clients breaking down their door. Makes you wonder why.

    They do high quality work, efficient labor, and the tool to perform it properly, also deep pockets. Takes money to make money.

    Also I see many forget to add in their prices the cost for storage, being shop, or yard space.

    Other things to consider, workmen’s’ comp. Ins, matching taxes, etc….

    Employees are your number one liability. They will be at least 40% of your hourly charge. Not the truck or equipment.

    I’ve seen many not using commercial ins. on their vehicles. It’s not $500 or $600 a year. It is closer to $1500 a year.

    This is why the solos stay solo and the guys who run only one crew stick with running one crew.

    This is a competitive cutthroat business.

    You can’t speed efficiency up too much that is not the answer. No matter what you will sacrifice quality trying to go to fast.

    As far as per a cut price, that is not billed hourly, in fact it is the same as contracted prices. It’s the way you set it up. For instance you give them a contract for no less than X amount of cuts no matter what. I’m working on it.

    Turfman you idea is great but this is a tuff industry to apply it to. You have to learn how to manipulate numbers.

    EG: Mowing brings in a 20% profit margin. This other job brings in a 50% profit margin. So if they both brought in the same gross then you made a 35% profit margin on both put together.

    It’s hard for me to explain but I tried.

    BTW I'm still trying to figure out a guesstamate on mine.

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