Net profit percent

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

  1. turfman99

    turfman99 LawnSite Member
    Messages: 212

    LGF makes a couple of good points here on some things.

    Mowing only is a commidity service. Virtually any one and everyone can set up a mowing operation. Cutting grass is not that hard and the results are basically the same from one contractor to the next. The public knows this and can play that to their advantage.

    In the Northwest , we do very few mow only types of accounts. The majority of our work is all inclusive, wall to wall landscape maintenance where we do every thing on the property under one contractor or company. When we estimate a property, we find that mowing is usually less than 60% of the total time we spend on the property and the lower that number the better.

    This allows us to focus on other aspects of making the properties look good, as mowing is a very small portion of that process. We usually average 40% on these properties with the combined services.

    We also then get all the add on services and upgrade work on top of the monthy 12 month maintenance contract.

    I could actually take the numbers and process we talked about in those other posts and apply it to a mowing only operation and do well, but not as well as where you can provide a larer range of services that generate better margins.

    We keep everything under one roof so to speak, providing all exterior property services to our clients. If your only going to provide one service such as mowing, then your margins and profits are going to be significantly lower and you are going to have to make sure your logistical process, operational efficencies, and support process are flawless.You don't have an excess margin to give and labor is the largest problem there.
  2. strickdad

    strickdad LawnSite Senior Member
    Messages: 544

    Dale, is there not an over emphasis on the term profit here? meaning, we operate as a s corp. and have been "taught" by our cpa. to operate at or near even. meaning that if we show a large profit on paper at the end of the year, (say 30,000 to40,000) we have to pay corp. tax rate (capital gains) which is quite a bit higher than income tax. we usually will up the salarys with this money to avoid these higher tax brackets. am i operating wrong here?? next question i see were people are saying that mowing will offer only a 20% profit margin. whats wrong with that? if you look outside this industry (say retail) 20% is an un-heard of number most large companys (250 million and up in revenue) operate in the middle single digit range (4to7 percent) looking forward to your reply as well as others.
  3. Dale not trying to be rude, but I'm going to pick at your numbers a little.

    So that says that less than 60% of your income is from mowing.

    And that with the combined services your netting 40% for your net profit. That would have to mean that your profit percent is in the range of +80% for the other work. How is that possable?

    You said your spending less than 60% of your time on the property performing the mowing task.

    As strickdad if you want to pay taxes like no one does. You can not operate at that high of a profit margine and 40% is on the steep side to begin with. There is no possable way to hide more than a 40% margin.

    I'll stick with my little more than 20% for mowing. Although it make up 80% of my income.

    When you are small you can pull higher margins off, but once employees come in the picture for get a high profit margin or you will be exteemly over priced or you are scamming some one or maby you have your numbers wrong or forgot to add some things in.

    40% goes to employee
    40% goes to everything else
    Shop or storage
    Credit cards
    Office supplies
    Unlce Sam
    Your salery

    You take some of those out and it can go up a lillte but not much.
  4. turfman99

    turfman99 LawnSite Member
    Messages: 212

    Great comments and questions, and I have my answers and replies for every one.

    I may have to wait until later today to address them or maybe tomorrow morning, because I have to go to Office Depot and get a machine to replace the one that crashed last week, and this is the first day of sunshine in 34 days in Oregon and my wife and I are going hiking.

    LGF - your not rude, your asking very relevant and intelligent questions here. It is not my intent to say yours or any body elses methodlogy is wrong, I just relate how I operate and how I teach companies across the US to operate. I will relate as much as I can without going into the propritary parts of our system, which helps accounted for the numbers I quoted.

    Strick: Yes, there is a large emphasis place on net proft here. Thats why I am in business and I will gladly pay taxs on 20% more net profits, than not have the net profits in the first place and not have to worry about paying any taxes. Comparision and relation to numbers of other business segments is irrrelevant in this case.
  5. turfman99

    turfman99 LawnSite Member
    Messages: 212

    I want to touch on a couple of things here briefly about the previous posts.

    First off, I am not scaming anyone or anything, my numbers are correct and the are accurate. I can see exactly where I am at every day in the morning, and the year to date or any time with my recordkeeping system. I know how much net profit I am going to make this year and where I am at in relation to that projection.

    I did say that we spend less than 60% of our time mowing on a site and that is basically true, so I guess you could say that less than 60% of the income comes from mowing, I don't break out mowing from our other types of work, because I don't care. All I want to know is our labor efficency rates, and daily hour productions and billings per man.

    I have a minimum charge for all properties we service. We set up 12 month maintenance accounts. The minimum charge for full service maintenance is $ 175.00 per month all inclusive. It does not matter how much time we spend on the property, thats the minimum charge. We do quite well on the smaller properties, because we use very efficent equipment, we have systems and procedures designed to make the maintenance process fast and maintain 100% quality control. That's one way we average 40% net on some of these accounts.

    Every thing is contracted, and estimated at our production rates that we have etablished. We can only mow grass so fast , but the support times is where we gain the most efficencies and increase our billings within the exsisting hours we already have.

    Another way is we have a bonus and incentive system that creates a partner system with our employees, where they are able to produce in excess of 40 hours billing while working 40 hours. We bill more than we buy from our employees most every week and maintain quality control as well. This only works with contracted work. We do no uncontracted work.

    We budget every year out exactly for field labor hours. We then use a process that allows us to develope and know exactly what our per hour costs are, and assign the amount of net profit we have decided we want for the next year to each and every hour we resell to our clients. We do not predict out any projections on margins on materials, although we do markup materials, and that finds it's way to the bottom line as well. If we have to reduce job costs for some reason, it's always on materials markup, never, ever on labor.

    We also have a tracking process where we know every morning how productive we were the previous day . We have checks and balances built in to the process that keeps us form exceeding the budget time allotments, before we are able to correct the problem midstream if it developes.

    Now as far as individual profit percentages, there are so many different variables there that comparision between market segments and even companies in the same segment can be very different. I run a very tight ship, very efficent, and I do not have extensive ego requirements that require me to pay myself more than is realistic in the market. My budget process is based upon sound business management, billing EVERY hour I pay my employees, and achieving a net profit percentage that is above the rate of return I could recieve by selling all business assets and placing that money in safe, albeit lower income producing investment vehicles. I generally will not budget or estimate less than 15% net profit and sometimes use the what the market will bear approach there as well.

    Comparing a business of 250K per year to one doing 250 million is irrelevant and a waste of time. Your budget , company culture and lifestyle will dictate what kind of money you need to make and what YOU ARE WILLING OR WANT TO RECIEVE AS RETURN ON INVESTMENT.

    Your hourly rate is your hourly rate, and may not work for the next guy down the road, and maybe higher than hell for the guy back up the road. Each company has to establish their own cost basis and go from there. There are companys in this business that have revenues of 7 million dollars a year that achieve over 13% net profit. There are companies that have revenues of 2 million a year that have net profits of 1% or less.

    There are companies that are 65% labor efficent and companies that are 123% labor efficent. That means they are billing 23% more hours than they buy from there employees.I have seen the numbers, the financial statements and worked the numbers for them.

    Most landscape companies are leaving at least 20% of their avaliable billable hours on the table or falling off the table, because of ineffiecency, employee slacking, lack of systems and procedures to control estimating and overtime and any number of hidden and not so hidden inefficencies, that is costing major hour loss.

    Long post, but in a nutshell, that's how I run my business and how a portion of our system works. If you have questions, I will try to answer them as best as I can as they relate to my business, but realizing that the system we use is a protected product and I am limited as to what I can get into more than I have here.

    As for the profit thing, a company asked me a couple of months ago if we were going to teach them what to do with the net profits they got and did not know what to do with... I asked them how much they thought they could make, and they felt at least 15% net profit. I asked if they were happy with that and they said yes, that would be fine. So I took my business card and wrote my home address on it and said every dollar in net you make over that, send me a check and I will find something to do with it....

    I and we are focused on profit, because that's why I am in business. I want to make better than wages, and I want my freedom to be with my family and have fun. I also want to be able to meet every client of mine in the grocery store and have them be the most satisfied and happy clients in town.

    Good Luck and Have a Great Holiday Season.
  6. 65hoss

    65hoss LawnSite Fanatic
    Messages: 6,360

    Sorry, my cable lines had water in them due to all the rain we have had. I just got back online for the 1st time in almost a week. Having major withdrawals.:D

    I have some info and an explanation, but it will take some time for me to put it together. I'll post tomorrow on this.
  7. strickdad

    strickdad LawnSite Senior Member
    Messages: 544

    dale, not to be a smart##s, but i have read your last post several times. and i realize you had alot to say. but at the same time you didnt say anything. again i do not mean to offend you . i think i may be able to learn something from you, but i need to know your thoughts on this... what is the difference in paying myself a "bonus" at the end of the year (salary supplement) and only suffering normal income tax, or showing a profit and suffering the capital gains tax. or showing as having paid out divadends to stock holders (only 3 in the co.) and again suffering capital gains tax. this to me is a no brainer but i may be missing something here. i too am in biz for profit the difference is my (as well as the other 2 stockholders) salarys are set up to absorb profit. (hence operating at or near even and some times a loss on "paper that is") as you can tell this is a family owned biz. that was set up as a s corp to take advantage of certain tax laws. that being said i realize that your organazation and mine are at two completley different ends of the spectrum.the only reason i can think of that you would want to "show" a high net profit is that you wanted to "attract" outside investors. if that is the case then i would understand your willingness to show this and not "absorb" it like i do. i understand you cant go into grave details on your system , but i would appreciate your reply . again i hope i have not offended you and i have the highest respect of you and your opinon (like i said i may be able to learn something here) bs
  8. turfman99

    turfman99 LawnSite Member
    Messages: 212

    Happy Holidays to you and yours :


    I don't mean to double talk or anything here, but we have progressed on to another point here and that is what to do with the net profits after you have them.

    I don't have any specific recommendations as to what you should do with the profits, how you remove them from the corp, or any process you use. Those are specific things your accountants and attorneys can advise you on, as I am not either and there fore will not venture as to how you remove the profits or what you do with them.

    If you have the net profits and are in a position to remove them form the corp, then that's where I stop my expertise and advice, because I only am concerned with getting you net profits and good business structure and good business decisions that get you those net profits from this type of business. What you do with them after that is personal wealth building planning and better left to financial plannners. Financial planners do not deal with landscpae business's, just with the net money they produce for the principals.

    Many business owners aquire properties and rent back to the corps, vehicles and equipments and do lease backs, and any other method of removing cash from the business if all business growth plans have been met, and debt service is covered. Those are thigns left to accountants and attorneyt's.

    The only time I get invovled when accountants are doing things is when they do not provide timely information to the business owners for quick and effective decision making and models. This happens a lot and there is no excuse for it given the technology avalaible today.

    As for my business, it is small, under 200K, and a sole propship. I do not want to attract outside investors, do not need to, and have no intention of selling the business. I have good profits, but I spend them as well on equipment and other business projects that I am developing.
  9. Kent Lawns

    Kent Lawns LawnSite Senior Member
    from Midwest
    Messages: 870

    A 1 or 2 man operation simplifies the profit-making process.
  10. John Allin

    John Allin LawnSite Bronze Member
    Messages: 1,488

    I've read these posts with considerable interest....

    Am I to understand that Turfman is doing $200k, has two partners (or invenstors) and is drawing a living wage out of that business ? May be none of my business, but are the two 'investors' drawing living wages too???

    If so, something doesn't add up.... (again, it's really none of my business, and if told so I'll understand).

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