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"pay for its self"

Discussion in 'Business Operations' started by HBFOXJr, Jan 9, 2002.

  1. HBFOXJr

    HBFOXJr LawnSite Bronze Member
    Messages: 1,712

    I've heard this term used often over the years when trying to sell someone on an idea.

    Being a contrarian, I want to ask, is it a valid thought? In two recent threads in this forum, those words were used regarding the ownership of a seldom used piece of equipment and in doing advertising.

    My way of thinking of something paying for itself is earning me money or maybe breaking even if a new endeavor that is headed up. When I say making me money or breaking even, that is to be construed as a profit or break even using normal job costing and accounting principles with the added cost of the special idea thrown in.

    If the payment on a skid steer is $400/mo., one days work per month at $500 does not mean it payed for itself in my book. I think I'm losing money like that.

    If it costs me $50 to print flyers and $100 to hand them out, $300 worth of sales it generated didn't make me money because it took me a days work and a bunch of equipment and overhead to do the $300 worth of work.

    Comments please.
  2. Turfdude

    Turfdude LawnSite Bronze Member
    Messages: 1,899


    I think I know what you mean here. I believe that a lot of my purchases and efforts have been "worth their weight in gold". The only pruchases that really "pay for themselves" are ones that have astronomical return on investment and require little/ no maintenance in my mind. For me this would be 1. Snow removal equipment. 2. My aerator 3. My spray tank.

    Other than those items, most other purchases I would consider as "invaluable tools of the trade".

    Keep us all on our toes OBEWONKANOBE!!:D
    Your posts always stretch our minds and continually enlighten us.:cool:

  3. HBFOXJr

    HBFOXJr LawnSite Bronze Member
    Messages: 1,712

    I don't think you need astronomical return but a real, regular return. Something like x$/ hr or x$/day, enough $ per year so that the costs of ownership are less than the cost of spot rental and the units cost /hr or day are reasonable enough to allow you to still make a living and pay your other normal business expenses.

    If your using your spray tank 3x a year to spray $2,100 worth of shrubs and tree applications it may not be worth it. But if you use it 40 days a year for $30,000 of application work it is a sensible investment.
  4. SprinklerGuy

    SprinklerGuy LawnSite Bronze Member
    Messages: 1,778

    Obiwan....(hbfoxx) Never thought to call him that.......

    As for the equip. analogy.....yes, it better be worth it or get rid of it.

    As for advertising, I have asked this before of you, what do you consider a good enough return. Here is how I figure it out:

    I take the advertising costs..........."A"

    Then I take the revenue created by "A" and call it "B"

    Then I multiply "B" by the gross profit percentage, lets say 45%. At that poing B better be bigger than A or your in trouble.

    IMO the revenue needs to be 4 or 5 times larger than the cost to cover all your bases.

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