Are your mowers making you money? It seems like a simple question. If you’re paying your bills, meeting payroll and putting some money in the bank, then the answer would seem to be “yes.” Unfortunately, many landscapers, including those who use the aforementioned rule of thumb, are essentially winging it when it comes to tracking mower service profitability.
Keith Upham, president of Upham Landscape Company, in Weston, Massachusetts, and a 2008 Total Landscape Care Landscaper of the Year finalist, says his own experiences are typical. “In the early days, I didn’t know about job costing or labor burden, so I’d just come up with an hourly rate slightly higher than our labor rate for non-mowing work, estimate the man hours and multiply by the hourly rate,” Upham says. “In those days we also charged on a per cut basis so if we could not mow because of drought we would lose revenue for that week.”
What Upham failed to realize then, he says, is that lawn maintenance contractors offer services that are based on time. “So you have to know what one hour costs you in both direct and indirect costs,” he says. “In order to be able to price on a square foot basis you have to measure a lawn accurately and apply a seasons worth of job costing so you can account for various conditions.”
Starting point: learning your overhead cost percentages
The hardest part about determining profitability for any labor-intensive service is getting a handle on your operational costs. But how do your start that process?
John Cloutier, product manager for Exmark, has some basic starting points. He says Exmark’s customer surveys reveal a typical landscaping company’s labor generally approaches 50 percent of its combined overhead costs and can be as high as 70 percent for some companies. “Original equipment purchase costs for a typical operation can account for approximately 15 percent of overall operating expenses,” he notes. “On the flip-side, mower maintenance and downtime will account for roughly 25 percent of operational costs. With fuel prices exceeding $3 per gallon across the country, you can figure that gasoline and diesel accounts for roughly 10 percent of your overall operating costs.”
Digging a little deeper into the cost equation, Trent Guyer, marketing manager for Grasshopper, says to remember that that cost per hour includes machine and financing cost, fuel usage, maintenance time and labor rate divided by projected hours of use. “And remember that non-billed time such as travel between sites, while necessary to operation, can make the difference between profit and loss if it is not accounted for,” he adds.
Equipment selection, routing and marketing
Replacing walk-behind or hand-held equipment, for example, not only saves expense of maintaining multiple two-cycle engines but, more importantly, can reduce labor costs by a factor of four, Guyer notes.
These are lessons Keith Upham has taken to heart. Today, his operation is considerably more sophisticated than it was in his beginning years. “It’s a very calculated process,” Upham notes. “I now account for every man hour paid out to team members (who are responsible for tracking time spent on each mowing account). Unbillable time for fueling trucks or mowing equipment maintenance is tracked under indirect costs. It’s a much more logical system and every aspect of those jobs can be cross-referenced and verified to confirm profitability.”
Upham says he’s learned the importance of keeping mowing accounts routed in efficient order. “This will help you keep your costs down, increase efficiency and even take on more work,” he says. “Whenever we acquire a new account in a new neighborhood we increase marketing, knock on a few doors and see if we can drum up additional accounts to make it worth our while to be in that area.”
Another change Upham initiated several years ago was to charge a flat monthly rate for mowing as opposed to a weekly per time charge. “This way,” he says, “if we get into a drought we give our customers a visit equal to the time we would have spent mowing and will do some bed maintenance, pruning or special requests – but never give a refund. If you’re going to make an investment in equipment and people, you’ve got to be assured of revenue for each and every month. We mow for 27 weeks so we multiply the per cut price by 27 and divide by six months to get the monthly rate.”
Once you’ve got a handle on overhead costs and income, Upham says it’s vital to stay on top of that information. “We review job cost reports monthly. Because we lock contracts in place during the January to March timeframe, we don’t get a chance to adjust pricing during the season. We’ll make those adjustments before contracts are sent out. Job costing is performed daily and is tied into payroll. This also makes your field labor accountable for their time. If we see that an account is not producing the margins we project, we’ll see if we can spot the problem in the field. It’s usually a cause of inefficiency or something related to production.”
It’s also a good idea, Upham says, to include additional services in your calculations and market them aggressively. “We know that our prices can always be beat so we don’t sell services like mowing based on price alone,” he says. “If that were all we were doing, we would have trouble getting the price we want. We sell value and good service and have a long services offering; we’re pretty close to a one-stop shop. If all a customer wants is a mowing price we try to sell them on a spring/fall cleanup or lawn care program in order to keep away from a higher mowing price. It’s usually an easy sell.”