Contingency is an allowance included in an estimate to account for reasonable uncertainties that may affect the cost of completing a project. It's not profit. It's not overhead. And it certainly isn't a substitute for poor estimating or poor management. It's a recognition that even the most carefully planned project rarely unfolds exactly as expected.

Every landscape company has expenses associated with performing its work. Some are directly related to a particular project. Others are necessary to operate the business, whether you're installing a patio, maintaining a commercial property, or simply preparing estimates for future work.

If you use markups, understand the margins they produce. If you establish a desired profit margin, calculate the selling price necessary to achieve it. And make sure you've accounted for the full cost of performing the work. Because the difference between markup and margin isn't just a matter of terminology. It's a matter of profitability.

When you hire an employee, you agree to pay a certain wage. That's the amount the employee earns for the hours worked. But as the employer, you take on additional financial responsibilities that go along with employing that person.

Every dollar that comes into your business can only go to one of three places. Direct Costs. Indirect Costs. Profit.

Every landscape you install should be quietly chipping in toward office staff, estimating, sales, insurance, accounting, office rent, utilities, software, marketing, licenses, the truck that never leaves the office parking lot, and the hours you spend on administrative work that never once involves a shovel.

Unlike a larger operation with a full org chart, the owner of a landscape company rarely does just one job. Monday you're installing irrigation. Tuesday you're running the skid steer. Wednesday you're meeting a prospective client on their back patio. Thursday you're estimating a new project. Friday you're paying bills, chasing down a supplier, reviewing payroll, and mediating whatever crew disagreement started at 6:45 that morning.

Back in the first article of this series, we broke direct costs into four simple categories — labor, equipment, materials, and subcontractors. That's still entirely correct. But there's a layer underneath those four categories that most contractors never learn, and it's exactly what tripped up that cost sheet over lunch that day. Before those four categories become part of your real direct costs, they need to be adjusted to reflect reality.