Updated: Nov 9
Key Considerations for Landscape Professionals
This is a follow up to my previous article, Designing Hardscapes. Please note that this is not intended as a thorough or comprehensive guide to estimating. This is simply a discussion of factors that should be considered when estimating a project in order to submit a solid proposal to your client.
Estimating any landscape or construction project, especially hardscape projects, is a critical aspect of your landscape business. It involves more than just crunching numbers; it's about understanding the intricacies of your project, costs, and, most importantly, your business to ensure that you make a profit and satisfy your client. In this article, we'll discuss some vital factors that should be taken into account when estimating a project's price.
Beware of Unit Pricing
Pricing solely based on units, like square footage or linear footage, can be risky, especially when benchmarking against competitors. Just because another company charges a certain rate doesn't mean it's the right rate for your business. Factors, from labor and equipment costs to material procurement, can vary significantly between companies. To ensure a fair estimate, for you and your client, consider the basics starting with Direct and Indirect Costs.
Direct costs are the expenses directly associated with completing the project. They typically include materials, labor, equipment, and, in some cases, subcontractors. To create a clear and comprehensible proposal for your client, break down these costs into individual work areas. Here's a closer look at each direct cost:
Labor is a fundamental cost to any project. It is essential to understand the true cost of your labor. Beyond base pay there are a number of other factors to consider:
Unproductive Time - This is time that your employees spend on the phone, in the bathroom or simply doing anything other than actually accomplishing the work they are assigned to.
Travel Time - Time spent travelling to and from the work site must be accounted for. This is commonly known as 'windshield time'.
Labor Burden - Payroll Taxes, Benefits like healthcare and Insurance (Workman's Compensation) will all add significantly to your costs associated with labor. Commonly 20-25% of base pay.
Factor in a modifier for the required amount of supervision, 5-10%?
All of these will have the effect of modifying the cost of each employee. With a small crew you can do this individually but with a larger crew you should develop a pay grade and associated cost for each employee category: entry labor, general labor, lead hand, foreman, etc.
You must estimate how many man-hours that it will require to accomplish the job or the individual work area and assign labor to that task. It may be a bundled crew (Foreman and labor) or individuals. So, you might assign individuals to a job or bundle them as a crew with a total crew cost per hour. Consider these factors when estimating man-hours, then multiply them by the modified labor costs to determine the total labor cost for each work area.
Remember that labor cost will be likely be further modified by Overhead Recovery (Indirect Costs).
Material costs are the most predictable of the direct costs. For every project or work area you must:
Quantify all materials that will be necessary
Determine Your cost for every material required
Include delivery or freight charges
Itemize each material with unit and total costs
Materials may, and probably will, be subject to a markup to recover overhead (indirect) costs.
All equipment used on any project is a direct cost of that project. The equipment. can and will, include crew & material transportation vehicles (crew trucks), trailers, machinery like skid-steers or excavators, tools like saws, compactors, even shovels. Total up the hourly or daily cost of each and multiply accordingly.
Develop the total hourly or daily operating costs of all vehicles, equipment and tools.
Account for all tools & equipment necessary for project completion
Include transportation and unproductive time if necessary
Calculate rental equipment costs, by the hour or daily, if applicable.
Include labor and material costs related to equipment maintenance.
If you engage subcontractors, treat their costs as a direct cost and add a reasonable markup, usually around 5%.
Indirect Costs (Overhead)
Indirect costs, often referred to as overhead, encompass the daily operational expenses of your business that are not directly tied to a specific project or job. These costs include office staff salaries, facility maintenance, insurance, marketing, office supplies, and more. Calculate every indirect expense including salaries to get a figure. If you do not already do this, it is time to start! If you are not sure give it your best guess. You need to factor in these overhead costs to the price of your work. There are various methods for doing so but they are all a method of Overhead Recovery.
Overhead Recovery is one of the most overlooked factors in any estimate. All of these overhead costs (indirect costs) are a cost of doing business and must be recovered or your business will fail! Even if all you are doing is mowing grass there are overhead costs that must be recovered!
This is important! To recover your indirect costs (overhead) you must add them to the direct costs that you charge your customer. This can be done in a few ways. You can distribute indirect costs as a markup on labor or materials, or both. Marking up Equipment or Subs seldom works well.
A common practice is to recover overhead costs through labor markup. This is know as a single overhead recover method because all overhead is recovered in a single direct cost. In a multiple overhead recovery approach overhead might be split in varying percentages between labor and materials or even equipment.
Example of Recovering Overhead Costs in Labor:
In this example we will use a single overhead recovery method. let's say your annual overhead costs are $100,000 and you expect to work for 40 weeks throughout the year. You would need to recover $2,500 per week to cover your overhead (100,000/40=2,500). This amount can be added to labor costs as a markup. If your 5 man labor team works 40 hours a week, you can distribute the $2,500 over 200 hours (5x40=200), by adding $12.50 to each labor hour (2,500/200= 12.50). Thus, an employee initially charged at $50/hr would now be billed at $62.50/hr (50+12.50=62.50). Overhead can also be recovered through material markup or a combination of labor and materials.
Don't forget that if you, the owner, are working in the field on a specific project that should be considered a Direct Cost of that particular project. If you are in the office or doing sales / design work, that should be considered Indirect, or Overhead, Cost. Your time should be split accordingly.
Site factors and proximity play a significant role in your project estimate. Account for travel time for labor, equipment, and materials, including shipping and freight charges. Consider factors like removing and replacing barriers like fences, surface protection, and the distance of the work site from vehicle access.
Additionally, assess and mitigate risks, including customer-related risks, such as challenging clients, weather, material supply, and equipment issues. Adjust your costs to cover any increased expenses associated with potential risks. This might take the form of adding a percentage to your estimate. For example, a difficult client might demand a 10%, or more, increase in your cost estimate.
Once you have added up all of the costs you can then add profit to arrive at the Price that you will charge.
Profit is the lifeblood of your business, so it must be included in your estimates. A common starting point is a 15% profit margin, but this can vary based on the project, modifying factors and even your business goals.
An easy way to determine profit is by multiplying your total costs for each work area by your desired profit expressed as an integer and then adding that number to your work areas costs (EX. Work Area costs are $10,000. 10,000 x .15 = 1,500. So your price for that work area will be $11,500). Profit can also be included in each individual direct cost like labor, materials or equipment but this can get hairy if you are not using an estimating app.
Try to only give a single price for each work area. Avoid line items like labor, materials, etc. and especially profit. This will commonly result in haggling about those costs or your profit. Keep it simple, State what you will do for each work area and, in some cases, how you will do that work and give a single price.
The proposal is your opportunity to present your estimate and project plan to your client. A proposal is not an estimate! You have already estimated your costs (both direct and indirect) and added your modifying factors and profit. The Proposal is the Price that you will charge your customer for the work. Start with a concise introduction and outline the project's various work areas. Provide a detailed description of each work area, along with optional material lists and work area pricing. Understand that once the customer agrees to the proposal, verbally or by signature, in most cases it becomes a legally biding contract! Make sure you get it right!
Finish your proposal with terms and conditions including a pay schedule and requirements of the customer (Site access, Pet policy, safety concerns, etc.) and express your gratitude for the opportunity.
Estimating hardscape projects is a complex but essential process for landscape professionals. By considering direct and indirect costs, modifying factors, and ensuring a reasonable profit margin, you can create accurate estimates that will allow you to develop solid Proposals for Work. This will benefit both your business and your clients. This article serves as a brief introduction these concepts. If you have any questions or comments, please feel free to reach out.
Wishing you success in your estimating endeavors!