Landscape Business - 101
Updated: Mar 25, 2022
ESTABLISHING A COMPANY BUDGET
This article is intended to offer some insight and advice to landscape contractors, especially those just starting out. Since this article will be public, I invite consumers to read and understand what I am presenting to help establish a better understanding of how this industry works and, hopefully, appreciate the hard work and professionalism displayed by most in our industry.
Greetings, fellow landscapers!
As a 25+ year veteran of the landscape industry I hear the words, "Man, I'm Good at what I do, but I just can't seem to make any money at it!", far too often.
Fear not and don't beat yourself up over this! It is a fairly common state of affairs in the landscape industry. Many of us have spent years in the trenches, developing our and honing our skills in an effort to provide the finest services and products to our customers. And with this confidence and pride in our abilities we set out on our own to provide that high quality service to our customers that we just know that we can provide!
Then reality hits!
There is payroll to be made, and payments on equipment, and taxes, insurance, licensing fees, overhead costs, not to mention constantly fluctuating material costs!
It can be overwhelming!
Let's simplify things a bit. What it comes down to, basically, is that you are willing to trade your time, skill, effort, talent materials, and equipment to provide a service and/or product that is of value to your customer. They are paying you for your expertise to accomplish what they desire and you know that you can do it. But there seem to be so many obstacles to achieving success and financial stability. You ask yourself, "What am I doing wrong"!?
Here is the rub; assuming that your skills are solid, are you charging enough to keep your new business not only viable but growing? Do you find yourself so desperate for work that you are always the low bidder? Do you find yourself in a downward spiral of over-promising and under-delivering? If so, you may survive for a short time. But, you will never become the solid company that you want to be and you will let your customers, employees, and ultimately yourself, down.
The question that you must ask is, "Are you charging enough for your services?" Dr. Ralf Speth, the CEO of Jaguar has said, "If you think good design is expensive, you should look at the cost of bad design." If you are to be considered great at what you do then you must not only be great at what you do but also charge appropriately.
Far too many Landscape Companies do not charge realistically!
Unfortunately this results in unrealistic expectations from customers. They begin to see 'landscapers' as unprofessional grifters rather than the highly educated and trained professionals they are. Operating your business in a professional manner is key to dispelling this prejudice, for yourself and the industry as a whole. And the way that you present yourself has everything to do with how you are perceived. Nothing is more important to this than how you charge for your services and present your estimate. Submitting a thoroughly thought out and detailed proposal to your customer shows your concern, skill, thoroughness and attention to detail. Not only in estimating, but more importantly, in how you operate your company. So how do you realistically estimate and charge for your services?
Let's jump right into it!
The simple answer is ACCOUNTING!
Okay! Don't freak out!
Start by establishing a simple company budget. A budget is crucial to understanding your business and how it works. Your budget should be a full accounting of all things financial. it must include all costs, both direct and indirect as well as profit.
Start by adding up ALL labor, equipment, materials and overhead expenses for your business over the past year to establish your COSTS. Then, subtract that from your total revenue, or what you billed over the past year. The difference is your company's PROFIT.
Rule of Thumb: Direct costs + Indirect costs + Profit = Company Budget
Example:
Direct Cost Labor 2,000hrs @124.80/hr avg $249.600 ±25%
Direct Cost Equipment 2,000hrs @100.00/hr avg $200.000 ±20%
Direct Cost Materials Total $250,000 ±25%
Indirect Cost Overhead Total $252,516 ±25%
Total Costs $952,116
Total Revenue $1,000,000
Profit $47.884 ±4.8%
After paying all of your costs your company realized a 4.8% profit
Design/Build Landscape Firms should average 12%-17% profit or more.
(For sake of comparison, bottled water sees a %50-%200 profit!)
This budget is what you will use to determine the financial health of your company and act as a baseline to build upon. If you are not currently tracking all of these numbers, start doing so! There is no better way to understand where you are or diagnose problems. You also cannot possibly plan for where you want to go if you do not know where you begin.
If what you came up with is similar to the example above then you are probably not in a good place! If your costs of doing business (Direct Costs + Indirect Costs = Breakeven) is greater than the amount that you charged for it (Revenue) then this money had to come from somewhere. Most likely it came from profit or your own pay. In the worst case scenario it came from materials or labor leaving you with debt and unhappy employees and customers!
WARNING!: The best way to insure that you will never be successful is to charge 2x materials and assume this will work! Or charging per unit; i.e. $500/ irrigation zone, $12/ SF pavers.
Estimating this way is a formula for failure, poverty and very unhappy customers!
This is fine for "Ballpark Numbers" but is unrealistic when it comes to running a business!
This is what I call "Comparative Pricing", see my post about that.
REMEMBER THIS...If you look, act, and work professionally and provide outstanding service at a fair price....you will have happy customers and a successful business! If you charge a fair price and the customer feels it is too much, don't be desperate,... walk away and allow them to work with the unsuccessful companies. You will not do anyone any favors by being cheap! If you do the customer will be unhappy and you will be broke!
So now, Let's break this down...starting with the basics.
Important Concept to Understand!
Direct Costs vs Indirect Costs
DIRECT COSTS are the costs of the labor, equipment, materials, sub-contractors and anything else that is DIRECTLY a part of accomplishing the job.
INDIRECT COSTS are the the unseen costs of doing business that are NOT DIRECTLY a part of the project. These include costs of your office space, utilities, insurance, licensing, marketing, office staff, salespersons, designers, and anything else not directly a part of the job.
Let's break this down!