Enhancements for a lawn maintenance contractor should significantly add to the bottom line. However, they are often overlooked or neglected simply because they are managed improperly (or not at all) because of a lack of time and personnel to do so. Lawn renovations can be a big part of extra revenue generated by enhancements. Here are some tips to help you bid and manage them.
John has a small company that does just under $300,000 in sales per year. Most of his work is for residential customers and is comprised of spring and fall cleanups, lawn mowing, pruning and some small installation jobs. He generally keeps four to five crew members, excluding himself, busy throughout the season. John is very conscientious, almost to a fault, and he really takes care of his clients. Opportunity is popping up everywhere. His customers want him to provide more services. Eventually John wants to install low voltage lighting, aquatic ponds, walkways, patios and maybe even Christmas decorations. However, he can't even manage the enhancement work from his existing customer base, let alone think of expanding into other services. He knows that if he only had the time to spend with his existing clients, he could sell his customers extra plantings, fertilizations and lawn renovations, to name just a few. Lawn renovations, he thinks, would be a real money maker but they take too long to bid. He wants an easier way to bid them but he is concerned that using a square-foot price would not be as accurate as it should be. However, pricing each and every job separately takes too much time. And time is one thing that he has too little of.
Think in terms of half and full day lawn renovation jobs. Normally, a 5,000-square-foot job takes a two or three person crew half a day. A similar crew, with the proper equipment, can complete a 10,000-square-foot job in about a day.
Here's how we bid these jobs.
I use a really simple MS Excel worksheet put together to price small jobs like this. It has two parts. The first part is a recap worksheet that contains company information such as crew average wage (CAW), crew size, an overtime factor (OTF), a risk factor (RF), labor burden, sales tax, etc. This data for John's company is located in Figure 1, page 16.
Two very important items are covered on the recap worksheet. The first is the general and administrative (G&A) overhead of $10.00 per man-hour (OPH). This $10.00 figure contains John's administrative costs for the year. It includes rent, his salary, his vehicle, office supplies, a part-time office manager, computer costs and a lot more. He has to sell about 7,500 man-hours of work per year to cover his $75,000 of G&A expenses, which run about 25 percent of his sales. Simply multiply the total man-hours in a bid by the $10 OPH to determine how much G&A costs to put in it.
Industry Benchmark note:
The green industry benchmark for G&A costs is as follows:
|Companies under $5 million in annual sale:||20 to 25% of sales|
|Companies over $5 million in annual sales:||20% +/- 2% of sales|
Second, the net profit margin that we will use for John's lawn renovation jobs is 30 percent. This is high, but marketable, for enhancement work.
Industry Benchmark note:
The green industry benchmark for net profit margin is as follows:
|Residential lawn maintenance services:||10 to 15%|
|Residential installation services:||20% +/- 2%|
|Residential enhancement services:||25 to 35%|
|Commercial work, all types:||10 to 15%|
You will notice that the recap worksheet has three sections. They are the scenario cost data, the scenario and the scenario analysis. Within the scenario section, there are four main columns for material, labor, equipment and subcontractor costs. There are also three phases of the scenario section. They are: I. Production, II. General Conditions and III. Margins and Markups. On our worksheets, the general conditions are blank, because they are included in the production costs. At the bottom of the recap sheet is an analysis section, which contains a unit price, net profit margin and gross profit margin.
Figure 2, page 14, contains lawn renovation production and general conditions cost data for a 10,000-square-foot job. Keep in mind that your numbers and production methods will probably vary from those outlined here. Simply make adjustments to these costs to reflect your costs and production methods. Here is how it plays out.
|▸ Composted loam at a depth of 2 inches||$14/CY delivered|
|▸ Seed at 5 pounds per 1,000 square feet||$62.50 per 50-pound bag|
|▸ Fertilizer at 5 pounds per 1,000 square feet||$11.50 per 50-pound bag|
|Labor costs, production|
|▸ Rip soil and rough grade||2 hours operator, 4 hours by hand|
|▸ Spread loam||2 hours operator, 4 hours by hand|
|▸ Fine grade||2 hours operator, 4 hours by hand|
|▸ Spread seed||1 hour|
|▸ Fertilize||1 hour|
|▸ Finish raking||4 hours|
|Labor costs, general conditions|
|▸ Drive time||1 hour per person, per day|
|▸ Load/unload time||1 hour per person, per day|
|▸ Warranty time||2 hours|
|▸ Supervisor's time||2 hours|
|▸ Tractor with implements||$25 per hour|
|▸ Crew truck with trailer||$10 per hour for 8 hours per day|
|▸ Supervisor's truck||$8 per hour|
We will use 34 man-hours in this bidding scenario. This is a 10-hour day for a three-person crew. Remember, two of the 34 hours are for the supervisor and two are for callbacks.
Our price to the customer is just under $3,300 or $327.20 per 1,000 square feet (almost $0.33 per square foot). The unit price for a 5,000-square-foot renovation job would be a little higher because general condition costs would not necessarily decrease in proportion to the decrease in the production costs for the smaller job.
The net profit margin is 30 percent, as we planned.
The gross profit margin (GPM) is a little over 40 percent. Frankly, this is a little low and you might want to increase your net profit margin to the mid-40-percent range.
Industry Benchmark note:
The green industry benchmark for gross profit margin is as follows:
|Residential lawn maintenance services||30 to 40%|
|Residential installation services||30 to 40%|
|Residential enhancement services||40 to 50%|
|Commercial installation services||20 to 30%|
|Commercial lawn maintenance services||30 to 40%|
TIPS, TRICKS & TRAPS
John should job cost his lawn renovation jobs once his crew has completed them. Only after completing and job costing a dozen jobs or so, should he consider bidding this work by using a standard unit price (e.g., $400 per 1,000 square feet for jobs 5,000 square feet and below, $350 per 1,000 for jobs over 5,000 square feet, $0.40 or $0.35 per square feet, respectively). John should also establish a minimum charge for his crew to show up for lawn renovation work; otherwise, his unit price will get him into a lot of trouble on really small jobs.
John should provide his customers with a lump-sum bid and not a unit price. He can use the unit price to help determine what he needs to charge for the service. However, giving customers unit prices often encourages them to shop around.
While we might be able to speed up John's estimating process and make it more accurate, this does not necessarily address his issue with being spread too thin. To effectively address his personal workload situation, he needs to take a long, hard look at the organizational structure of his company. This is a completely different issue than pricing specific services. John needs to step back and do some creative brainstorming concerning his company. Unfortunately, most contractors get stuck because they do not know how to do this. It is called “target fixation” in the air force. A pilot becomes so fixated on attacking a target that he flies his plane right into it. Not good! Contractors do the same thing. They become so intent on individual aspects of their company that they miss the big picture.
Industry Benchmark note:
The green industry benchmark for net profit margin for work done for existing customers is as follows:
Add 10 to 15% of additional net profit margin as compared to work done on the open bid market
A number of my larger maintenance clients have established an enhancement crew because they have realized the revenue and profits that they are losing. This crew only does enhancement work. Some have created a position for an enhancement manager who runs multiple crews.
Other clients have created a customer visitation reference (CVR) form. On it they list enhancement work that customers need. A copy of the CVR is put on an enhancement clipboard for future reference.
Lawn renovation work can significantly add to your bottom line. However, be careful not to throw out unit prices for it as it can come back to haunt you. Use your unit pricing primarily for internal pricing controls. And remember to job cost every lawn renovation job to verify your unit price. If you are a young energetic contractor with lots of spunk, remember to work smarter and not just harder. That's how you get to be an old energetic contractor. Let me give you one more green industry benchmark.
James Huston is president of J.R. Huston Enterprises, Inc., which specializes in construction and services management consulting to the Green Industry. Huston is a member of the American Society of Professional Estimators and he is one of only two Certified Professional Landscape Estimators in the world. This article was adapted from his new book and audio book, How to Price Landscape & Irrigation Projects. To reach Huston, call 1-800-451-5588, e-mail JRHEI at email@example.com or visit the J.R. Huston Enterprise Web site at http://www.jrhuston.biz.
Dave Rykbost, President of Dave's Landscape, Inc. (Hudson, Mass.) contributed to this article.
|Location:||123 Main St., Anyberg, USA||Estimator:||Ben Hadd||CAW Loaded||$ 15.02|
|P.O.C./G.C.:||Mr. Robert Jones||Crew Size:||3|
|Phone / Fax:||978-566-1492||Hours/Day:||10|
|Due Date:||7/10/2004||CAW:||$ 13.00||Phase 1||Quantity||Unit|
|Type Work:||Lawn Renovation||Risk Factor||10%||Total Labor Hrs||34 Hrs||L|
|10,000 SF||OT Factor:||6%|
|1. Fill in materials, labor, equipment and subcontractor information for the job in the yellow areas.|
|2. Change the format for your bid items as you like.|
|3. Copy the “#VALUE” formula in row 8 on your M/L/E/S row to total it.|
|4. Be sure to use a unit of “Hrs L” for all labor rows.|
|5. Save your work|
|6. Go to the other production pages to input additional production items. OR|
|7. Go to page 3 on the tab at the bottom of this page to input your GC items.|
|# Description||Quantity||Unit||Unit Cost||Material||Labor||Equip||Subs|
|Composted loam 2” deep (delivered)||61.7||CY||14.00||864|
|Seed||5 #/1000 SF||50.0||LB||1.25||63|
|Fertilizer||5 #/1000 SF||50.0||LB||0.23||12|
|Rip soil with tractor||2||Hrs L||15.02||30|
|Rough grade by hand||4||Hrs L||15.02||60|
|Spread loam with tractor||2||Hrs L||15.02||30|
|Spread loam by hand||4||Hrs L||15.02||60|
|Fine grade with tractor||2||Hrs L||15.02||30|
|Fine grade by hand||4||Hrs L||15.02||60|
|Spread seed||1||Hrs L||15.02||15|
|Finish raking||4||Hrs L||15.02||60|
|Labor, general conditions|
|Drive time||3||Hrs L||15.02||45|
|Warranty time||2||Hrs L||15.02||30|
|Tractor to rip soil||2||HR||25.00||50|
|Tractor to spread loam||2||HR||25.00||50|
|Tractor to fine grade||2||HR||25.00||50|
|Crew truck with trailer||8||HR||10.00||80|
|Crew truck with trailer (warranty time)||2||HR||10.00||20|
|Scenario cost data||$ or %||Remarks||Instructions:|
|Crew size (# people)||3.0||Crew leader plus 2 laborers||1. Fill in yellow cells with your company information and project information below.|
|Crew average wage (CAW)||$ 13.00||2. Do not write over red cells as they contain formulas.|
|Man-hours per man per day||10.0||3. Change the descriptions as necessary.|
|Overtime factor (OTF)||5.6%||45 hours per week||4. Be sure to save and back up your worksheet.|
|Risk factor (RF)||10.0%||5. Go to page 2-A thru C on the tab at the bottom of this page to input your production information.|
|Crew average wage w/OTF & RF||$ 15.02|
|Labor burden||30.0%||Date:||July 1, 2004|
|Sales tax||6.0%||Project:||Lawn Renovation|
|G&A overhead per hour (OPH)||$ 10.00||Location:||123 Main St., Anyberg, USA|
|Net profit margin||30.0%||P.O.C./G.C.:||Mr. Robert Jones|
|Crew truck with trailer||$ 10.00||Phone / Fax:||978-566-1492|
|Total man-hours||34.0||Due Date:||July 10, 2004|
|Number of units||10,000||SF||Estimator:||Ben Hadd|
|I. Production or “Curb” time costs|
|$ 938.20||$ 530.71||$ 266.00||$ -|
|$ 938.20||$ 530.71||$ 266.00||$ -||$ 1,735|
|II. General conditions (off-site or non-curb-time costs)|
|$ -||$ -||$ -||$ -||$ -|
|$ -||$ -||$ -||$ -||$ -|
|Subtotals $ 938||$ 531||$ 266||$ -||$ 1,735|
|III. Margins & markups|
|A.Sales tax $ 56|
|B.Labor burden||$ 159|
|Subtotals $ 994||$ 690||$ 266||$ -|
|Total direct costs (TDC)||$ 1,950 TDC|
|C. G&A overhead costs
34.0 (Number of man-hours x OPH)
BEP (TDC + G&A overhead)
|$ 10.00 =||$ 340/$ 2,290 BEP|
|D. Contingency factor (if desired)||$ -|
|E. Net profit margin 30.00%||$ 982|
|F. Total price||$ 3,272|
|IV. Scenario analysis|
|A. Unit price (Total price ÷ units)|
|$ 3,272 divided by 10,000.0 = $ 0.327 Per SF|
|B. Net profit margin (Net profit ÷ Total price)|
|$ 982 divided by $ 3,272 = 30.0% Net profit margin|
|C. Gross profit margin ((G&A overhead + Net profit) ÷ Total price)|
|$ 1,322 divided by $ 3,272 = 40.4% Gross profit margin|
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