The Importance of Understanding the Numbers in Your Business
We often talk about “Understanding Your Numbers” in business, but what exactly does that mean? Understanding your numbers is more than just checking your profit and loss statement and consulting with your accountant a few times a year. To know your numbers, you have to know what all goes into those numbers. Field labor, materials, equipment, team benefits, mortgage/rent on your shop or office and the list just goes on and on.
To give you a better understanding of what you should be charging for, let’s break each one down a bit more…
Labor is not just an hourly fee per employee, but it is the price you charge the client and it should include the overhead that goes along with it. When calculating what to charge per hour on a job, you need to know what you are paying in company matched taxes and workers compensations insurance for each team member. By understanding these two numbers and then adding a mark-up and profit, you’ll be on your way to charging a labor rate that will lead to profitability.
Insider Tip #1: A landscape installer typically has a higher workers compensation rate than someone who works in the office – make sure you know what you are paying and are charging accordingly for team members in the field.
Insider Tip #2: You can compare your Field Labor from year to year or from company to company by calculating your Field Labor Ratio. Learn more here…
With material shortage in full swing nationwide, it’s becoming increasingly more important for lawn care and landscape owners to get updated lists from their vendors on a regular basis. In this client, The Green Executive recommends that you get an updated price list monthly. In doing this, you’ll be able to take the updated price, mark it up and charge in a way that leads to a profit margin on materials.
Final Tip: Shop around and buy in bulk. When you use more than one vendor for materials, you are sometimes able to get a better deal. Buying in bulk in the off season can help you decrease your bottom line and allow for even more profit.
A few questions we often get asked are how should we charge for equipment and should we rent or buy said equipment? Rental equipment is pretty simple, you need to charge the customer what the rental company is charging you, plus any fuel and insurance that you pay on it with an additional mark-up. Owned equipment on the other hand is a bit more complicated.
When charging for equipment you own, here’s what you need to know:
- Replacement value
- How long you plan on owning and using it
- End of useful life
- How many months per year you plan on using it
- Fees and Taxes
Once you have all these numbers, you can then calculate an annual return on investment and charge X amount per hours for the equipment on each job. This is why at Linnemann Lawn Care & Landscaping, we use the LMN software. It asks us all these questions when we buy a piece of equipment and then calculates it all for us, removing the “guessing” factor from the equation. If this sounds like something you need in your business, reach out to us here.
Other Costs to Consider When Pricing a Job
Field Labor, materials and equipment are just the bulk of what goes into your pricing. What you need to be factoring in as well is:
- Subcontractors – if you are contracting out, make sure you are charging their fee plus a mark-up and profit.
- Benefits – any benefits you pay the team like holiday pay, paid-time off, sick leave, etc.
- Mortgage or rent – for an office building and/or storage building.
- Communication – if you are paying for cell phones for your team and/or internal business phones in the office, then you need to add this to your overhead.
- Advertisement – billboards, social media, brochures, etc.
- General office expenses – subscriptions, uniforms for team, printer ink, computers, etc.
- Credit Card processing fees – if your clients are paying online, charge them for the fees or include it in your overhead.
This is why bookkeeping is so important. By staying on top of your bookkeeping and tracking all incoming costs and expenses, you will know what you are paying out on a monthly basis — giving you the ability to charge a mark-up that will lead to profitability on every job.
Free Download: To help you get on track to charging for profitability, we’ve created a checklist for you to use to ensure you are charging for all the moving pieces per job >> click here to download and/or make a copy!