Customers will routinely ask, how much will it cost for an estimate of a landscape design. Some companies do it for free, others charge a fee. But the costs we’re concerned about in the landscape estimate are all the costs the landscape business is paying. How much does it really cost a business to complete a landscape design? And more importantly, have you, as landscape business owner, accounted for all of those costs?
“It’s important to know your numbers, know where you need to be and know when to say ‘when’ on lowering a price,” says Jim Huston, president of J.R. Huston Consulting.
Pricing can be a common frustration for any kind of landscape business. Not only are you dealing with competition and trying to beat low-ballers, but you have to be fair and honest yourself. Your business has expenses, costs and labor to pay out. And cutting from that every time is a quick way to dry up any revenue you may pull away from a job. That’s why it’s so important to know your costs and how to work with them. Landscape software can help define those costs and make sure they are a part of each budget as you prepare estimates and proposals for your clients.
Get Your Break-Even Point
There are some companies that just try and break-even on every job. Employees get paid, and the owner gets his hours in from being part of the crew. The problem is, there is no scaling up of the business, no wiggle room in pricing and no recovery of other overhead or emergency costs. What happens if something goes wrong at your expense? Whose hourly wage is covering for that?
Before you can even start thinking of a price for a landscape design, you need to understand all the costs going into it. Do you have an office space? How about the people in the office answering phones and completing paper-work? What about your estimators who are working off designs and converting them into proposals? There are truck expenses, gas, oil, equipment rentals and so many other overhead related costs that often get ignored.
“It’s important for contractors to understand how to calculate a break-even point,” said Frank Ross, a financial management expert who specializes in the Green Industry. “This comes from knowing your numbers. But then it’s even more important to understand how your break-even point will be impacted by some of the decisions you make.”
By taking into consideration all these overhead costs, you’ll be able to come up with a break-even point on every job. The amount of revenue you need to generate per project, to recoup all the costs you are paying out. Landscape software calculates that using many different recovery models. It gets you to a break-even point, and then you can start adding on mark-ups for products and services.
Add Your Profit Margin
With your break-even point set and your overhead covered, you can now start adding mark-ups to your products, labor, services and materials. In a healthy environment, Lawn and Landscape Magazine says you can apply a 20 percent net profit margin to the break-even point. Once again, you can set your mark-ups in your landscape software in order to automate the process of marking up each item by a specific amount. Materials could be by 20 percent, labor by 15 percent and plants by 10 percent. Each time an estimate is created, the mark-up happens automatically.
More importantly, because you did the break-even point first and then added a mark-up, you now have room to move when a competitor comes in at a lower cost. When customers ask, ‘how low can you go’, you can still maintain a level of revenue that is acceptable to your business by decreasing the mark-up, without touching the break-even cost. That will give you confidence knowing that on each job, you won’t be losing money.
“If I have a job that is purely labor, no materials, I still want to make money,” Huston says. “You should make sure your labor is appropriately priced instead of trying to make up for underpriced labor with a heavy markup on landscape materials.”
Maintaining Your Margins And When To Walk Away
To scale your business properly, sometimes you need to walk away from business. By setting your profit margins, you will know how much profit per job you are making, covering overhead costs as well. When there is more competition in an area, prices can be driven down by discount landscape design businesses. Sometimes you can turn a customer over and make them understand the value. Sometimes you can’t, and you need to know when to walk away because there isn’t enough profit in this particular job.
By knowing these numbers, which can be set up in your landscape software budgeting tools, you know exactly where to draw the line. How much of your margin can you cut before the job is not worth taking on anymore? You want to be winning more bids, but not at the expense of your profit margins and revenue streams. With a shortage of skilled labor, taking on the most profitable jobs is important in order to scale your landscape business. Accepting every job that comes through can be a dangerous practice and lead to you getting the discount brand tag.
Always Know Your Numbers
The best way to know your numbers is to use a landscape software. DynaScape’s Manage360 has a budgeting and sales tool that will give you the breakdown of each job you are estimating for. Know your break-even point, establish your mark-ups, and if needed, tweak your margins so that you are still generating acceptable profit from the job, without cutting yourself short. Landscape software and budgeting is something many older landscape businesses are turning to in order to make proper decisions for their business moving forward.