Landscaping Profit Margins: How to Double Your Profits
To double your profit as a landscaper, the process seems simple – double your prices.
Unfortunately, that might lead you to lose most of your customers, who will seek out cheaper alternatives. So, if landscapers can’t just simply double the price to complete design and build construction projects, how can they double their profit?
The answer is a couple of calculations to determine if you are charging enough, to begin with, and breakdown factors in determining if you are actually turning a profit on each job. First, remember that total revenue and net profit are different. Revenue is what you charge the customer to do their design and build, while net profit is what you have left over after expenses.
Expenses, or what we’ll call cost factors, determine what your final total profit is on the job. The typical net profit margin in lawn care and landscaping ranges from 5% to 20% per job. The more expenses you have, the less profit you come back with in the end. So it’s essential to know your costs, how much they are per job, and what’s factoring into your bottom net profit line.
The two cost factors every landscaper accounts for
Whether you are a new landscaper or have been in business for years, every landscaping job has two specific costs: the cost of materials and the cost of labor.
Many landscapers stop and end with just those two expenses when doing a job. However, one of the biggest mistakes a new landscaping company can make is doing the reverse calculation and charging labor costs plus expenses to figure out the total revenue or price for the customer.
If that is how you do your calculation, then you are already not accounting for any additional profit. Owners working in the field with their small team may consider this calculation because they are getting paid out of the labor expense. However, this type of business will live job to job, and with looming recessions around the corner where customers will be tough to come by, it could be difficult times ahead for young landscapers.
The problem is that these two cost factors only tell part of the story. And they also need to be looked at deeper to help landscapers not only turn a profit but even consider doubling their profits.
Cost of Materials
Landscapers need tools, materials, plants, and equipment to build a backyard landscape. All these are the cost of materials and makeup one of the most significant parts of the
expense side of the equation. If you’re living job to job, your expenses could be higher as you buy materials specifically for the job, always rent equipment when you should have bought it, and can buy more than you need.
It’s not only essential to know how much all your materials are costing you so you can properly charge a customer, but it’s also essential because you may be overspending. As the cost of materials has gone up, with some wholesale growers paying 12-14% higher costs because of inflation, the cost of materials has risen significantly. As a result, there are plant shortages in some places, fuel has increased by more than 50%, and supplies from local garden centers might not be as cheap as you think it is.
One way to combat this and double your profits is to find cheaper materials elsewhere. You can use a wholesale network to find supplies and not rely on your garden center. Find more affordable products, but keep the job price the same, and you can start to move towards doubling your profits.
Labor Cost for the job
Since landscapers need crews to complete the job to make a profit, labor costs can be seen on most any landscaping job. It’s one of the most significant expenses in the revenue calculation. With minimum wages rising across the country and a push for an ever higher federal minimum wage, labour prices are only increasing.
One part many employers miss is wasted hours – the hours that crews waste not actually working but still getting paid. That includes things like driving times, traffic problems that cause delays, and even the coffee break.
While you can’t get rid of labor to finish a landscaping job, you can still double your profits if you manage it properly. That may include managing your crew’s time using punch card systems or paying them on a per-job basis, not hourly. You might even install GPS trackers to monitor movement to and from job sites.
You can also find subcontractors to help you complete jobs. These contractors may work at a reduced rate than your current crews or be the extra hands you need to bring a project home faster. Make your crews more productive by investing in equipment that will do the job quickly. For example, a mini excavator will dig a hole a lot faster than a crew with a shovel will, saving you long-term work hours.
The costs landscapers don’t factor in
While the cost of materials and labor is obvious, there are two other factors that landscapers need to account for in their net profit calculation. The first is overhead costs. Overhead can include administrative costs like staff and salespeople in your office, office rent, utilities, and insurance.
Many landscapers don’t factor in these costs per job because they don’t directly correlate to the job. Instead, they often use their net profits to pay for overhead, which is a quick way to lose all profit in each job. For example, if your company does 25 jobs a year, then the cost of rent and salaries of your employees would be divided evenly between those 25 jobs to ensure they are covered. That’s because these costs are part of doing business, even if they aren’t directly at the customer’s job site.
The second cost is errors and delays. Weather delays, re-stocking issues, equipment damages and shortages, or even your employees calling in sick can put the project behind schedule. That might mean more hours are needed that you didn’t account for. Once you give your customer a quote, you don’t want to go back and ask for thousands more because you run over due to unforeseen circumstances.
To double your profit, you need recovery systems to ensure you make these costs back on each job. Plan in overhead factors and account for possible errors in your landscaping projects as part of your quotes. The best result is that you don’t have any delays and earn more profit or give your customers a lower bill. In the worst case, you accounted properly for everything, and while you still have delays, you’re not losing profit because of it.
Doubling your business starts with insight into your business
You first need to know your profit per job to double the profit your business gets per job. That means knowing exactly how many hours are going into projects, how much you spend on your materials, the cost of all your overhead, and how much you’ve lost to delays.
That can be challenging if you don’t keep deep records of every job and expense. With landscaping business management software like Manage360, however, you can automatically calculate all of these factors and get an in-depth look at your business. Automatically set up recovery modes to bill back the overhead of your administrative staff on each estimate. Use our integration with LandscapeHub to find wholesalers that may offer lower prices.
Manage360 is an investment in doubling your profit margins. Landscapers who use software make better business decisions because they have all the details and analytics in front of them. Find out more about our Manage360 solution and how it will help you earn double the profit on every construction build job you take.