Before you can bid on a lawn care job you need to know what your overhead costs are. If you don’t know, then you are bidding blindly and that is the path taken by those lawn care business owners, destined for failure.
You can prevent failure from happening when you know you overhead.
Thanks to Brandon for this incredible post in the Gopher Lawn Care Forum. Read more about it and join in on the discussions.
“Figuring out what to charge for each guy and for each piece of equipment is a big part of the equation but there is more to consider. As lxt stated, first you need to know what your operation or overhead cost is per hour. This figure should exclude the cost of owning and operating your large equipment.
For your overhead cost, add up your
- Maintenance expenses
- Cost of small equipment and other annual expenses
Then divide that by the total number of working hours you can put in in a given year (ex: 50wks x 40 = 2000 hrs). That will give you a dollar figure for your overhead per hour of operation.
Payroll Operating Costs:
Then, figure out your payroll operating costs including taxes, insurance, training, etc. if you haven’t already figured this into overhead. Divide your payroll cost by your working hours in a year and you now know the minimum you have to charge for labor to break even on it.
Cost of Equipment:
Add all of these together and you now know what your minimum operating expense per hour is for a three man crew running a bucket truck and chipper. Mind you, I said ‘minimum’ as in break even cost. Now, you have to figure in how much profit per hour you need to make for your own salary (if you’re not included as an employee) and for your business to grow and prosper.
You’re still not done. Now you add the ‘difficulty’ factor to the bid. This is a factor that can be less or more than 100% of your base bid that is determined from your ‘gut feeling’ about the job. For jobs that are extremely easy with little danger or maybe during times when things are a bit slow, you might take your bid times a factor of 0.90 and end up with a final bid smaller than what you normally would charge - BUT, you at least do this knowing what you normally would charge. For difficult jobs that are going to be a major pain in the butt, you might take you bid times a factor greater than 1.0 to give you a cushion for things that might go wrong.
When you come up with your bid price, you should know exactly what your costs associated with the job will be and what your bottomline profit will be. If you can’t sit down and pick out these numbers with every bid that you give then, you are just guessing at your numbers.
If you are new in business, you need to know the bid process before you start throwing numbers out there that someone in another part of the country suggests for you. Would you buy a house on the east coast based off of what someone tells you he paid for his house in Iowa? Doesn’t make sense does it? Well, asking for tree service rates over a forum like this makes about as much sense. Granted, equipment operating costs might be similar coast to coast but labor and overhead differ greatly.
Personally, I get $65/hour here in the midwest for labor and small equipment but I fully understand that someone on the coast might have to get way more than that to cover his overhead and payroll expenses. How did I come up with my rate? Well, every year, I break down my expenses just like I outlined above. I constantly update and tweak my prices based on fuel price changes, insurance, etc. How else can you keep up with the times and stay afloat in a changing economy?
If you are new and don’t yet know what to expect for overhead, payroll and equipment costs, it doesn’t mean you can’t get into business and compete for tree work - it simply means you need to look deeper into what the costs of operation truly are than just generically asking ‘what do I charge for a three man crew with chipper and aerial bucket’? The responses you get, while well-intentioned may be totally unsuitable for your business. Instead, ask folks in your specific region questions like, ‘how much does it cost per hour to operate a morbark tornado chipper and chip truck?’, ‘how much per hour to operate a 1990 F700 forestry truck with hi-ranger boom’?, ‘how much does a $12/hr employee actually cost per hour with taxes, insurance, benefits, etc added in’? And so on and so forth until you know all of your numbers for your specific region.
You can also call your small business association. They have free resources (retired business owners) available to help you put together a business plan and come up with a list of things to factor into operationg costs so you can confidently come up with the right bid for each and every situation. When I first started my own business some 15 years ago, I asked the same questions that are being asked on this forum. However, I asked them of people in my geographic area - not all over the country where operating costs vary dramatically as well as the weather conditions which factor into how many weeks/year you can actually be in operation. If you divide your operating costs by only 35 weeks a year due to a long winter, that will give you much higher hourly operating costs than if you use 50 weeks/year as somone in a warmer climate might.”