A big mistake new lawn care business owners make early on is not knowing what their hourly operating costs are. You need to know this figure to accurately bid jobs and make a profit on each and every job. To calculate this figure, you need to add up all your operating costs for the year and divide that by the total amount of man hours you work during that year. As we will see in this discussion from the Gopher Lawn Care Business Forum, there are many ways you can go off track when calculating these costs, so let’s look at an example to clear up the common errors.
One lawn care business owner wrote “I am having a very difficult time trying to figure out my overhead costs. I am not even sure if I am using the right formula. Right now, I am figuring I work 1400 hrs.(35 weeks) a year at a rate of $20/hr.
But I have seen all kinds of hours like for example:
Overhead/2000 hrs(50 weeks)
I am not sure which one I should be going with. But the fact of the matter is that you can only mow 6 months out the year here in Michigan. Now with that being said, I need a formula that can give me an accurate dollar figure to tell me my overhead cost per hour. Because the truck payment, mortgage/rent, don’t stop coming in just because I am not working in the winter. Can someone simply break this down for me? I know the Gopher Forum has a lawn care business estimate calculator but I need something that is a little more simple to help me understand this better.”
A second lawn care business owner said “at 1,400 hours per year, you will need to be making $29.71 per hour for labor alone if you intend to pay yourself $20 per hour over the course of that entire year.
Here is an example of what I mean:
-52 weeks in a year x 40 hours per week = 2080 hours per year.
-2080 hours x $20 per hour is $41,600 gross income for the year.
-Since you plan to only work 1400 hours, that entire labor has to be absorbed in the 1400 hours. So you divide $41,600 by 1400 = $29.71.
Now this is ONLY the labor costs, not your total overhead costs. To get a true overhead cost, you need to also figure in your equipment costs, advertising costs, fuel, taxes etc.
Now when you see how much more you have to charge because your mowing season is only half the year, it shows you the importance of offering different services to get you through the entire year. For instance, you mentioned you live in Michigan, could you also offer snow plowing services to bring in money when you are not mowing?
The more hours you work throughout the year, the more your overhead costs are spread out across more man hours. Instead of working only 1,400 hours a year, if you can push that to 2,000, you will make more money and be able to lower the costs you have to pass on to the customer per service.
So the key to success with all this is to be accurate with the total amount of hours you are going to work throughout the year and include all of your expenses.
Once you know your hourly operating costs, you will have a better understanding of what you need to bid per job to make it worth your while to perform. Too many lawn care business owners guess at their bid price and think just because they are getting paid to do a job, that they are making money. Nothing can be further from the truth.
You are only making money from a job after your expenses are paid for. Up until that point, you are paying the customer to work for them. When you realize this, you will no doubt be more focused on accurately bidding your lawn care jobs.”
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