BEST PRACTICES-MAINTENANCE: To Each His Own

Ask any three contractors their methods for pricing residential maintenance services and you’re sure to yield three different responses. Some use complicated calculations, others simply guess. Some are highly profitable, enlisting spreadsheets and software programs, others aren’t even sure if they’re making money.
 
No matter the method contractors use, it’s clear there’s no set formula. Industry consultant Jim Huston of Englewood, Colo., says the most common method isn’t really a method at all. “The way most people do it is grab a number out of the air, usually it’s an hourly rate,” he says. “You ask them where they got that number and they usually say, ‘That’s what everyone seems to be doing.’” 

This is a dangerous strategy. “It might be in the ballpark of what the market will bear, but they’re probably not making any money,” Huston says.
 
One of the biggest mistakes contractors make is not accounting for drive time in their estimates, Huston says. “A lot of times when guys come up with hourly rates, let’s say $35, they’re only charging for time they’re at the curb.” Forgetting to account for load/unload time, drive time between each residence and the time it takes to drive back to the yard at night could mean the difference between being profitable or losing money. 
 
For typical residential maintenance, including mowing, edging, trimming and blowing, Huston recommends pricing the services as a lawn maintenance package. It speeds up the estimating process without sacrificing accuracy, he says.
 
Essentially, this approach averages a contractor’s costs for the day, accounts for a desired profit margin and then uses a daily rate to determine what price to assign to a residential maintenance job.
 
“A lot of guys get lost in the numbers,” Huston says.  “But the most important thing is for a crew to achieve a daily minimum.”
 
Read on to see Huston’s suggested approach and  three real-life examples from Lawn & Landscape readers from different regions of the country.

NO. 1: THE CONSULTANT

Jim Huston, consultant

J.R. Huston Enterprises, Englewood, Colo.

How it works: Create a day rate for crews – the amount the crew has to bill every day to cover all costs and be profitable. Setting daily goals for crews is a good way to track and ensure profitability and forecast a crew’s seasonal revenue.

1. Determine labor and equipment requirements for a typical day.
2. Calculate productions costs, including production labor (the total number of hours per day minus drive time) and    equipment costs (the cost per hour to run a piece of equipment multiplied by the average number of hours a mower,    blower, edger or trimmer will be used in production).
3. Next calculate “general conditions,” which include load/unload and drive time and the crew truck/
 trailer costs. Add “margins and markups,” including sales tax, labor burden and general and
 administrative overhead. After subtotaling these numbers, you’ve reached your break-even point.
4. Add a net profit margin and a contingency factor (if desired) to the break-even point to arrive at a price
 for a generic day for your maintenance package.
5. Calculate the curb-time man-hour rate by dividing the total daily price by the production hours and
 multiplying it by the number of people on your crew.
6. Use this rate to bid residential jobs by applying it to the amount of time a crew will spend at a
 particular job.

Why it works: By creating a daily billable goal for the crews, contractors are able to easily monitor their profitability every day. “You’re making money and being profitable every day you hit this number.” One key to this method is accurate estimating for how long a job will take. “It really all boils down to time,” Huston says. 

Sample pricing: Following the steps outlined above, Huston shows how to create an average daily rate for a two-man crew where the crew average wage is $10 per hour. (Note: The costs and percentages used are for illustration purposes only. Labor costs, equipment costs, etc., will vary from contractor to contractor.

1. Determine labor and equipment requirements.
 A. Labor

• Crew average wage: $10/hour; labor burden: 30%; overtime factor (50 hours/week; 10 hours/day): 10%; risk     factor: 10%; overhead per hour: $8/hour

B. Equipment

• Crew truck with trailer: $8/hour; 36-inch walk-behind mower: $5/hour; 21-inch mower: $3/hour; blower:     $3/hour; edger: $3/hour; stick trimmer: $3/hour

2. Calculate production costs.
 A. Assuming the two-man crew works a 10-hour day with drive time and load/unload time of two-hours
 a day per man (four man-hours a day); there are 16 production labor hours per day. At a rate of $12 per
 man per hour ($10 crew average wage with 10 percent overtime factor and 10 percent risk factor), that
 equals $192 production man-hours.

B. Assuming the following equipment usage times and above costs per hours, it will cost $48 to run the
 equipment. 

• 36-inch walk-behind mower: 6 hours
• 21-inch mower: 2 hours
• Edger and stick trimmer: 4 hours

3. Calculate general conditions.
 A. Four hours of load/unload and drive time at a rate of $12 equals $48.
 B. Also included here are the crew truck/trailer costs at $8 per hour for 8 hours for a total of $64.

C. Add markups and margins:

• Sales tax: $0
• 30 percent labor burden: $72
• General and administrative overhead: (Number of man-hours x overhead per hour)=(20 x $8)=$160
• You’ve arrived at your typical daily break-even point, $584. Break-even point=(Total direct costs +
    G&A overhead)

4. Add net profit margin and contingency factor (if desired). In this example if you add $65 for a 10% net
profit margin, you’ll arrive at a $649 (rounded to $650) daily total price.
5. Calculate the curb-time man-hour rate.  Divide the total daily price by the production hours ($650/16 on-site man-hours = $40.63 curb-time man-hour rate) and multiply by the number of crew members: $41 x 2 = $82 per curb crew hour.
6. Use this rate to bid jobs by applying it to the amount of time a crew will spend at a particular job.

For a job site that requires a half-hour of curb time: .5 hour x $82 = $41 per visit to the job site. Huston notes that using these numbers, this fictional crew would bring in gross revenue of $135,000 per 40-week season with a net profit of $13,500.

NO. 2: THE EDUCATED GUESSER

Russell Hunt, owner

Total Lawn Care, Steubenville, Ohio

How it works: Russell Hunt says he arrived at the price of his weekly mowing service for residential clients through experience. He’s been in business for 10 years, and has identified his per-man-hour prices for each segment of his business. For his weekly mowing service, which includes mowing, blowing, edging and trimming, Hunt sets a minimum price of $40 per visit.

“We keep it to a set minimum, that way everyone’s on the same playing field,” Hunt says. “We won’t mow anything for less than $40 per cut. Then we work up from there.”

Things that could add to the price: add-on services (fertilizing, weed control, etc.), a fence that would require the crew to use a push mower, a steep hill or excessive trimming or edging. The price goes up (at a $40 per-hour rate) by the amount of time Hunt estimates the job to take.

Why it works: Hunt is confident in his estimating skills and prices. At his company’s current size, he’s able to personally estimate every job. Though he doesn’t measure every inch of the property like some firms do, Hunt says he’s usually right on when estimating his crews’ production abilities.
 “I try to get out and meet every customer. I think it’s very important,” Hunt says. “Anyone can spout a price over the phone. I want to sell them on the job before I even tell them the price. Once they see what they’re getting, it’s going to be easier for them to understand the cost. “The most important thing in this business that someone told me a long time ago is you have to price the job to get the job done, you can’t price the job to get the job,” he adds.

Sample pricing:
For Hunt’s weekly mowing service at a typical eastern Ohio 7,500- to 10,000-square-foot yard, he charges a $40 minimum. In this per-hour maintenance price he’s accounted for his labor, labor burden, overhead, equipment costs, travel time and profit.

NO. 3: THE CALCULATOR

Paul Wieting, owner

Seagull Lawn Services, Houston

How it works: After visiting a residential account and measuring the length and width of the yard, Paul Wieting calculates square footage and estimates edging and trimming lengths. He then assesses how long this property will take to maintain according to production rates he’s refined in the field by timing himself repetitively. He also counts interferences (trees, mailboxes, gates, etc.) and adds 30 seconds per obstacle (which accounts for both mowing and trimming).

Wieting has calculated a total per-hour cost of $18.70, which includes labor, labor burden, equipment costs and a 10-percent contingency factor. To that he includes a multiplier for liability insurance (2.4 percent) and state sales tax (8.25 percent). Finally, he accounts for 25 percent of what he calls “raw profit” – which he breaks down as 10 percent pure profit, 10 percent supervision, administration, advertising and office expense and 5 percent retained earnings. The result is a $28 per-hour rate.

Additionally, rather than charging clients a drive time and load/unload time specific to their accounts, Wieting has measured his route and divided it by the number of stops to identify a six-minute travel time per account. This six-minute drive time (12 man minutes) plus six minutes load/unload time (12 man minutes) amounts to $11.20 and is added to the price for each job. Clients who are neighbors (and don’t require re-loading of the truck and trailer) split the travel and load-time fee, thus each household receives a discount of $5.60. “Where I’m successful I become more successful, where I’m not it will guide my business away,” Wieting explains.

Why it works: Wieting’s methodical, “home-grown” approach works well because as the owner of a two-man operation, he’s able to measure every property himself. “I might get to the point where I stop measuring because I’ve gained pattern recognition,” Wieting says, “but I don’t know that I’ll ever get big enough that I won’t go look at everyone’s yard.” Additionally, Wieting created the company’s production rates by timing himself and can enforce them because he works on the crew. “I’m 55 years old. If I have a 25-year-old working for me I can really enforce these rates – they just have to keep up with me.”

Sample pricing: Wieting shared an example, assuming a property with 7,500 square feet of turf, 300 feet of trimming and 300 feet of edging, plus 16 “interferences.”

Mowing: $7.45 (.266 hours at $28 per hour)

Interferences: $3.47 (.133 hours at $28 per hour)

Trimming/edging: $4.66 (.166 hours at $28 per hour)

Travel time: $11.60

TOTAL: $27.04; would round to $27

NO. 4: THE MEASURER

Jeff Bowen, president

Images of Green, Stuart, Fla.

How it works: “If it’s a brand-new yard, we’ll measure it up,” President Jeff Bowen says. “We’ll quantify it completely – how much grass is there? How many trees? How much edging?”

Bowen learned this method, what he calls “squares and linears,” from The Brickman Group, where he worked for seven years before founding his own firm in 1995. “I’m sure they still teach their estimators the same thing – how to quantify a yard.”

These details are entered into an Excel spreadsheet. The spreadsheet then applies labor hours based on production rates to each task, and in turn, dollars are assigned to the labor requirements. The spreadsheet also accounts for the type of equipment used for each task. “We end up getting a dollar amount per occurrence and then the spreadsheet multiplies it and comes up with an annual number.” The annual price is then broken down evenly for a monthly rate. “We don’t write any contracts for less than two years,” Bowen says.

Why it works: Using a spreadsheet to calculate prices ensures uniformity across the organization, especially considering that Bowen isn’t the company’s sole estimator; account managers typically conduct this task. It also nearly eliminates the chance for mathematical error. In addition, Bowen knows the production rates that are applied in the spreadsheet are accurate or possibly even conservative.

“How did we get these rates? By making our own time trials,” he says. “We looked at how long it takes to do a normal yard and the edging numbers come from me – I measured them myself,” Bowen says. “So if anything, the estimate might come in high because I probably edge a lot slower than some of my young employees.”

In addition, Images of Green is diligent about adjusting its costs every spring based on market conditions, fuel costs, labor rates and other overhead considerations.

Sample pricing: Bowen’s sample Florida property included mowing 5,000 square feet of turf, 200 linear feet of hard edging, plus line trimming and power blowing the yard. For a one-time job like this, Images of Green would charge $69.