The Gross Profit Margin (GPM) Model
Many buyers are willing to pay one year’s worth of gross profit for a book of maintenance or service business. The formula for GPM is basically revenue minus direct costs as follows:
| Lawn maint. | Irr. Service | |
| Revenue | $1,000,000 | $1,000,000 |
| Materials | $75,000 | $150,000 |
| Direct labor | $350,000 | $225,000 |
| Direct labor burden | $105,000 | $65,000 |
| Subcontractors | 0 | 0 |
| Trucks & equipment | $130,000 | $100,000 |
| Rental equipment | $5,000 | 0 |
| Total direct costs |
$665,000 |
$540,000 |
| GPM | $335,000 33.5% | $460,000 46% |
Benchmark GPM ranges for green industry maintenance and service work are as follows:
| Lawn maintenance | 35% | +/- 5% | Includes Mowing |
| Irrigation service | 50% | +/- 5% | |
| Tree work | 35% | +/- 5% | |
| Christmas decorations | 35% | +/- 5% | |
| Lawn fertilization | 55% | +/- 5% | Includes weed and pest control. The |
| EBITDA model is normally used to | |||
| determine value for lawn fertilization. |
Here’s an easy-to-use benchmark evaluation chart for companies with normal, before tax, profit margins – ones around 10% NPM. I included lawn fertilization (or any chemical application business), which normally sells for approximately $1.25 per revenue dollar.
| Type work | Blue-sky | Value per | $1.00 of revenue |
| Lawn maintenance |
$0.35 |
+/- $0.05 |
Includes mowing |
| Irrigation service | $0.50 | +/- $0.05 | |
| Tree work | $0.35 | +/- $0.05 | |
| Christmas decorations | $0.35 | +/- $0.05 | |
| lawn fertilization | $1.25 | +/- $0.25 | To include weed and pest control |
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