Jim Huston GPM

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