Forum

Replies

    • Neal, You must be doing something right then.  Have you been past the hedge since you quoted and has it been done?  You should text him back and see if he tells you how much someone did do it for!


  • Taking the guess work out of pricing.

    There are three basic elements to pricing, the first is the non productive element “Drive Time” to the job, the second is the productive element of carrying out the work to customer requirements, the “Job” itself, and the third is having the right Unit Rate for the job.

    Both the Drive Time and Production have to be charged to, and paid for by the customer in someway or another. If the “Drive Time” is not directly charged to the customer then it will automatically be paid for by a reduction in the job profit, reducing the margin.

    Drive Time can be calculated in different ways. Where the business has high density (a lot of jobs in a small area) the DT can be the average non productive time divided by the number of jobs over the same period.

    So if (say) thirty jobs were completed over the period of thirty hours during a forty hour week, the average DT would be .333” hours per job.

    If the work in not in a high density area and a considerable amount of travelling is need to get to the job, then the DT to get to that location (and back) should be calculated and added to the cost of performing the work as a separate item, and a price produced inclusive of all costs plus margin.

    Another point to take into account which is very important is the Unit Rate. The UR (which is the way that the job is measured and costed), usually “per square meter”, “Per square foot”, or “minutes”, needs to be calculated in such a way as to reflect the actual time that will be needed to complete the job. This may sound quite a simple process at first, but in reality the UR considerably alters depending on the size of the job, and this is true in almost every type of business that has a labour facing element to it. So usually small jobs have a much higher UR than larger jobs.

    So how is a job price calculated. 

    1/ The Drive Time or non productive time needs to be decided and the method of how it is going to be charged.

    2/ The UR needs be calculated by analysing all jobs over the last twelve month period. It has to “12 months” in a seasonal business to take account of each type of job and the varying amount of time that is required to complete each job in each season.

    3/ The hourly rate should be multiplied by the number of working hours in a week (say) 40, then divided by the number of productive hours within that period.

    4/  There are other factors required in building up a hourly rate, such as wages, tax, holiday pay burden, vehicle costs, machinery costs, fuels costs, repairs costs, and any other direct costs, then the profit margin needs to be added to calculate a final price.

    (C)

    • PRO

      Hi Adrian 

      This seems like a very good template to apply to pricing particularly the non productive element drive time . 

      I can see when all costs are considered and applied it will reflect the true cost of doing the job which is a great result if your quote is accepted and you get the work . 

      In price sensitive situations where there are a chain of gardeners / contractors submitting quotes and yours is the highest what is the best policy do you accept this is the case and non negotiable and move on?  or would you consider tweaking one of the Three elements to reduce your costs to get the job supposing your business was coming to a standstill , If so which of the Three elements should you tweak in order to submit a lower quote . many thanks .

      • PRO
        That's a difficult one if you are struggling, but I will not budge on price as I think it makes you look like you either don't know what you are talking about or trying to charge too much in the first place as a couple of examples. Added to that if you get the proper rate you need less clients anyway.
        • PRO

          That's a fair point , It could make you look as if you have artificially inflated the quote allowing you to come back with a cheaper quote , I agree less is more when it comes to having a smaller client base who are paying the required rate . 

          It always seems to me that the variable cost i.e the Hourly rate is the one we sometimes lower to get the work to our own cost .

          • Hi John.

            It doesn't really matter which one you tweak, the result is that your Drive Time will always come out of the profit. it is just something you should be aware of when working out your prices.

            The thing to be aware of and to ask yourself is, "is this job going to make a profit?"

            If it isn't going to make a profit then it is making a loss, in other words you are subsiding the work out of your own pocket. It maybe better not to do the job than to make a loss.

            Here are two extreme examples of what the Drive Time Effect has on profits.

            1/ If one had to travel 100 miles to do a £100 job, the travel time for 200 (return) miles would be about 7 hours, plus one hour for the job. If there is a crew of three, their wages for the day would far exceed the price of the job, and so a £loss would be made.

            2/ If one has all their jobs down the same street there is almost no Drive Time Effect. The crew could earn £800 for the day and make a good profit.

            In reality one should aim to get their jobs as close as possible to each other so the Drive Time Effect is reduced to an absolute minimum. This way you can reduce your prices to be more competitive and still make a profit at the end of every day.

            The ideal labour utilisation would be 75%+ (6 hours of productive work and two hours Drive Time).

            Changing the subject slightly. One should also be aware of their Unit Rate (UR). This is usually the way a job is measured such as per foot, per metre, per minute etc. If you take note of the size of the job you will find that the UR for small jobs is very much higher than that of larger jobs, so taking this into consideration, mowing a 100 Sq M lawn will cost you much more than a 1000 Sq M lawn, per square meter.

            • PRO

              Many thanks for your reply Adrian I find this a useful approach simply having the Three elements identified as such , It should be commonsense but always better when they are articulated as such and then it makes it easier to apply applicable formula to work out costs , Especially this year i am travelling further afield and seems ridiculous and brainless but i had not considered drive time costs and also i like the approach of measuring the job . 

              The thing i recognise most from this is there is the actual true cost of doing the job putting together those Three elements and now i can see i have seriously underestimated many jobs . 

              for me your post clicked some clarity and filled a few voids , Many Thanks ..

              • After crunching the numbers of 6000 jobs it is easy to see that if you have many very small jobs (under 200 square meters) there is going to be a lot of travelling involved.

                The things that effect the price on small jobs jobs are:-Travel Time, the number of times you have to walk back and forwards to the van to get your tools, the number of turns you have to make with the lawn mower when mowing, the amount of fuel used, etc, etc.

                So when you look at the ratio of Time To Do The Job v Size of Job, it is clear that small jobs should have a much higher unit rate (UR) than that of large jobs, and it is also clear that any small job should be charged at nothing less than the 200 Square meter rate.

                So in effect the basic minimum price should start at 200 square meters. 

                It is clear to see from the results that even the smallest maintenance job, for a self employed person working on his own, should be charged out at nothing less than £40. For a company that employs people the minimum price should include a gross profit margin of at least 30%, so that would make the minimum price £52. 

                As the sizes of the job increase the unit rate (UR) decreases, then levels off at about 700 square meters. 

                • PRO
                  That's all very well on paper Andrew but I know for a fact I would be laughed at trying to charge £52 for even the smallest job. I would never get any work.
                  It may be realistic somewhere (central London?) but not here
                • Clear as mud, perhaps. Doing small jobs at £25 minimum charge a sole trader can do very well, and operate as a profit making business. 12 in a day is perfectly achievable for one man, give or take. Operating costs can be below £50/day so do some more practical maths and revise your thinking accordingly. 

                  I do a small grass cut that takes 12 minutes, from pulling up in the van to driving off again.

                  According to your calculations should I suggest I charge £40 for this? I could fit 4 of these in one hour as I have, over the years, made efficiencies in my schedule. So in that one hour from 9-10am on a Wednesday every fortnight I could make £160. If I get this efficient 6 hours a day, working 5 days a week, I could be turning over £19k a month, or £173k a year based on 9 months work. Now THAT I'd like to do!

This reply was deleted.

Landscape industry Jobs

Latest blog post

Trade green waste centres

Start a landscaping business

LJN Sponsor

Advertising

Technical landscaping books

Blogs