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There is a simple formula that can give you a very good guide as to what your minimum hourly rate should be.

The formula consists of comparing your income needs and essential expenses to the amount of utilised hours you spend in production. 

Example

  1. Lets suppose a wage packet of £400 per week is required.
  2. Now work out how much you need to cover your NICS, 28 days holiday pay, and pension. Lets say that is £2 per hour or £80 per week.
  3. Now we need to know what our van, machinery, fuel, insurance and servicing and repairs cost. For this figure we are going to say £5.00 per hour or £200 per week.
  4. Now we add those together, £400 + £80 + £200 = £680 per week. So this is the amount of work we need to carry out to be able to put £400 per week in our pocket.

Now we need to know how many hours we are employed by our customers every week, so you need to count up all the hours that you are actually paid to work (productive hours) on your customers property. 

  1. Lets say this figure comes out to be 25 hours a week, the other fifteen hours a week are taken up in drive time etc, etc.
  2. So now we need to divide £680 by the number of productive hours (25) which works out to be £27.20.
  3. So £27.20 is the minimum amount we need to charge per hour to be able to put £400 in our own pocket for personal spending money.

The numbers used in this example are not exact but probably close to the average gardening business.  

If you are a business that employs people (rather than being a one man band) then you also need to add a profit margin, this can be done by using the above formula, (ie £27.20 per hour) and multiplying it by a percentage for a markup.

Some businesses just take their crew payroll figure and multiply it by 200% or more, so if the if the crew payroll came to £1000 per week x 200% = £2000.

If you can get a crew to work efficiently, it has high customer density, and a labour utilisation figure of 75%, then your gross profit margin should be in the region of 60%

(c)

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Replies

  • In reality, even some of the best service companies struggle to get more than 50% productive working hours. To achieve better figures the best thing is to concentrate on getting much higher density by having your customers as close together as possible ((say)1/2 mile apart max), then you may be able to reach 75% utilisation, and much better profitability. (c)

  • PRO Supplier

    Hi Adrian.

    I downloaded a cool spreadsheet from LJN about working out the hourly rate - unfortunetly I can't find it again!

    As Adrian says, other than lots of drive time between bookings, the other big one is 'snagging' on quoted work. Sometimes the smallest things can take a day to fix/put right, killing the margin on that that particular job.

    In terms of average billable hours per day per gardener, what would you consider to be a 'high utilisation'?

    Thanks.

    Mike

    • PRO
      I'm quite lucky now as 14/20 days a month/4week period are all day jobs/contracts so the remaining 6 do have downtime but as everything is close I lose only about an hour a day traveling on the other days
    • First of all I would advise everyone to sell their work as a "price per job" and not as a "price per hour".

      This way you are selling your labour for what the customer thinks the job is worth them paying to have the work done and they are not able to compare to an hourly rate. So in other words if the average garden takes you about an hour, give the potential client a quote for one hours labour x 200% = £x.00, and don't stipulate any time constraints. That means if you do it in half the time you can still charge the same amount.

      The other important point is high density (especially if your charging "price per job". 

      I know of one person that has all his customers in a one mile square area, and has a labour utilisation rate of 91%, which means the crews are actually productive for 7.28 hours a day. He hasn't told me exactly how much a three man crew earns, but working it out from the basic figures that I know he charges, one crew will earn around £4300 per week, and he has several crews.

      • PRO

        Is this from experience in 'your' business, Adrian ?

        • PRO

          Now, now Gary :-))

          I think this thread belongs in the BOG i.e Business Objectives, maybe you would like to join us Adrian? :-))

          • PRO
            Just a simple question. - all in the interests of transparency & clarity ;-))
            • I am assuming this is just an extract from a book or article from somewhere. No issues with this but like to know how this translates into practise for a UK business

              • It translates to businesses everywhere. I first learnt this type of equation when I was on the Time and Motion study team at Perkins Diesel Engines in the 70's.

                Every factory or manufacturer will use a similar formula.

                • Adrian, I didn't say it wasn't relevant or useful. It just has a feel of being a extract from somewhere.

                  As most of us are aware you post things from books as if they are the holy grail but when questioned further about things you magically go quiet....

                  Also I see you didn't respond to Gary again

                  There is a far more useful spreadsheet in the download section which works out for you what you have given above. But it takes into account far more costs that are necessary.

                  I also think that these equations must reflect what you want to achieve out of the business. Some are just looking to tend to gardens are the customer will buy into them and their service.

                  Other on here run multiple teams or specialise in large area mowing and will have different ways to work out their pricing due to other factors
This reply was deleted.

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