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.
- Lets suppose a wage packet of £400 per week is required.
- 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.
- 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.
- 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.
- 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.
- So now we need to divide £680 by the number of productive hours (25) which works out to be £27.20.
- 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%