Whether you’re starting your first lawn care business from scratch, or you have one already, your main goal is to bring in and increase profits. But, how exactly do you do that?
We’ve consulted two industry experts, Phil Sarros and Edward Ramsden, to make sure that your questions are answered.
Phil is the Director of Education at Dirt Monkey University and is a long time lawn and landscaping industry entrepreneur. Ed owns Enviromasters Lawn Care Edmonton, and has been running his business since 2009.
In this article, we’ll answer some of the most asked questions about profitable lawn care businesses, such as:
What is the difference between gross and net profit?
You’ve likely heard the terms before, but what exactly do they mean when it comes to your lawn care business?
Gross profit is all the money you make in sales, minus the cost of goods.
Phil Sarros explains,
“the cost of goods sold is the amount of money that you spend on items that are directly related to the production of a job. The most common item here is going to be your materials. But, it could also be your subcontractors, or your equipment.”
So, in a lawn care business, the cost of goods is generally made up of the materials required to complete a job.
Net profit is your gross profit minus your overhead costs. Your overhead costs are usually made up of recurring bills, like phones, vehicle leases, office space, etc.
When you’re running the numbers to figure out your costs versus profitability, make sure to separate your expenses into the cost of goods and overhead. Then, when you’re pricing jobs or setting goals, you’ll have a clear idea of your net and gross profit for each job.
This can help you to set growth goals, adjust pricing for certain services, and show you where you gain and lose the most profit.
Are lawn care businesses profitable?
Whether your lawn care business is successful depends on what you put into it. To have a successful lawn care business, you should focus on:
- Targeting certain customers (for example, residential or commercial)
- Marketing through advertisements, social media, referral programs, etc.
- Building an awesome lawn care website
- Hiring the right types of workers
- Pricing your lawn care services accurately and consistently
- Providing accurate quotes to clients
- Tracking your revenue and profit accurately
Aside from making an effort with marketing, you’ll also need to keep an eye on your numbers, like the cost of goods, overhead, and cashflow.
A key aspect of your potential success is to strike a healthy balance between growth and profit.
In other words, if you can scale and grow your business strategically and carefully, then you can run a profitable lawn care business.
How much do lawn care businesses make?
According to Phil, “40% is the ideal profit margin.”
He continues to explain:
“There’s a whole lot of different ratios and numbers that indicate a warning or if you should move forward. Some of those numbers are your labor to revenue percentage.
What’s your labor cost relative to your revenue cost? What is your material to revenue percentage? How much are your materials running relative to your job?”
The best way to know if you are hitting your profit margin goals is to track each job and all the costs related to it.
For example, for a residential mowing job, figure out exactly what labor, materials, taxes, and overhead come to. Then, compare it to what you charged to complete the job.
According to Phil,
“ideally, materials should be 30%. As your materials approach 40%, I would be cautious. Your labor to your total revenue should be at about 25%.”
Phil explains, “I’m not saying that every job you do is going to be 40% profit margin. But, once you understand the bidding and estimating part, targeting specific clientele, and putting out your proposals at 40% margins, you’re going to have the flexibility and the freedom to be able to negotiate with new clients.”
Check your cash flow at least once a week to make sure that you’re staying on track. Phil checks his even more often, “cash flow is something I measure probably twice a week.”
How do I calculate lawn care profits?
Calculating job profit is a quick way to figure out how much money you’re making.
Why calculate job profit? It helps you understand if you’re under-bidding jobs, if there are better ways to get the jobs done, and other strategic decisions you can make to ensure your company is more profitable.
Edward Ramsden, owner of Enviromasters Lawn Care, walks us through how he does job profit calculations below:
Calculating job profit
Ed explains that before you can calculate your job profit, you need to know three things:
- How much you charged for the job.
- The amount of time spent to complete the job. Edward uses Jobber’s time tracking feature to help with this.
- The value of materials used.
“Once you know how much you charged for the job, the time spent to complete the job, and the value of materials used, you can calculate our job profits.”
To calculate the job profit Ed uses the following accounting formula:
Job profit = (Revenue) – (Cost of Goods Sold)
To know revenue and cost of goods sold Ed uses the following formula:
Revenue = how much you charged for the job (excluding tax)
Cost of Goods Sold = ((time spent) x (employee wages)) + material
Let’s look at an example:
Ed charged $85.00 to fertilize a yard and $85.00 to spray the weeds. It took one technician 30 minutes (0.5 hours) to fertilize and one bag of fertilizer. It takes 45 minutes (0.75 hours) to spray the weeds. Ed pays his technicians $18/hour.
Job profit (fertilizer) = $85 – ((0.5 * 18) + 30) = $46.00
Job profit (weed control) = $85 – (0.75 * 18) = $71.50
To turn these numbers into a percentage he calculates the gross job profit margin using this formula:
Gross profit margin = Job profit/revenue
Fertilizer profit margin = $46/$85 = 54%
Weed control profit margin = $71.5//$85 = 84%
This is an example of the calculation Edward made that helped him look at our business in a new way.
“It helped me realize that my weed control services were more profitable than fertilization services,” he explains.
Since realizing this, Ed began offering his clientele more of this new service while ensuring steady profit margins.
Getting started with profit reports
You need to get the information you need to calculate profits. If you use lawn care software, like Jobber, you can head to the Management tab and then select the Visits Report.
This report will give you the date a job was performed, the amount you charged, and the time spent at the job, which can help you calculate your profits quickly and easily.
5 Tips for running a profitable lawn care business
To run a profitable business, you need to know exactly what’s happening with your business finances. This means having a consistent, accurate, and informed view of how much money is coming in and going out.
Once you know that, there are a few different ways you can increase profits without making drastic changes.
1. Increase pricing
Raising your prices is an obvious way to bring in more money, but you need to do it in a way that doesn’t lose existing clients or scare away new ones.
Think small numbers, like 2-3%. While this might seem minimal, over time and several jobs, it’ll make a noticeable difference.
Phil explains, “if you raised your price by 3%, and you have $100 dollar job, now you’re charging $103 for that job. A $1,000 job would be $1030 job.”
2. Lower overhead
Lowering costs doesn’t mean cutting corners.
Maybe you can find a new cell phone provider that offers a cheaper plan or a supplier that offers cheaper materials.
Phil suggests evaluating a number of your bills: “go through your overhead and find a way to reduce,” for example, consider “your cellphone bill, reduce your insurance payment, or lower or renegotiate your rent.”
As with pricing, these numbers don’t have to be huge. Set a small goal and analyze your numbers to see where you think you could save a few dollars.
3. Maximize team efficiency
Take a look at how much each job costs and how it’s divided up. Are there aspects that could be more efficient, or processes that could be streamlined?
For example, If you have two workers on a job, and it only takes one to load up the equipment at the end, what is the second worker doing?
They could hand out flyers to neighbors, complete the client invoice, take pictures of the job, or do something else that needs to be done.
Ed likes to involve his team in efficiency exercises to avoid making them feel overworked or not listened to. “Your staff have a lot of ideas.
Anytime you empower your staff, you get surprising results. They care about doing a good job.”
He asks his team, “how can we become more efficient next year?”
“I start working with them. I ask them, ‘do you think we can get 3 more visits a day?’ Some of the best ideas they had were how we laid out equipment or what equipment we needed in the truck.”
“Sometimes we’d just give them a hundred bucks and tell them to go to Home Depot and go buy what you think is going to be valuable.”
“One crew bought screwdrivers for reels, another bought garbage bags to put over the fertilizer in case it rains.”
4. Lower cost of goods
Phil suggests exploring a number of options:
“You go in there get frugal, find a way to save three percent on that job, make your waste factor a little bit less. Improve your efficiency on how fast the guys load and unload in the morning. Or, don’t let them stop at the gas station on the way to the job.”
Little changes like this can make a huge difference over time as they compound.
5. Bring in more clients
While you always need to pay attention to your bottom line, bringing in clients is the most obvious way to increase profit––it can also be one of the hardest.
You can boost your client roster by upping your marketing game and staying above the competition.
Ready for a more profitable business?
Try Jobber for free and see what difference it can make for your margins.Learn More