How Much Profit Should Your Lawn Care Business Make? [Numbers Revealed!] Good Profit Margin??

Hey everyone, it's Mike Andes. And today I'm going to be sharing with you how much money you should be making. Take home profit money in your bank account from your lawn care business at each stage of growth. And I also want to encourage you to come to Landscape Summit. It's in January of 2022. We're doing in person. It's only $299 for each ticket. You get all the meals, all the keynotes. It's gonna be an amazing three days of learning on a Thursday, Friday and Saturday. Check it out. Just go to landscapebusinesscourse.com conference in the link below, in the description. Check it. It's gonna be amazing. But today I wanna share some numbers because a lot of times I and anyone else is doing, they're doing justice to their community by not really sharing these numbers. But I wanna give you a benchmark because I read all my comments and someone has commented recently asking, hey, I wanna know, am I making enough compared to everyone else when it comes to my size of business? So I'm gonna talk about, I'm gonna give you actual numbers and percentages of what you should be taking home for yourself personally. However, I'm also going to be giving some caveats to that and in terms of why these numbers might not be reflected in your numbers. So let's just break it down real quick. I'm gonna do four different stages of growth. So revenue, this is gonna be gross revenue and we're gonna do it at $100,000 per year in revenue. We're gonna do $300,000 in annual revenue. We're gonna do $500,000 annual revenue and we're gonna do a 1 million dollar lawn care or landscaping business. Okay? So first of all, we gotta figure out direct labor. Okay? So this is gonna be the direct labor out in the field. So this is not necessarily going to be like if you have office or whatever it might be, but this is direct labor. So revenue at, I'm sorry, at a $100,000 revenue business, direct labor is zero because you can make $100,000 in revenue by yourself. And if anyone tells to get to that, one of two things that's happening. A, you're not being very efficient with your time and you're spending most of your day doing admin work and estimates. But you can do $100,000 worth of labor revenue easily by yourself. And that's the first option. Either A, you're inefficient or B, you're just not charging enough. Because as A solo operator, you should be charging a premium and you should be harvesting your customers, which means you are letting go of the ones that you don't want. You're raising prices consistently each year, and you are charging a premium price. Now, the next thing I'm going to show is what everyone wants to know. And that's like net take home pay. Now, everyone take home pay, everyone is going to say, or some people have said, this is your profit, this is your net profit. This is not your net take home. Okay, well, what I'm assuming here is that we're going to take whatever profits are from the business and you're going to take them home and you're going to live happily ever after. Okay? So yes, I agree that the things I'm gonna talk about right here are considered profit margins. But I'm also assuming that you're gonna take those profits and take them home. Okay? Now if you're talking about what your salary should be, you're not gonna take all of the profits from the business, okay? You might go 20% lower than these numbers in order to keep cash in the business as it grows. There's enough cash reserves, okay? All right, so for $100,000 revenue business, zero direct labor. Cause we're by ourselves, we're solo operators. I believe that someone should be in their bank account, $60,000. This is a 60% implication, 60% profit margin. So 60% of their revenue became take home pay, or again, profit. Now if you want to say, okay, well, this is profit of the business. And I'm going to leave 10,000 in the business just for cash reserves. Well, then 50,000 would be what you'd actually take home. But I'm just going to assume this for the sake of easy numbers. Now, all of the numbers I share today, I'm implying a couple things, okay? Because you will not make $60,000 take home pay your first year of doing $100,000 in revenue. It's very rare. If you actually are taking it from the perspective of you having to buy the truck that first year. You have to buy equipment, you have to license your business and get insurance and all the other things that starting off the business, you're not going to probably get 60% profit, 60% take home pay, you're not going to. So what I'm implying here is twofold. One is that these Numbers is after one year of growing less than 10% because I've always said growth sucks cash. So if I go from 0 to 100,000 in revenue.

That'S A bit of growth, that means that it's gonna suck some of this cash out of the system. So if I'm going from 100,000 to $300,000, like tripling my business in a year, that growth is gonna suck cash. And you're not gonna hit the amount I'm about to share. Now for the $300,000 marker, these numbers that I'm sharing here, these take home pays, these profit margins are going to assume that you have now kind of not plateaued, but you've stopped massive growth and you've taken one year where you've grown less than 10%. And a lot of times you go, I'm not profitable, I'm not profitable. And I ask them what their business is doing in terms of revenue and they're like, well, I doubled last year, I tripled the year before that, and now we're on track for a million. We did 500,000 last year. That's a massive amount of growth. You're gonna suck up all the cash in the business, you're not gonna have a lot of take home pay so you can slow down your growth, stop buying more trucks, you raise your prices, increase margins and stabilize the financials of the business. And when you get. That's why I always say year to three to five, when people start doing that, they stop growing so fast, usually they start actually focusing on profitability. That's where this is at. Okay? This is not first year. I do $300,000 and take home a bunch of money. That's not what's happening here on this board. This is after one year where you've grown less than 10% than the year prior. That's when you start making money in the lawn care business. Because to quench your growth, usually what you're doing is raising prices, increasing margin, not buying as much stuff because you're not growing as much. That's when you start making money. And I'm also assuming that your marketing spend is under 1%. So you're basically not spending any money on marketing. Most of your leads are coming from your website and they're coming from your.

Just word of mouth people that know your customers, they talk to them or you're upselling. Right? So there's not much marketing happening at this stage, what I'm showing today. So just don't expect. The reason I'm saying this, don't expect to build $100,000 business this coming year. And you're like, I'm gonna start a business this spring, I'm gonna do 100,000 revenue. Great. You're probably not gonna have $60,000 profit. Cause you're gonna go buy a truck, which right now, good luck trying to find a truck for under 20 grand. And then your equipment, which you're gonna have to wait three months and you're gonna pay 10 grand, 20, 30.

So trust me, you're not going to make $100,000 business this coming year, including all your equipment expense, all your setup costs, all your insurance, and come up with this. This implies that last year I maybe did $95,000 in revenue. This year I did $100,000, and that's why this is possible. All right, second stage of the business. $300,000 in revenue. I am going to assume that $100,000 is going to be paid out in the form of direct labor. So. So that's basically 33% of my revenue went to labor. So again, this is the ratio. You always want to know, we've talked about this before. What percentage of your revenue is going out the door to labor? So in this case, it's 33%. This is usually going to be like two and a half employees. So during peak season, you'll probably have three, maybe four employees. And then during the winter, you may go down to one or by yourself. So you can actually get as high as probably four employees using this model here during peak season and still be inside this $100,000 range. Now, again, I'm being pretty conservative here. I think you're gonna take around 70 to 75,000. Let's do $75,000. Take home pay. Okay? I've already changed my numbers up on this. Okay? So that's gonna be 25%. Okay? So 25% of my revenue is what I'm gonna consider. I take home pay. And again, that's profit. You could say, then I'm gonna leave 15 and take home 60,000. That's fine. But for the sake of the example, this is this profit. All right, 25% profit margin on the business. All right? At $500,000, I believe that you should probably be paying about $200,000 in direct labor. This is usually because you have now got out of the daily operations in the field. You are now doing estimates. You're doing admin work, hiring, training people. So therefore, this number actually will go up. Okay?

I've talked about this bell curve before, and you're going to see what happens. It's very interesting here. But at 500,000 annual revenue, again, maybe last year I did 480. This year I did 500. And I didn't grow very much. Why? Because I raised prices, I didn't buy more trucks. I'm starting to actually like really harvest the business. Therefore I'm going to probably make right around, let's say, or 500,000. Let's do 80,000. Okay. I'm already off my notes because I make changes like that. So again, at this stage of business, $80,000, if we do the math on that, that's 8. That's about a 20, 16%. I want to say 5. Yeah, it was around 16% profit margin. Now this is why I always talk about this wall that people get in their lawn care business. When they hit 300,000 and they start going towards 500,000, a lot of times they'll usually quit is because you don't make more profit. You literally made like $5,000 more in profit in this example, your profit margin sank almost in half. And the reason for that is because at this stage of business, you've stepped out of the field and you're now doing estimates and admin work. And now you usually get an office person or you get a calling service. Like there's extra expense when you do that. Now our direct labor is actually 40% of our revenue and double, double what we did at 300,000 in revenue because we stepped out of the daily out in the field and now we're not actually producing revenue as an owner. Therefore our margin slips dramatically. This is why, this is why so many people retreat back to doing 300,000 in revenue. Right. When you're doing 30 to 40,000amonth in revenue, that's easier than trying to go to 50 because the 50 are 500,000 in annual revenue is very difficult. To get to. That barrier of getting past that sound barrier of getting past you being in the field doing the work and now you're actually working on the business, doing sales, et cetera. Alright, at a million dollars in revenue. Now this is the interesting part, and again, I've talked about this before, this whole bell curve. Now you're going to spend $350,000 in direct labor and again, I'm assuming kind of a nice blend of some lawn care and some landscaping. If you're doing like hardscaping and construction work, your direct labor is going to be lower because you're going to have this massive cost of goods sold, like the material cost. So it'll inflate your revenue. So $1 million in revenue though. $350,000 in direct labor, and then again, that's 35% you're like, well, why did it go back down? Because now we're achieving economies of scale. Alright? So here we're at 33%. One third of our revenue was being spent towards labor. Then it went up because we got out of the field and started doing estimates and office work and all the rest of it had to hire more people to get the work done. So we actually went up to 40% but it goes back down to 35% because we start achieving economies of scale at a million dollars. Well really past 500,000, up to a million, we start achieving economies of scale which means now we're, we can get more employees with less trucks. We don't need. The percentage of our revenue going out the door to our insurance is actually lower compared to when we had less employees. It's actually lower when we look at our shop expense that we paid $500 for per month is the same shop that we're still at a million, just more trucks on it. So there's so much more economies of scale and you get much more efficient typically. So 35% direct labor. Now at this size business, the first year that you again are kind of harvesting on the business, I believe conservatively you can do 160k. So that's going to be again that same 16% profit margin. Not great, but good. I'm not going to complain. Making 160k a year, that's not bad. A 16% margin. This is the first year though. This is the beautiful thing about when you pass a million dollars in revenue and you just really start honing in the business, you start raising prices, start tweaking things, adjusting it and you're not growing the business a bunch. Right. So like our local office hasn't really grown for the past few years, but every year we're tweaking everything to where that now it's very, very profitable. So again, I'm assuming at a million dollars in revenue that last year I did maybe I did like 940,000. Well this started in a million, so I didn't grow a ton. I probably literally only grew in revenue because I raised my prices. Literally probably didn't get any more customers, no more jobs, no more budgeted hours that owe a compliment. I literally probably just raised my prices to achieve going from 940 to 1 million. That's the year I'm looking at. So if you are going from 500,000 last year to a million dollars this year, you will probably not have $160,000 in your pocket at the end of that year you probably won't because growth sucks cash. To go from 500,000 to a million, you're going to need three or four more trucks or you're going to need five or six more employees. You'll probably need a different shop. All of those things are going to be taken out of what would otherwise be going in your pocket. So I'm always amazed how people complain or not complain. They're concerned or anxious by the fact that they're not making profit, but yet they tripled their business last year. Growth sucks cash. These numbers are implying that you're not growing and that you're growing below 10% year over year, which is usually simply because of price increases. So at this point though, this is what I want to make. Kind of a caveat to this would be, let me make a different marker color. This would be the first year of slowing down growth. So maybe year one, you did 200, then you did 500,000. Year three, like I'm going to a million, like I'm really going for this. Great. But you're not going to make 160,000 profit now. The year after that you're like, you know what, I'm going to raise prices, I'm not going to do any advertising. I'm just going to take what comes through my website and through my website, word of mouth and upsell my existing customers. And I'm gonna make probably just over a million. Just right around a million bucks. I don't need top line revenue to grow. I just want profit. I want money in the bank. That year you're gonna do 160k. Now what's interesting is in the second year without raising your revenue a whole bunch, again less than 10% a year, is when I see the most profits being in a business, I'm gonna assume that this person's probably gonna make 200k and that is the 20% that we all strive for. If you can do a 20% margin business, take home pay after all expenses on a million dollar company, that's great. That's a fantastic lawn care, landscape business. It's running beautifully. At this point is when you're going to start really considering. Well, if I can in year three, make it even a little bit more profitable, you know, year third, third year I can do, you know, if I can get to 250 and make it 25% profitable, but I don't want to actually work at the business at all, I'm going to hire a general manager, I'm going to give them 60k. And I'm happy to make 190k, but not have to be there every day, not do the hiring, not do anything. The admin, the office, all of that can be done by somebody else. That's where the business gets interesting. But again, it takes patience. And if you last year grew by more than 10%, you can almost guarantee yourself that that level of growth you had is sucking cash until you're less than 10% year over year growth, maybe 15%. But unless you're growing below 15, 10%, that growth is changing your bottom line because you're requiring to buy more assets, buy more trucks, hire more people, advertise more. And so until you actually have a year where you're like, look, I'm not gonna grow top line revenue. Cause that's usually an easy ego metric. Let's just be honest. More trucks, more equipment, bigger shop, more employees. How many employees do you have? How many trucks do you have? Once you get over that ego stat and you realize all that really matters is how much I take home. And I'm going to take this year and I'm not going to go from 500 to a million. That's going to take a huge amount of cash, by the way. Instead of doing that, I'm going to take one year, I'm going to raise my prices, I'm not going to spend a bunch of marketing. I'm going to try to solidify the team that I do have.

On my crew so that they can become more solid and there's not this massive churn and I'm hiring people and there's chaos because people are making mistakes. I'm gonna take it easy, raise prices, make it really profitable, and then I'm gonna jump into the next year potentially making that big jump to a million. So I really believe that sometimes you want to stagger your growth. If you're starting to feel wiped out, you're starting to feel tired, if you are starting to feel frustrated, look at what you grew year over year. And a lot of time it's 50, 60, 100, double 200% of what last year's revenue was. And that creates chaos. I've always said growth creates chaos. Growth sucks cash. But once you stabilize your business, you stop growing dramatically and you're really starting to focus on profitability and less than 10% year over year growth. That's when massive profits are available in this industry because the recurring ability, the recurability of lawn care and the fact that I think there's a great, great market and economy right now for landscaping. If you can find people and you might be willing to take a hit down here just to give back to your team, whether it be in health Benefits or doing P4P so they can make more money, that is again, another option to retain your team. Hope that was helpful. I know usually people just say, oh, I'm not going to give an exact number. I'll maybe give some percentages. But I wanted to you give actual numbers from what your revenues are to what you should be taking home. And yes, these numbers get really good as the company has grown, scaled. You have a team in place and there is less growth. Less growth is going to mean more profit, unlike Andes. We'll see you tomorrow.