How to Calculate Profit BEFORE a Job Starts! [Profit %, COGS, Overhead]

Hey everyone, it's Mike Andes and you're listening to the Business Bootcamp podcast. Today I'm going to be using the whiteboard. So if you're just watching or, sorry, listening, definitely want to watch today's video because we're going to be going over how you can actually predict the profit on a landscape job or a mowing job or anything really, any type of service based business. You can predict and know very accurately the profit of a job before you even get the job done. Instead of guessing, instead of throwing up numbers, you actually have a very, very accurate down to the penny knowing what you're going to actually make in profit on a landscape job. Before we get into the show though, a big thank you to today's sponsor, which is Gusto. If you haven't Already, go to gusto.combootcamp Try out their software completely free for 90 days, where you can actually have an app and your employees can clock in and out of, but also see where their money goes on each of their paychecks. Go check it out today. Gusto.com Bootcamp. Let's jump into it. Very excited about this. So we're going to go over some numbers that I wrote down on my notepad. See, look at this. All right, so let's just go ahead and assume right from the get go that some of these numbers might be wrong because I literally jotted this down in about 10 minutes as I just walked in my door here. So let's just assume they might be wrong. But please get the gist of what I'm trying to explain here because it's very, very important to your business. And in my opinion, the biggest downfall of most landscaping and lawn care businesses is that they forget to know their number. They either forget them or they just completely ignore what their numbers are. And knowing what those numbers are, I'm going to make sure that my audio is okay. All right, we are good. Because last time I spent the entire time jumping into Q and A and then it was atrocious. So we're talking about knowing your profit before the job gets started. And I think that a lot of the reason why a lot of landscapers do not know their numbers is we're just growing so fast and like the numbers are changing from month to month. Like you can't say, okay, over the course of a year, I was 15% profit margin. It's really difficult to say that because one month you were 30%, the next month you were 5%, the next month you were 55%. Like, you're up and down and you don't really understand and you're growing so fast. Like at the beginning of the year your overhead was very negligible because you started by yourself and then by the end of the year you have three employees and you have a lot more overhead and there's a lot more cost involved. So let's go ahead though and break down something that I think is so fundamentally important and that is knowing your cost of goods sold, knowing your profit margins, knowing what your overhead percentage is. Okay, so I'm going to show an example. A real example. I shouldn't say a real example. It's a fake example of a real company. There you go. So I'm going to just make up some numbers and we're going to use these for this example. Right? So first all, let's go ahead and do. This is for last year. So last year's numbers here for this landscaping company, we could name it something, but we're not that creative. Okay, so revenue, revenue for last year was $300,000. You know, this type of video gets like hardly any views usually. So if you could hit the like button, I would appreciate it. Because if you don't have equipment or you don't have a reaction video, I don't get a lot of views. So I'd really appreciate a like on these in depth number based videos. Okay, so profit on this company. Feel free to screenshot this one when I'm done because we are going to multiple whiteboards and you're going to want to probably remember this data. All right, so the profit from last year is $40,000. And that's a function of percentage would be 13%. You're like, oh, that's not very good. Okay, well this is after the owner has been paid and we're going to assume this owner is still out in the field.

But this owner has already been paid this $40,000 is like after the owner's been paid, everything has been paid off. And that is the revenue and the profit. Now let's go ahead and break down the cogs. Now the cogs or cost of goods sold includes in this industry primarily three things. You got your wages, like your field worker wages. This is not people that are in the office estimators, office managers, none of that. Just people in the field working. So your wages for them, you got your cost of material. And then you have subcontractors, right? So those are the three major pieces of the landscape industry when it comes to cogs. All right, when I say cogs, I'M talking about cost of goods sold, right? So when someone says, what's your cogs? Your cogs are your cost of goods sold. What that means is what does it cost to actually produce the product or service? This is really, if you think about like a car, this is the cost of goods sold is like the metal, all the rubber, all of the actual people on the production line creating it. Things that are not included in terms of cogs are like administrative fees, office sales, advertising, etc. Okay, so let's go look at the cogs of this, this hypothetical company. Of course, my throat goes out right as I start talking here. All right, so the wages for this company is 150,000. Now for the sake of simplicity, we're going to keep this owner out in the field working and so his wages are going to be included inside of the cogs. Okay? But if he was out of the field, like being an estimator, he didn't actually do any work at producing the service itself. He would not be concerned inside the cog equation. But we don't, we don't want to overcomplicate things because basically his wages would eventually shift over to becoming overhead as the company grows and he is no longer in the field. Okay, so if you're not in the field, if you have a bigger company, which I know most of us listening right now are in this $300,000 zone. So I'm not going to do a million dollar business where the owner's wages are not in cogs. They would be overhead. Alright, stick with me. If you just joined me, you might have to watch some of the previous stuff just to get caught up. All right, now we're going to talk about cost of material. So again, I'm looking at last year's data to get these numbers. Okay, So I did 300,000 in revenue, profited $40,000, which is a 13% margin. And my wages including, I should probably write that in, including owners pay, including owner's pay. So maybe, maybe the owner took $50,000 home and then $100,000 to his employees. Let's just say that for example, all right, cost of material, we're going to put up $40,000. Again, we're looking at last year's profit and loss statement. Now if you're in the landscape hardscape industry, this is going to be a lot higher as a function of percent against your revenue. In this case, his cost of material, maybe some plants, mulch, basic services that he installs, is about, I don't know, 11 13. Somewhere in that percentage of his total revenue doesn't really matter at this point. All right, subcontractor. So maybe he was doing some jobs that he needed to do some subcontracting, and he just did a couple of those. So $5,000 for his subcontractors. All right, so we added up wages. Again, those are direct wages out in the field. We added up wages, cost of materials, and subcontractors to get our total cogs, which is cost of goods sold. And that is going to equal a whopping $195,000. All right, again, I'll probably make some math mistakes in this video, so let's just embrace that and get my. My point here. Right? So let's just hope this kind of keeps working. So at the end of the day, if we take 195 and we divide that up by our total revenue, that means that our cost of goods sold is 65%. Make sure you guys can see this. Okay? Can you see it? Yes. Good. I even took my graphics off so no one would be distracted. You can see the whiteboard completely. So 65% of revenue went to our cost of goods sold. Now, for you to say that that's good or bad or you should have a higher cost cogs or a lower cogs. Trust me, you comparing yourself to people in the green industry is like comparing, like bananas and apples, peaches and pineapples. Like, it's completely different. Because again, if I am hardscape based, my cogs are gonna be a lot higher. If I'm growing and expanding really fast, I'm gonna have more overhead because I'm gonna have a lot of advertising costs. So trying to compare against people like, oh, mine's better than yours. Like, it's not like, trust me, a really high growth company that down the road is gonna be extremely profitable could look really bad when it comes to some of these numbers. Okay, so this is more about knowing your numbers, not comparing your numbers. Okay? There's a reason why I'm not showing you Augusta Lawn Cares or. Or saying that this is the standard you need to be at. That's irrelevant. Knowing your numbers is the first step to actually getting progress and improving those numbers. So 65% in profit. Okay, now if we add this 13%. So we got 13% here, what we're going to come out with is a total remainder of 22% overhead. Okay, let me explain just a second. Overhead equals 22%. Okay? So at the end of the day, when you have overhead plus your profit plus your cost of goods sold, that should equal all of the revenue from the business. Okay, so we have cost of goods sold at $195,000. That's 65% of our whatchamacallit, our revenue. Okay, then we have 13% profit or 40,000. Could do the same. You could convert this over into numbers, and then overhead is going to be at 22%. Okay, so overhead of 22%, profit of 13%. COGS or cost of goods sold of 65%. Okay, now go ahead and take a screenshot of that. Go ahead right now. Boom. So if you, if you're going to compare this letter, take a screenshot now, because now we're going to erase this. We're going to use these numbers. And so if you are the type of person like me, you might want to take notes on this one, because I'm going to be doing a few different whiteboards and going back and using those numbers. Okay, so.

There it is. Okay, cool. All right, so if we are going to try and figure out the, the, the. The profit before a landscape job, there's two things we need to do. Number one, we need to find the overhead percentage. That's why we just did that first step. We found out what our overhead percentage was for last year. So, so step one, our overhead percent over head percentage. Can't write at all. Overhead equal.