Profit Margin Talk: Getting a $30,000 Lawn Care Contract

Hey everyone, this is Mike and you're listening to the Landscape Business course podcast. Today we are going to be answering more of your questions from Facebook. If you haven't already, join the Facebook group Landscape Business course, so that way you can ask your questions on the next episode. So today's questions are going to be coming straight from the Facebook group and I look forward to that. Before we get into the show though, a big thank you for the sponsor of today's show, which is the if you haven't already, go to getjobber.com im andy my last name A n D E s and you can try out their software for free. And then for the first six months of paying for the software, you get a discount as well for listening to this podcast. So check it out. Get jobber.com im andys a n D E A N D E s and if you listen to the last episode of Zero Turn, which is where I go in and I try to help landscaping companies, if you watched it on YouTube or on Facebook, you would have met Paul west from Cutting Edge Landscaping. And I talked to him about the need for actually creating a CRM, having all of that information online. When we did the filming with him, he was doing all the scheduling on a big calendar, a big spreadsheet, and just all doing it all by hand on paper. And so I talked with him about the importance of having something like Jobber that's going to keep track of your expenses, keep track of your scheduling, keep track of your routing, your financials. All of that is so important to running a smooth operation in this industry. I promise you, you won't regret it. Go check out getjobber.com im andy's so let's go ahead and jump into today's questions again. Last week I answered about five or 10 questions. Today I'm gonna do the same. Finish up the ones that are on the Facebook group. So let's go ahead and get started. Let's see here. Popeye Welty asked. Nope, I already did that one last week. Here we go. Marcus Love this is a question that comes from Marcus Love. We have an opportunity for 30,000, a $30,000 a year contract and it's great and it's a great opportunity for growth. But the scope of work and property is large and extremely overgrown. We are still very small company with only two other guys in the field besides myself. After calculating it out, we would only make about $1,000 a year on the contract. So it's not necessarily worth what they are willing to pay. But More work means I can keep my guys busy. I've tried asking for more, but they will not budge on price. So is it worth it as a stepping stone or should I disregard and move on? Alright, so a couple things here. So basically what sounds like is Marcus is starting his business. He has a couple guys out in the field. This contract is $30,000 a year, but literally a 3% margin because he's only gonna net out about $1,000. My first apprehension is that you haven't done jobs of this size before. And so you're not really confident if you're actually. Your net profit is going to be $1,000. And so I'm just gonna give you the con and I'll give you the pro of this job. So the con is that if you're calculating, calculating out that you're gonna make $1,000 in net profit, there's a good chance you're not accurate. Since you haven't done a lot of these jobs, there's a good chance you could lose 5,000 or you can maybe make 5,000. The problem with these big, big jobs is that it's going to magnify any issues you have in your processes in terms of finding or making sure that the work is profitable. So if you're budgeting out and you're making $1,000, my question is, are you taking into account the fact that.

You might need to get more equipment, that you're gonna break stuff more, Cause now there's more work, you're gonna have other overhead that you're not thinking about. When you increase revenue and you increase payroll, your insurance is gonna go up. Now you're gonna burn through more gas. Like, are you thinking about all those overhead items and those indirect costs that are not necessarily booked directly into just what you might be thinking about in terms of just how much labor is gonna take to do the work or how much debris you're gonna take off and direct stuff. You might be. Forget indirect things. And so I would be cautious if you're doing a job that's $30,000, for example, and you've never done jobs that are over $3,000. I'd be really careful about a job that is so low in profit margin because there's a really good chance you're not even thinking about some of the things that might be coming up as cost. So that's a con. Another con might be.

Really that, like I said, you don't know what your numbers necessarily are and you could lose a lot of money on this one. And 3% margin is horrible. Like, I do not want to be in that game. And this is why I talk so much about, you know, Augusta Lawn Care and our franchises. We're focusing on the affluent retiree that's gonna be a residential customer. The reason we're doing that is for this very sake right here. A $30,000 a year contract is probably going to be for a commercial property or a residential massive one. And if they have leverage to tell you what the price is, there's a good chance they have a lot of people bidding on it. And so that's how they're able to get that number so low. And so that's why I'm not a big fan of these type of clients. $30,000 contract is something that a big company could come in and take a loss on. They could do it for 25,000 just to get the business and break into the market if they're trying to come into your place, into your territory. And so there's a reason why I'm not a huge fan of commercial. It's such low. I see commercial companies running a 3 to 7% profit margin on their entire operation. That means that their contracts are 3, 4, 5% net profit on these big mowing jobs and things. And that's just not a business I want to run. I want to be at least 10% net profit. I'm shooting more for 20%. 15% is kind of like a very good business. If you're running 15%, 20 is amazing. Like, incredible. You're doing great things with systems and things like that. In this industry, 10% is pretty much average. And 5%, like, you're very, very. You're risking it big time. And so to be at 3% on this job, I don't like those numbers. A lot of work. $30,000 is not like you just push yes or accept and you get $1,000. Cause that's your net profit. There's a lot of work stress things that go into that. And you have to ask yourself whether or not you're willing to do that for $1,000. You're not doing this for a $30,000 project. At the end of the day, let's assume that your numbers are all right and you're gonna make one. You have to ask yourself the question, is all this headache and all the questions and the back and forth with the customer and routing everyone specially for that job and giving them designated days. Like, is it because you only have two people, so you might have to designate days, and then you are not able to do a five, six day install because you have to do that big project. And so are you willing to do all of that for a year for a thousand bucks? Again, just another thing to think about, the positive aspect, like you said, it keeps the guys busy. I just don't feel like with two crew members, it is imperative that you go out and get jobs that you're breaking even or losing on. So, like last week I talked about pro labor services and the handyman stuff we did that basically broke even during the winter months so that we could keep the guys busy. And so I see where you're coming from on that. My only apprehension is that this $30,000 project, this contract, is going to go across the whole year when you could be having that crew going out and doing other work that's more profitable. That isn't 3%. That's like 20% or 30% margin. And so I'd be careful to basically take your workforce, your two guys, and dedicate them to this job when if you're planning on growing anymore outside of this contract, you could be giving up really profitable work that you could otherwise be. And so again, the pro is that you do keep people busy. If that's something that this contract would allow for a bunch in the winter, for example, or in your slow months, and you're gonna be able to do a bunch of work during those periods of time, maybe that's something that you want to think about. But with two people, usually you're not thinking as much about keeping them busy during the winter months. Usually you can lay them off. Usually you can let them go on unemployment. And I just wouldn't. I don't think that the.

The $1,000 that you're going to get from this contract is worth all of the time and effort expended on the client and customer service. Just my opinion. I would disregard it and move on if I was you, because there's so much work out there. I would spend the time that you would otherwise be dedicating to the customer service, to sales, keeping up with the account. I would take that time, put it over into marketing door hangers, knocking on doors, introducing yourself to other people, and go get work from them. That's gonna be higher margin and you'll make $1,000 on one cleanup instead of $1,000 over the course of an entire year on a big contract. Paul West. Oh, look at that. So Paul was the one I was just referring to that was in episode one of season two of zero Turn. So if you haven't watched that. Make sure you check it out. And Paul is just a few hours drive from where I'm at. So Paul asks a question. He says, does your est. Oh, I remember this question. This is a good one. Does your estimator also work in the field? Have you ever had a situation where the estimator bid a job for X hours and it took a lot longer, resulting in the workers blaming the estimator? The estimator could also make a case to blame the workers for not finishing the job fast enough. I can see this creating a problem between employees, especially if they are getting paid by performance. So this is a really good question. So pay by performance, they get paid based on budgeted hours. That's how we work at Augusta Lawn Care. And so, yes, the estimator that is at Augusta now, because I'm not there doing estimates, he has worked in the field before, and so that's how he developed his skill set. And now he's an estimator. So what Paul is saying is like, well, if the estimator wants to close more jobs, they could just reduce the amount of budgeted hours, close more deals, and then the guys in the field then are gonna get paid less because the budget hours are too low. And so the way that you make sure that this isn't an issue is that you don't pay the estimator based upon the deals that they close and the revenue that they bring in. So I talked about this a couple episodes ago on commissions, about why I'm against commissions for a salesperson, even just strictly based upon top line revenue, because then they can just sell all the work they want at say, a 20% discount. They sell a lot more work. But that 20% discount is your margin on the job. And so I don't pay my estimator a bonus based upon the top line revenue. It's all based on bottom line revenue. So that way he still wants more hours on the job. He wants to maximize budgeted hours, which then in turn makes the crew happy as well. And so there are gonna be times when the estimator budgets his hours too low. And then the crew, it's very hard for them to get the job done in that allotted time. And in that case, though, it's just one of like, they just realize there's human error and that there's going to be jobs where the vice versa happens and we don't take the money away from them in that case. So if they get a job that's 100 hours and they get it done in 55 or 60, they're still going to get paid for 100. But they're also going to know that if there was a job that was 40 hours and it takes them 50 hours that.

They are going to get paid for 40. And so there's just that give and take. And then you just got to make sure that there's a bottom threshold that so you can't legally pay people less than minimum wage. And so you just can't. So if the job takes 100 hours and there is budgeted for 20, like you have to make sure that the 20 hours that you're going to pay them is at least minimum wage in your state. And so we have an imposed, self imposed $18 per hour floor that we put on that's kind of like our minimum wage. And so even if a job is doing really terribly, they're not getting a huge pay cut, they're just getting 18. So basically getting them to accept if you're trying to switch to pay by performance, a great way to do that is raise the floor to the point where if they have a horrible job and have a horrible day or a horrible week, the least they can make is just a little bit less than what they would otherwise. So I hope that helps. But basically two things. Yes, the estimator has worked in the field, so that's how they get to know the crew really good. They get to know the work really good. They have a really good understanding of how many hours it does take to do certain jobs. And if they make a mistake that there is a floor that the employees are still going to get paid like a minimum, they're not going to go down to nothing. And then also knowing that the estimator is not paid based upon how many deals they close, even though it's something we track, they're not paid based upon the closing ratio. Even though it's something we track, they're getting paid on something that's bottom line profit and that's where their commissions are coming in. So they still want to sell the job at the maximum price and the maximum amount of budgeted hours, which then in turn helps the employees that are actually performing the work and installing the work. Yovoni Leal asked a question. Best system to read blueprints that gives account name of materials to be installed. Best system to use to create a landscape design. So this is not my expertise. If you go onto Landscape Business Group, which you are on Yovani look, just search for landscape design software in the search bar and there's a couple posts that were earlier this year that would point you in the right direction. We don't do a bunch of design. We do free sketches. And literally the estimator can spend like 15 or 20 minutes. You can get one of those eight and a half by 11 plastic. What is the word? Not diagram, they're called. There's a stencil. You can get stencils that are really good for landscape designs and you can make sketches really quickly. We do this for free for our clients, but if they want like a 3D design or they want to scale, like really elaborate, lots and lots of work, it takes several hours, we just refer them to a designer. And so there's several people that we work with locally that just do designs. And so we ship it off to them. 99% of the time they're like, oh, we don't need like a design. A sketch is totally fine. They just need kind of visualize something or they need to see that, like, you have what they have in their mind is in your mind before they just go ahead and accept the job. So things that are a little more intricate, we do give. We do sketches for free, and that's part of their estimate. But then if they want like a design, 3D or anything more complicated, they are going to get referred to a designing company, a design group. And then if there's a bunch of sourcing of materials and plants that out of the ordinary, it's not just like standard materials. Like, it's like 15 or 20 different types of plants and they're from multiple of our sources, and we have to like spend a bunch of time that's going to be factored into the estimate. So we're going to budget in sourcing materials as a line item in that estimate. But I'm not the pro at landscape design software. I've used one or two, but, like, not enough to be able to give a really good recommendation. T Ryan Griffin asks, could you do a breakdown of overhead cost, direct versus indirect, and what all should we be looking into? I sure. Sorry, I'm just reading it. I sure. Those interested. Oh, I'm sure those interested in a franchise would like to hear about this as well. I know you did a video on hourly rate, but it seems to be focused on labor more than overhead. Yeah, so there's a really specific reason why I stay really focused on not giving a huge amount of detail on overhead percentages and things. Because for every different type of service in this industry, your overhead's gonna vary big time, even with profit margins, right? So, like, it's very hard. Like, really a landscape, a mowing company that does commercial maintenance is literally a different business than a residential hardscaping installer. Like, it's a different business completely. Numbers, percentages, labor percentages, everything. And so it's very hard for me to give overhead numbers. And so I hope you understand. I'm not trying to like, be weird about it. It's just that, like, me giving you numbers is like literally taking a dart. I could tell you what Augustas are and that might help, but if you don't have a model just like Augusta and you're doing like ponds or you're doing like tree work or you do other stuff, it just can really throw things off. So I'm not trying to evade that question on direct and indirect and overhead. It's just that literally it'd be like me saying a blanket statement on business boot camp podcast for a bunch of different industries. Because like I said, a mowing commercial business, a commercial mowing company versus a residential hardscaping install, like, completely different P&LS, completely different balance sheets, completely different structure and business model completely. And so for me to give percentages on like, even like office indirect labor, like office and the estimator, for example, like, that percentage is going to be much, much lower if you have 1200 customers that are all mowing. Now if you have 10 customers and they're all 40, $50,000 hardscaping jobs, the percentage has just totally changed because now you got, if you're doing hardscaping stuff, you got cost of goods sold, which is like your materials and things. So there's a lot of other functions and things in there. Labor is one of those things that's easy to calculate because you have budgeted hours and you have actual hours and then you also have total revenue versus you can literally just track how much money is going to the employee. But again, that percentage, that labor burden percentage, that percentage of revenue that goes to the employees is going to change completely based upon the type of work you're doing. Because if you have a $50,000 install but 20% or $10,000 is cost of goods sold, and just like materials, then it throws that that percentage of.

Revenue that's going towards the employees is going to be lower simply due to the fact that you have a cogs instead of a maintenance where it's just straight labor. So I hope I didn't throw anyone off there, but basically the reason I don't give a lot of percentages about like, okay, Your insurance should be like 2% and then your gas should be like 3 to 4% and.

Giving you a bunch of ranges and things. The reason I don't do that is because I've just seen so many different companies in this industry that are so different and successful, like very good. Either one can be really successful, but their percentages. To try to emulate someone else's percentages without knowing the business model they're using is like shooting in the dark. So me just throwing out numbers would confuse some people because they'd be like, well, I'm way higher. And then some other people are like, oh, I'm way lower than that. And then they're second guessing themselves. And that's not what I want to do. So that's why I don't talk a whole lot about it. Because this industry has so many different.

Ways to make money and different business models. Like some people do have estimators and it's like high touch and you go talk to every single mowing customer. Other people do it over the Internet and just map it out on Google Maps or something to figure out what their mowing price is. So that's gonna change overhead, right? And so to tell someone, oh, you're too low or you're too high is just wrong for me to do because someone can have a different business model than me. They can have a different business model than someone else and still be successful at. Right. Like obviously there's companies that are in commercial mowing making money. Like, I'm not saying you shouldn't do it, but like, it's just for me, I would rather be focused on higher profit margin clients that aren't gonna be less price sensitive. That's just me. There is money still in it, but their numbers are gonna be different. They're not going to be paying as high a percentage of revenue towards their employees. They're gonna have usually higher labor, less cost of goods sold if they're commercial maintenance. Right. So there's lots of different things that go into it. So I don't really want to share a whole bunch about that. I hope that makes sense. And T. Ryan, I know we've talked directly one on one about the franchise thing. So if you actually have questions about the franchise and kind of the overhead stuff there, you already have my email and phone number and everything. Thomas. Thomas is one of our franchisees. He is over in Littleton, Colorado. Thomas asks, how does one go about adding the turf spraying service to the business without having to first work for a company or get A degree in that department. I have spoke with two different states, and they required one or the other. I'm sure every area has its own unique process, but I am curious of how you guys went about it. You rock, Mike. Okay, so, yeah, so spraying chemicals, all that, you have to talk to your local authority group, you know, whether it be the Department of Agriculture, usda, where you got. You got to figure that out in your local area. There's different. Every single state has different regulations. So we just had an inspection, like, three months ago, and they come through, and they, like, the state comes through and searches, like, all our trailers where we keep chemicals, how we keep track of things. And then they tell you, like, things that you need to get done right away, things that they would suggest, and then things you're doing good at. And so, like, for instance, they really liked the way that we organized our fertilizers. And he actually took some pictures so he could use it for training. Then there's other things, like, he's like, hey, the way you measure some of these chemicals, the way you dispose of the chemical.

Containers afterwards, like, they should be improving in this category, whatever, and so you can get them to come out and do an inspection for you. Every single state's gonna be different on, number one, how much they actually regulate it. Some states do not. Like, literally, they'll slap you on the hand, be like, they'll never fine you. They'll never do anything like that. Some states are not like that. The big thing is, if you're spraying and a big part of your business is spraying and chemicals, you should go get certified, because the last thing you need is to have your business wiped out because 30, 40% of your revenue gets eliminated due to the fact that you're not in compliance. Now, if you're, like, 3, 4%, I'll leave that to you. But, like, when you have a. If you're turf spraying, you've invested $20,000 in a really nice system for spraying, and you have all the chemicals, and you have tanks and all that sort of thing, and the nozzles and the tanks and, like, all that stuff, you should go. You should go get certified. And yes, sometimes they're going to require that you go get experience elsewhere. And the reason for that is because it works. Like, I would still recommend that you do that, even if it's. You literally go across state for a week and just say, hey, I'll work for free, or I'll work for minimum wage, or, like, run me through an intern just so I can get some experience or whatever your state is requiring that's optimal. Now, if you're starting your business and you already own a business, it's gonna be tough to go to another company and them give you training basically, or like work for them for free even. So how do you get around that? You know, you probably have to go through more training with your state. Again, every single state is different. In our state, we are not required to have experience to get the license. You just gotta pass the tests. And so every single state's gonna be different.

And I would just say that if a bunch of your revenue is coming from spraying, fertilization, weed control, et cetera, make sure you have the licenses, make sure that you get inspected. And I would just try, if your state allows it, depending on how much experience they want you to have, to try to go somewhere and work for free or work your competitor down the street is not gonna let you come work on their spray truck if you're competing with them because they know what you're doing. But if you go across state or you do something like that, perhaps that is helpful. And then like I said, most of the time, most states what I've seen that you can go and get just more training instead of getting the additional experience requirement. But every single state is different. Like you said, Thomas. So if you have specific question about Colorado, Thomas, I can go through that with you one on one. So I'm gonna stop it there for today. I hope that some of those questions you maybe have thought about before and some of the answers were helpful today. If you have a question, make sure you go on the Facebook group. And I know some of those things about, like overhead and things. I went a little bit deeper, started rambling maybe a little bit, but I try not to do that here on the podcast. Try to keep it as kind of broad as possible for everyone to get something out of. So I appreciate all of your feedback. If you have a question and you're on Facebook or on YouTube, post your question below. If you're not on the Facebook group or you don't have Facebook and you're on YouTube and I'd love to answer that on the next episode. So thank you so much and have a great day.