The 2 Numbers You MUST Track for Your Lawn Care Business!

Hey everyone, It's Mike Andes, landscapebusinesscourse.com and today we're going to be talking about the two numbers you must know in your lawn care landscaping business, really any home service business that has labor as a part of what you do. So the first thing is, okay, look, everyone says you need to know your numbers, you need to know your numbers. What does that really mean? Like, what numbers do I need to know? Like, we spend a lot of time even in Augusta Lawn Care every single month filling out a scorecard with a whole bunch of numbers. Because it's so important to know your numbers and know exactly what your business is doing to be able to make good decisions for the future of the business. But today I'm gonna give you two numbers you must know. I'm gonna show you how to calculate them, and I'm actually going to give you the range or number that I want you to be shooting for when it comes to these numbers. Now both of these numbers have to do with labor. The reason for that is because labor is the biggest variable expense in most of our businesses, in pretty much all of our businesses. Now, the percentage of your revenue that goes towards labor that we're gonna be calculating here in just going to be lower if you have a lot of materials and you're doing design, build, et cetera. But the more service, the larger function of your revenue is services. Your labor is going to make up a bigger percentage of your expenses. So we'll get into that in just a second. But these are the two numbers I want you to track every single month. Honestly, you can do this every single day if you really wanted to track it. So let's first off talk about the efficiency score. Now how do you calculate the efficiency score? What you got to do is budgeted hours divided by clocked hours.

Now, budgeted hours are going to be found on every single job. Whether it is a 20 minute mowing or whether it is a 5 hour molten stall or a 40 hour paver install, does not matter. Every single job is gonna have budgeted hours. It's gonna be how I also do my estimating because I'm gonna be doing how many budget hours I think the job is gonna take. My budgeted hours and I'm gonna multiply that by the hourly rate I wanna charge my customer and that's gonna give me my price. So if I am going to have a one hour long mow, I look at a lawn that's gonna take me one hour and my hourly rate that I wanna charge the customer $60 an hour. I'm gonna charge them $60 per cut because I think it's gonna take me one budgeted hour. So that's budgeted hour. Every single job needs to have it. So then we're gonna divide that by our clocked hours, and that is going to be obviously, the amount of.

All of our employees. Whether it's just you or all your employees, everyone that is on the clock, from the time they punch in in the morning to the time they punch out at night, that's your clocked hours. And so what you're gonna get here is a percentage. Let's just say, for example, I do 80 budget hours in a week.

In terms of completed 80 budget hours, but I have 100 clocked hours. Maybe I have me and another guy, and I work 50 hours. He works 50 hours. So 100 clocked hours. But on the schedule on the dispatch board, I only completed 80 budgeted hours. This would then impute an 80% efficiency score. All right, now, the goal is to be, in my mind, above 75% for most of our lawn care and landscaping businesses. That is a great target to try to achieve, because the reason is if I was perfectly efficient, and the reason I call this the efficiency score, if I was perfect and I had no waste whatsoever, I would have budget hours equal to clocked hours. But that's almost impossible because I have drive time, I gotta load up materials, I gotta have team meetings, I've gotta go fuel up all my equipment, my truck, and so I'm going to have wasted time. But my goal is to keep that under 25%. In other words, keep my efficiency score above 75. This is a great way to every single one of your employees, every single day. You could technically come with this number. How many budget hours they complete for the day, how many clocks hours did they have for the day, and what percentage is their efficiency score? This is a great thing to know all the time, but we track at least once a month to be able to make sure that there's not waste in the business. If this efficiency score is like 60, 65% or 50 or 55%, you better believe that you are either not putting enough budgeted hours on or you're massively inefficient when it comes to waste. You're driving around, you don't have a dense route for your mowing route. You're spending too much time fueling up and getting things read in the morning. Guys are lily dallying not being efficient. And a lot of these problems that we're talking about today when it comes to labor get fixed by pay for performance, where they actually get paid by how many budget hours they complete in a day. And the higher the score is, the more money they make. So check out landscape business course for more on P4P pay for performance. Now, the other number that you must know in your business when it comes to labor and making sure that you are efficient and profitable is your labor expense as a percentage of revenue. So how do you figure this out? Well, we already know what our total revenue for the month is going to be. So what we're going to do is to total revenue. And this could be again, for the month, for the week, or even for the day. The total revenue that's collected is going to be down here. Now, on the top here, we're going to put our labor expense. So labor expense, and this is literally how much money went out of your pocket as the employer into the pocket of the employee labor expense as a percentage of total revenue. Now, I get really nervous when this number gets above 40%. Okay, so let me just really quickly write down here at the bottom what my goals or my targets are. So here I want to be less than 75%.

Sorry, greater than 75%. I want to be in terms of my efficiency score. And over here, I don't want this to be greater than 40%. Okay, now you might have this really low at like 20%. Again, if you have a lot of materials and supplies and you're doing big design build, because your total revenue is gonna be inflated and your labor expense is gonna be a smaller percentage of your revenue. But for most of us, as a rule of thumb, try to get this under 40%. Now, a lot of us are gonna be between 40 and 50%. If we're just getting started, maybe you're just getting your business going. You're not gonna have a very efficient route. You don't have 10, 10 customers in one neighborhood. You only have one or two. That's going to cause your labor expense as a function of revenue to go up. But the goal is to get that under 40%. You want that under 40%. Now, everyone always asks, well, does that labor expense include the cost and the wages of the owner? It does, and it should if the owner is out in the field working. So this is all the revenue, all the labor expense, I should say, that is being, is being created by everyone out in the field. So if you as the owner are working in the field or doing estimates or involved in daily operations, then yes, the money you take and pay yourself should be a function of labor expense, obviously not the dividends that you take as part of profit sharing, as part of being an owner and owner distributions. But if you're giving yourself a salary or if you are working in the field, you'll need to include your labor expense here, otherwise it's gonna look really, really low. And I just did someone the other day, he has one employee and, and his labor expense to total revenue was like 12%. Well, the reason is because he had one employee, he did 27,000 in revenue, but his labor expense was 12% because he wasn't paying himself on a per hour basis and did not include his wages in the labor expense. However, he is working out in the field and doing a lot of the actual labor, so he would need to include that as a function of labor expense. These are two numbers that are pretty in depth, but I promise you, these are the variable expense numbers you need to know. And that's our own labor. Being able to track it, make sure it is efficient, and making sure that as a percent of your revenue, you're not consistently going above 40%. Now, if you're about 45, 50%, what can you do? You can absolutely become more efficient. You can make sure you have a more rent route, your route is more dense. You can make sure that you're not spending and wasting time in the morning getting your crew set up. You can make sure that you schedule things closer. You can make sure that your estimator isn't traveling three hours to a different property. Restrict how far you're driving away from your shop. These are all things you can do to increase your efficiency and reduce your labor expense as a function of revenue. This is not fun or exciting. This is not trucks or equipment. Most people will not want to watch this video. But if you want to build a successful business with employees and scale it up and grow, these are the type of numbers you must know. I'm Mike Andes, landscapebusinesscourse.com, we'll see you tomorrow.