One of the most gut-wrenching stories that I have heard came at a recent National Association of Landscape Professionals (NALP) dinner, where I was seated across the table from a successful, but extremely stressed, entrepreneur. In between bites of broccoli and steak, he haltingly narrated what I have come to call the landscape entrepreneur’s “cliff story.”
Like many others, the entrepreneur got his start in high school, where landscaping was a way to make extra money during the summers. He kept it up in college and did well enough to graduate debt-free, and then decided to go into it full-time after graduating because he loved designing beautiful outdoor spaces, and the math on the financial return was compelling.
Over a period of five years, he had grown his landscaping business to about $600,000 in revenue. He knew he could do better, and he set his goal at doubling revenue in the next two years. Like everything else he had done in life, he hit his goals — his team and customers grew, as did his reputation as one of the premier firms in his region. And his revenue did double.
That is where he discovered the cliff. Despite doubling in revenue, he took home less money than he had the year before. All that hard work, just to make less money.
It doesn’t add up. Why would sharp, hungry entrepreneurs go after jobs that don’t make money? In an industry where revenues among the companies on the annual LM150 list have been growing almost every year, why do so many landscaping companies fail? Perhaps an even more important question is what distinguishes the companies recording record revenues from those barely making it?
The answer is clear — most landscaping business owners struggle to accurately calculate how much money they will make on the job they are bidding on. And this is because they do not accurately estimate the full cost of the job. Job costing is one of the most unloved, yet most important, functions for a landscaping business owner to perfect. And mastering this skill is the difference between landscapers who make it over the cliff and those who don’t.
A very basic job costing framework includes the direct and indirect costs of any job you bid on. Direct costs are the expenses that can be directly attributed to a specific job.
They include:
- Labor
- Materials
- Subcontractors
- Permitting
- Fees
A more robust framework also includes indirect costs. Indirect costs are the expenses necessary to run your business that cannot be directly tied to a single project:
- Office rent/ mortgage
- Administrative salaries
- Utilities
- Insurance
- Vehicle expenses
- Equipment depreciation/ maintenance
- Marketing and advertising
- Professional fees
This is a lot to do for every single job, and you can see why so many business owners skip this step (and subsequently lose their shirts). However, it is essential. Here are a few ways to go about it:
- If you are the DIY type, build a spreadsheet that calculates all these numbers. Have inputs for all direct cost categories and convert the indirect cost into a ballpark percentage.
- There are also great software products that make the process of pricing jobs easy. For example, the company that I co-founded, Duranta, uses AI to help make creating an accurate job costing as simple as drawing on a map.
Irrespective of the path you take, remember that having a consistent job-costing process leads to accurate estimates. And accurate estimates lead to profitable jobs and a profitable business.
