Yesterday I was researching profit margins in the "green industry" and was amazed to learn that the average landscaper/builder only makes one half of one percent profit, and that only 10% of people could understand a bank statement, and many less knew what a balance sheet or an income statement was.
It's no wonder that there are so many people in this industry that are quoting such low prices to do work, when they have no understanding of any financial management.
From my point of view there are two reasons for being in business, and they are to make a good profit and to have fun doing it. But it seems as though some people like to work for the sake of work and make a loss doing it!
The first thing that should go through anyones mind when pricing up a job is how much profit will I make if I do this job, and is it worth the effort to do it. They should not be thinking something along the lines of "what does the customer expect to pay to have this work done".
It is a far better thing to win a few jobs with a good profit margin, than to win lots of jobs with little profit margin.
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Spot on Adrian.
I fear many "gardeners" do it as a means of a job and then get trapped in the low price cycle. However a business must make a profit or how can it be sustainable.
Hi Graeme.
Also the problem is that when people know about gardening, they think they can run a gardening business. The problem is that running a business is a completely different kettle of fish to just going out and mowing a few lawns here and there.
Running a business must give a return on investment.
It must make enough profit to allow the business to grow.
The return must provide enough reserves to keep the real capital intact. This means that the impact of inflation must be counterbalanced by price increases of above the inflation rate.
Any business worth its salt will know that the way to price a job is not by the hour, but by the value of the benefits to the potential customer.
In the area that I live there is a chap that runs a lawn mowing service and employs two others to work with him. I know that on average he charges £12.50 per customer, and he gets 2 lawns mowed every hour. So his revenue is about £200 per day. Then he has to take out his employees wages, which will leave about £96 per day. Then he must deduct his own wages and operational costs, and pay for a huge amount of grass cuttings to be disposed of at the end of every day. Once you have calculated all this out, you can see that his profit margin is around the zero mark.
If he knew how to go about pricing up his work properly, he would be charging his customers double the amount that he is currently charging.
We often refer to this as busy fool syndrome. They think they have a successful business because they are always busy, completely ignoring the fact that they are making less than they would be as an employee. I have worked for an awful lot of clients in the gardening, landscaping and arb. sectors who have all been making less than £ 20 k per year before taking my advice.
Being a good gardener / builder / landscaper, doesn't necessarily make you are a good business owner.
Can you identify the source of that information - Is it UK or US based?
I think a lot of assumptions are being made in those figures.
However, still believe this tweet is true;
@gary_affinity 9:26 AM - 12 Jul 2014The day you decide you are a business owner and not a landscaper/gardener/consultant/designer is the day you start to become successful
Gary RK said:
Colin Hunt said:
well said ..