Estimating for Profit: The Ultimate Handbook for Landscape Contractors
Accurate estimating is crucial for maintaining profitability in the landscape industry. However, many contractors struggle with creating estimates that cover materials, overhead, and turn a healthy, predictable profit. All the owners in the Facebook groups have the magic pill that fixes all estimates. All consultants have the best way to do it. And, of course, there’s a piece of software that can fix it all with the click of a button. But with all the noise, how do you know what really works? In this article, we will walk through the essential steps to establish a solid foundation for your estimating process—breaking down costs effectively and determining pricing and profit margins that ensure profitability. This whole landscaping thing is fun and all, but at the end of the day, I think most owners can agree that we are in this to make some real money.
It’s All About a Solid Foundation
To create profitable landscaping estimates, it is essential to establish a solid foundation for your pricing strategy. Here’s are the high-level goals:
Know Your Numbers: Gain a comprehensive understanding of your costs, including both overhead costs and direct project costs. Consider all expenses involved in running your business, producing the work, and achieving your desired net profit. By knowing your costs, you can make informed pricing decisions that ensure profitability.
Implement a Mathematical Approach: Move away from relying on personal experience or simple multiplier formulas like pricing per square foot. Instead, adopt a mathematical estimating process that allows for adjustments and ensures consistency in your estimates. This approach eliminates guesswork and provides a more accurate and reliable pricing framework. With this proper system is place, even when it’s the 100 days of hell, you won’t just start throwing numbers at the wall because the pile of estimates is taller than a pallet of stone.
Gather Detailed Project Information
Garbage in, garbage out as they say. If you don’t have all of the job site information you need when you return to the office, you won’t be able to produce accurate estimates. Take the time to thoroughly understand the customer's requirements and project specifications.
Scoping Project Needs and Specs: Pay attention to the specific services needed, materials required, site measurements, design style, soil conditions, and any other relevant details. A comprehensive understanding of the project requirements allows you to provide accurate estimates that meet the client's expectations.
Break Down Costs
Breaking down costs is a crucial step in creating profitable estimates. Consider the following elements:
Estimating Overhead Costs: Identify and account for all overhead expenses associated with your business operations, such as vehicle repairs, tools, equipment, office rent, and uniforms. Having a clear understanding of your overhead costs enables you to allocate them properly in your estimates, ensuring that they are covered.
Estimating Material Costs: Pay close attention to materials costs and their availability, as they can fluctuate. Ensure that your project and site specifications are accurate to determine the required materials. Set profit margins on materials at a healthy rate to account for price fluctuations and maintain profitability.
Estimating Subcontractor Costs: If subcontractors are involved in the project, be sure to consider these costs when creating estimates to ensure accuracy.
Estimating Labor Costs: Distinguish between labor costs and subcontractor costs in your estimates. Understand your crew's capabilities and availability. Accurately estimate labor hours and incorporate profit margins on top of those costs. This ensures that you account for labor expenses adequately and maintain profitability.
Account for Every Task: Create a comprehensive list of every task involved in completing the job, regardless of its size. Avoid underestimating labor and make sure to allocate fees for equipment usage. Accounting for every task helps create accurate estimates and prevents unexpected expenses.
Determine Pricing and Profit Margins
Adopting a profit-first mentality helps lawn and landscape contractors create estimates that not only cover costs, but also generate healthy profits. Let’s look at the key points:
Calculate Break-Even Point: Add your direct costs and overhead to determine your break-even point. This is the minimum amount of money you need to bring in to cover all expenses. Don’t forget the X-factor.
Apply Net Profit Margin: Decide on the net profit margin you aim to achieve and apply it to the break-even point. This ensures that your pricing incorporates the desired profitability and allows you to set appropriate benchmarks for your estimates.
Price Calculation Example: Use a realistic scenario that includes materials, labor, labor burden, and equipment costs. Add your general and administrative overhead expenses to calculate the break-even point. Then, apply the desired net profit margin to determine the final price. This calculation method ensures that your estimates account for all costs and generate a reasonable profit.
Understanding Market Conditions
Companies that sale past the $3M mark don’t create systems in a vacuum. Picking up your head and accessing the current landscape is critical to maintaining accurate estimates. Consider:
Market Demand: Analyze the demand for landscaping services in your target market. Understanding the level of competition and the pricing strategies of your competitors can help you position your estimates strategically.
Flexibility: Recognize the flexibility you have in adjusting your estimates based on market conditions. While it is important to maintain profitability, being aware of when to offer competitive pricing or value-engineer a contract can help you win projects and keep clients. The hard flip side of this point is knowing when to walk away—a lesson that many business owners struggle with.
Labor Costs: Stay informed about the labor market and any trends that may impact labor availability and costs. As labor prices rise and skilled contractors become scarce, it may be necessary to adjust your pricing to reflect these changes.
Enhancing Communication and Collaboration
For landscape businesses on the road to $3M, the owner often fills the role of sales and estimator. To streamline your operations, consider the following steps:
Establish a Feedback Loop: Create a strong feedback loop between yourself as the estimator and the production teams—even more so if you are also in the field. Looking at the actual numbers for each project and comparing them to the estimated numbers leads to more accurate and reliable pricing in the future.
Involve Subject Matter Experts: Seek help! Peer groups, trainings, and mentors go a long way in saving you costly time and mistakes. Experts can review your drafts, provide valuable insights, and help validate the accuracy and feasibility of your estimates.
Foster Budget Awareness: Ensure that your crew(s) are well-informed about project budgets and goals. By aligning their efforts with the established budget, you enable them to work efficiently and contribute to the project's overall profitability. Clear communication empowers your teams to get behind the financial and production goals of the company. This is also critical to developing talent from within.
Adjusting for Inflation and Changing Costs
Stay vigilant about inflation and changing costs to maintain profitability in your estimates. Consider the following:
Cost Updates: Regularly update your cost data to account for inflation and price fluctuations. Since Covid, landscape pros have experienced unprecedented fluctuations material , equipment, and labor costs (not to mention availability challenges??!!). By staying up to date, you can ensure that your estimates accurately reflect current market conditions.
Change Orders: Include language in your contracts that allows for change orders in case of material price shifts or unforeseen circumstances. Request written quotations from vendors with expiration dates to communicate potential cost changes to clients.
Accurate Estimating Is Critical to Scaling, Profitably
One thing is for sure: Companies that achieve profitable scalability beyond the $3 million mark have a systematic approach to estimating and a solid handle on costs, market dynamics, and project requirements. Mastering these aspects early on enables owners to maximize the returns from their business, empowering them to reinvest in their greatest asset—their lawn or landscaping business.
