Mowonomics

This blog was written with newcomers to the industry in mind however it may also benefit those new or potential clients who may be interested in the economics side of running a small business.

When thinking about what to charge as a lawn and garden care business there a few things to consider.

The following formula encapsulates how I think about the rate to charge for my labor :

LR = (( HR x TF ) + E + P + TOLL ) * 1.1

LR = Labor rate per hour onsite at client premises

HR = Gross hourly rate I wish to earn while working in the business

TF = Time factor

E = Hourly average of all fixed and variable business expenses for a 5 year period.

P = Profit per hour in dollars

TOLL = The dollars per hour you wish to charge to offset the toll on your body.

The formula works to give you an hourly rate to charge a client if working a time based quote. If providing a fixed quote you will need to assess how many hours (or minutes) a job will take and calculate accordingly such that the dollars per time works out to be the LR you desire or above.

Another way to think about the formula is to work backward from the LR to get to the dollars per hour you would be left with as follows:

(( LR / 1.1 ) - P - TOLL - E ) / TF = HR <— this is what you are left with as a salary

Lets use real numbers to talk through the formula.

Lets say in your market you are happy charging $100 per hour whilst onsite at a client. That sounds steep you may think. Not so fast. Lets apply the formula. Lets say we are charging no money for a profit margin and no money to compensate for the long term wear and tear on your body. The 1.1 is the effect of GST reducing the amount you keep (when earning more that $70,000 per year you are required by the ATO to register for and collect GST on every sale which is calculated as 10% of the GST exclusive sale amount).

(($100/1.1 ) - 0 - 0 - 25) / 2 = HR

$32.95 = HR

The $25 is for expenses such as vehicle and equipment depreciation and maintenance, spare parts and wear parts, fuel, vehicle registration and insurance, public liability insurance (must have), website and marketing, bookkeeping and accounting to name the main ones that one cannot really get away without.

$25 is fairly modest and the true figure may be more in some markets and depending on how you treat your car and gear and can be reduced by doing more hours per year such that the fixed costs per year are a lesser amount of the per hour expense amount.

I use a time factor of 2 and this is a big one which needs explaining. Why divide by 2. Well for every hour I spend on site mowing and hedging etc there is another hour spent to be able to earn the LR (Labor Rate). There is an average of 10-15 min drive between jobs (if you keep your mowing runs tight or else its more time), there is time communicating with clients for appointments and discussing and recording what they need on the next visit, there is paper work time such as roster scheduling for the run each week, invoicing and bookkeeping on a daily basis, quote time (clients do move every now and then and so to keep a steady client base you will always have some quote time even if you are not actively growing), taking equipment in or picking it up from maintenance, shopping for new equipment and consumables, personal development and training if you and your clients care about seeing you always improving in knowledge and professionalism, ASIC compliance for company, insurance documents once per year and update commercial clients accordingly and safety documents and training for OHS (Occupational health and safety).

If you feel for every hour spent you only have 50 min of non-site related work you would use a factor of 1.83.

TF = minutes worked offsite per hour of work onsite + 60 minutes of site work / 60

Eg —> If im really slow at machine maintenance or a super perfectionist with my truck i might be an hour and 10min for every hour onsite on average therefore;

TF = (70 + 60) / 60

TF = 2.16 in this scenario

Hence record keeping is important or else you will never know your hourly remuneration.

So to recap, a $100 inc GST per hour rate charged to your clients in many markets in Australia will gross you around $33 before income tax and any physio needed. If one were to work an average of 40 hours a week with 2 weeks off that’s 2000 hours per year x $33 = $66,000

You may be just starting out and perhaps you have in mind to work many more hours. Just remember that it is seasonal so the time factor varies. For example in summer you may work on site 25 hours with another 20 hours “behind the scenes” whereas when things slow down you might do 20 hours on site with another 25 hours behind the scenes to catch up on all your vehicle, trailer, equipment repair and prep for the next season so its not as though you work 1:1 year round but I have found that on average one should allow about 1 hour for every hour spent on a client site. If you think differently please let me know what you work off of.

The above number of $33 is without any dollars set aside for the company profit. Profit is also important as without any profit in the company there is no money for growth/expansion of the business in the future OR a rainy day fund for when things go sour (examples might be an at fault traffic accident as mowing people are on the road much more often than office workers or builders etc, broken auto glass, lost or stolen equipment, bad debts, legal costs).

It also does not allow any amount for the body. From experience I spend money on remedial massage and physio and I don’t expect to be able to keep up my present pace into my seventies where as many white collar or low impact jobs like fork lift driver, police, truck driver can presumably continue into their eighties and in some fields earning far more with experience. I hear you, retirement age is 65 or so, ok but that number used to be 60 and keeps increasing so if you are in your twenties the retirment age may be 75 by the time you reach that age. Also should something adverse happen that is beyond your control you may find yourself needing to continue working. Well thats less of an option for a gardener than it is for say a doctor.

You can input your own values for your average expense cost, time factor, profit and TOLL to see what makes sense for you and if that number is something the market can support then you have a going concern of a business.

By rights you are meant to pay your super fund an employer super guarantee amount of 10.5 % of any amount you pay yourself as a wage so you can add that into your expense average if you want to consider it that way or if considering it as income just remember that that amount will further reduce your gross income as it is not accessible until the retirement age or in the event of financial hardship.

Insurance companies will likely not offer much more than 6 months of paid income protection insurance for this type of work so also realise that this figure is incumbent on you not hurting yourself in any way that prevents you from working or else add a hefty insurance amount to your expense figure.

Work Cover Qld only covers the staff and not the owner.