Knowing Your Numbers

In any industry, it is important for a company to know their numbers. Hitting your gross margin goals happens because of two things: accurate estimation and efficient operational production. Similarly, knowing your numbers is important in two ways. First, you need to know how to estimate correctly to sell a job which should perform well. Second, you must have a method for reviewing your performance after the job is done. (Yes, this results in the typical Estimation vs Operations agreement… more on that later). 

Knowing Your Estimation #’s:

Labor Rates

Having accurate labor rates is extremely important. Your labor rates should be reviewed at least two times a year. If you know several employees have received raises recently, you might consider evaluating if an increased labor rate is necessary.

Be sure to consider labor burden.

• If any labor burden is included in Direct Labor (COGS) you might consider including burden in your labor rates.
• If not, you need to cover burden in your markups.

Production Rates

Outside of ensuring you are estimating with accurate costs, you must strategically estimate services with the accurate quantity of labor and materials required to perform the job type and size. 

If you are unsure of what these numbers are, you can start with either reviewing historical job costing, or research industry standards. 

Example Landscape Production Rates:

• 21” Trim Mowing = 4.5 MSF (1,000 sqft) / Hour
• 1” Mulch Application = 3.5 labor hours + 3.5 cu yd of mulch / MSF (1,000 sqft)
• Irrigation Start Up = 3 Zones / Hour
• Turf Lime Application = 25 MSF (1,000 sqft) / Hour and 10 lbs. of lime / MSF (1,000 sqft)

Item Catalog

Estimating enough material at the right price is critical. Knowing the right quantity is tied into your production rates. Estimating the right price is only possible if you have updated material costs from your vendor. This can happen a couple of ways: 

• Update your catalog at regular intervals with fresh pricing from vendors.
• Ask for pricing from vendors before bidding the job.
• Sometimes, regular catalog updates are not enough if the material costs are fluctuating quickly. You may need to do this in addition to requesting job specific pricing for certain types of materials. 

Mark Ups

Once you have ensured your pricing is correct (material and labor costs) and you have built out your production rates, you are estimating correctly to cover your costs. Determining Mark Ups is where you can strategically and competitively inflate the estimates price to the client, ensuring you are hitting Gross Margin goals. 

At the very least you should have a specific set up mark ups for Labor, Material, Subcontractor, Equipment Rental, and Other (e.g., dump fee’s) per business division. Within certain divisions, there are certain services you will want to determine specific markups for. For example, you may include Irrigation services in your Maintenance division. Irrigation is a premium service that should be marked up at a higher percentage than maintenance. In this case you would create an additional set of markups specifically for Irrigation service types. 

Knowing Your Result #’s:

In the section above you read several ways to ensure you are estimating correctly. While this is the first step, evaluating you results is very important as well. You might consider the quote “Inspect what you expect”, which applies here!

In order to review your results, you must have an accurate way to evaluate your job costs. For example, if you are utilizing Aspire Software, you can review the Job Dashboard or Job report to evaluate estimated versus actual performance on the job. If you are not utilizing a software to collect this data in one place, it is important to have a method of collecting all the COGS allocated towards the job (labor hours and costs, material/sub/equipment receipts, etc.). 

When you have this information available to review, you can start to pull the job apart. Depending on the size of the job, you might identify that the job in whole did well or poorly. If the job is large and had several stages, you might need to evaluate the job costing at the service level. 

With this information you have to determine an action item. Action from a poorly performed job typically has one of two outcomes: the estimate did not include the necessary resources to perform the job on budget, or the production team needs additional training to ensure they perform within budget. Sometimes, both are true. It is important to ensure both your Estimation and Production managers have the opportunity to collaborate on job performance reviews. The goal is that both departments can own their results and make realistic recommendations to improve next time. 

Benefits to Knowing Your Numbers:

At a high level, knowing you numbers will help you bid jobs with confidence, hold your production team accountable for their results, evaluate areas for improvement, and ultimately perform at gross margin more regularly. When a company is performing this way, you will not only see the financial benefit, but you can budget for the future to ensure long term financial success. 

Every company is unique. Meaning, you might offer a different set of services than the company down the street. And even, the services you have in common you might approach differently. By knowing your numbers, you can evaluate and compare your company to industry standards with more clarity. 

If you don’t know your numbers, we can help. If you need assistance determining your labor or production rates, are unsure the best way to gather updated pricing from vendors, need help creating mark ups, or even want help reviewing your results and making decisions – reach out!