You estimate a landscape project.
The materials cost $3,000.
You calculate 80 hours of labor at $25 per hour.
That's another $2,000.
At first glance, the project appears to cost your company $5,000.
So anything you charge above $5,000 should be profit...
Right?
Not quite.
What about payroll taxes?
Workers' compensation insurance?
Fuel?
Truck payments?
Equipment repairs?
Business insurance?
Licenses?
Software?
Office expenses?
The time you spent estimating the project?
Suddenly, that $5,000 project cost doesn't look so complete.
One of the most important lessons a landscape business owner can learn is this:
The obvious costs of completing a project are not necessarily the true costs of running the business that completes it.
Understanding the difference can determine whether you're simply staying busy or actually making money.
Your Employee Costs More Than Their Wage
We introduced this concept when discussing employees earlier in this series.
If you pay an employee $25 per hour, that employee costs your company more than $25 per hour.
The wage is only the starting point.
Depending on your company and location, additional employment costs may include:
Employer payroll taxes.
Workers' compensation insurance.
Unemployment insurance.
Paid vacation or sick time.
Health or other employee benefits.
Training.
Safety equipment.
Uniforms.
Payroll processing.
These additional expenses are commonly referred to as labor burden.
Suppose an employee earns $25 per hour.
If the additional costs associated with employing that person added another $7 per hour, your true labor cost would be closer to $32 per hour.
That difference matters.
Estimate 1,000 hours of annual work using $25 when those hours actually cost $32, and you've potentially failed to recover $7,000.
And that's before considering your company's other operating expenses.
The numbers will be different for every company, which is why contractors should calculate their own labor burden rather than relying on someone else's percentage.
Your Truck Isn't Free
Many landscape contractors make a similar mistake with vehicles.
The truck is already sitting in the driveway.
The trailer is already paid for.
So they don't assign much cost to using them.
But trucks cost money every mile they travel.
Consider:
Fuel.
Oil changes.
Tires.
Brakes.
Insurance.
Registration.
Repairs.
Financing.
Depreciation.
Eventual replacement.
The same applies to trailers.
Even a paid-off truck has a cost.
Someday, it will need to be replaced.
If your estimates never recover that expense, where will the money for the next truck come from?
Equipment Has a Cost Even When You Own It
The skid steer was paid off three years ago.
The plate compactor is sitting in the shop.
The sod cutter belongs to the company.
That doesn't make them free.
Equipment requires maintenance.
Fuel.
Repairs.
Blades.
Belts.
Hydraulic hoses.
Transportation.
Storage.
And eventually, replacement.
Every hour of equipment use consumes part of that equipment's useful life.
Successful companies recognize this cost and build equipment recovery into their pricing.
Otherwise, the business owner may eventually discover that today's "profit" was actually tomorrow's equipment replacement money.
The Office Has to Be Paid For Too
Some expenses are easy to associate with a particular project.
Plants belong to the planting project.
Pavers belong to the patio.
Labor belongs to the installation.
Other expenses aren't nearly as obvious.
Consider the expenses required simply to keep a landscape company operating:
General liability insurance.
Contractor licenses.
Accounting and bookkeeping.
Phones.
Internet.
Office supplies.
Advertising.
Website expenses.
Professional services.
Shop or office rent.
Utilities.
Administrative wages.
These expenses are often called overhead.
You may not be able to point to one particular landscape project and say, "This project used $37 worth of accounting."
But the accounting bill still has to be paid.
Every profitable project needs to contribute toward the cost of operating the company.
Don't Forget the Hours Nobody Sees
A landscape project might require 40 hours on the jobsite.
But were those the only hours required to sell and complete the project?
Probably not.
Someone answered the customer's call.
Someone drove to the property.
Someone measured the site.
Someone sourced materials.
Someone scheduled the project.
Someone ordered materials.
Someone prepared the invoice.
Someone collected payment.
Those hours don't disappear simply because the customer didn't see them.
This is another reason systems become so important.
The more efficiently your company can estimate, schedule, purchase, communicate, and invoice, the less administrative time each project consumes.
Time is a cost even when nobody is holding a shovel.
Small Jobs Can Be Especially Dangerous
Hidden costs become particularly important when estimating small projects.
Imagine a customer wants three shrubs installed.
The actual installation may take less than an hour.
But your crew still has to:
Drive to the supplier.
Locate and load the plants.
Drive to the customer's property.
Unload tools.
Complete the work.
Clean up.
Return to the shop or travel to the next project.
A contractor who prices only the installation time may lose money even though the price of the plants and installation labor appeared correct.
That's why many contractors establish minimum service charges or minimum crew hours.
A two-hour or four-hour minimum, for example, can help recover mobilization, vehicle, administrative, and labor costs associated with completing small projects.
Your minimum should be based on your company's actual costs—not simply copied from another contractor.
Material Cost Isn't Always Material Cost
Suppose a plant costs you $100 from the nursery.
Is your cost really $100?
Someone may need to:
Order it.
Pick it up.
Transport it.
Unload it.
Store it.
Replace it if damaged.
And potentially honor a warranty if it fails after installation.
Materials can also fluctuate in price.
Waste needs to be considered.
Delivery may need to be added.
That's why selling materials at your exact purchase price usually doesn't make business sense.
Material markup helps recover the costs and risks associated with sourcing, handling, delivering, and providing those materials as part of a professional service.
Know the Difference Between Cost and Price
This distinction is critical.
Cost is what it costs your company to provide the work.
Price is what you charge the customer.
Those numbers should not be the same.
Your price needs to recover the costs of completing the project, contribute toward company overhead, and provide enough profit to keep the business healthy.
If you don't understand your costs, determining the right price becomes little more than guessing.
And guessing becomes increasingly dangerous as the company grows.
More employees multiply payroll errors.
More trucks multiply vehicle expenses.
More crews multiply equipment costs.
More revenue does not automatically fix poor pricing.
Sometimes it simply makes the problem bigger.
Profit Is Not an Expense You Forgot
After identifying hidden costs, there's one more mistake to avoid.
Don't calculate every expense and then assume whatever remains is profit.
Profit should be intentional.
Profit is what allows the company to build reserves.
Replace equipment.
Weather slow periods.
Invest in employees.
Improve technology.
Expand.
Take calculated risks.
And reward the owner for building and operating the business.
A company that recovers every expense but produces no meaningful profit has created a job, not necessarily a sustainable business.
You Don't Need Perfect Numbers to Start
Calculating true business costs can feel intimidating.
Don't let that prevent you from beginning.
Start with what you know.
Calculate your payroll burden.
Review the previous year's vehicle expenses.
Look at insurance.
Add your software subscriptions.
Review equipment repairs.
Calculate rent and utilities.
Look through your accounting records.
Then improve the numbers over time.
Your first calculation may not be perfect.
It doesn't need to be.
A reasonable estimate based on your actual business is far more useful than pretending those expenses don't exist.
As your systems improve, your numbers should improve with them.
Final Thoughts
It's easy to see the cost of a pallet of pavers.
It's easy to see an employee's hourly wage.
The dangerous expenses are often the ones you don't immediately see.
The truck carrying those pavers.
The payroll taxes attached to that wage.
The insurance protecting the company.
The software creating the estimate.
The estimator's time.
The equipment waiting to be replaced.
Every one of those costs eventually has to be paid.
The question is whether your estimates are recovering them.
Successful landscape companies don't simply ask:
"What will it cost to complete this project?"
They also ask:
"What does it cost to operate the company completing this project?"
When you understand both, you can stop guessing at prices and start building a business designed to produce sustainable profit...
One Estimate at a Time.
Business Takeaway
The direct costs you see on a project are only part of what it costs to operate a landscape company. True profitability requires understanding labor burden, vehicles, equipment, overhead, administrative time, material handling, and the other expenses required to keep your business operating.
Know your costs before you determine your price.
TLE Tip
Your estimating system should reflect your company, not someone else's.
The Landscape Estimator (TLE) allows contractors to establish company variables that help bring real business costs into the estimating process. Labor, materials, production, project difficulty, additional fees, and profitability can then be considered as the contractor works through an estimate.
A production rate tells you how much time the work should take.
Your company costs help determine what that time needs to earn.
Together, they create a much stronger foundation for profitable estimating.
Coming Next
Part 8: From One Crew to Multiple Crews
One profitable crew can build a good business.
But one crew also has a limit.
In the next article, we'll explore what happens when a landscape company adds another truck and another crew—including increased payroll and overhead, greater production capacity, scheduling challenges, leadership needs, and why multiple profitable crews can take a company somewhere one truck never could.
Growth isn't simply about adding people.
It's about learning how to multiply a profitable system.
Keep reading
More updates, releases, and estimating ideas are in the newsroom.
