Business Profitability Through Accurate Estimating

Avoid the most common mistakes. According to the Australian Bureau of Statistics, more than 60 per cent of small businesses cease operating within the first three years of starting.

In the landscape contracting field, many new businesses fail, not because they cannot win sufficient clients but because they do not run profitably. There is nothing worse than finishing a project to find that the work has not made you any money, let alone lost you money!

There are two main aspects of making sure your business is profitable:

• Properly estimating the costs involved in running your business
• Estimating the true costs of completing a project

I spoke with expert landscape estimator, Anna Turner of Gauge PM, to discuss these two vital areas.

What are the costs of running your business?

There are many associated costs involved in running a small business; some of them more obvious than others. These costs are quite separate from the cost of a job itself and knowing these costs accurately will help you to determine the margin you need to make on each job to make the work profitable. The mark up you add to the costs of a job will have to include both the percentage costs of running your business, as well as a profit margin.

The costs of running a business can include items such as the associated costs of labour (allowing for down time, leave time for workers etc.), tax, vehicle costs, insurance, staff training and management fees. This is by no means an exhaustive list. Most landscaping businesses have overhead costs of around 20 per cent so if you only add a mark-up of 50 per cent to the estimated cost of a job you will only just break even!

Take the time to thoroughly calculate the estimated overhead costs of running your business to make sure that you charge your clients enough to make the work worthwhile. Even well-established businesses need to ensure they stay on top of this critical aspect of profitability.

Common mistakes in estimating the costs of a project

The pitfalls for new businesses when estimating the costs of work are numerous. But how can you avoid them? Let’s consider some of the largest and most common mistakes made by new businesses when estimating the costs of a project.

Mistake 1: Not taking the time to properly plan the work from the start when you are estimating a job, start by grabbing yourself some paper and working through every step of the process through to completion. Estimating a job fully means understanding the build sequence, allowing for down time and really knowing the time it takes for workers to complete each stage of the build.

Estimating is a science, don’t just wing it! Make sure you build in time for inactivity and don’t just assume that everything will always go according to plan. To accurately estimate jobs, you need to allow a little wiggle room.

It takes time and experience to know how long it takes your workers to perform tasks and understanding the build sequence will cut down on inactivity, reduce the hours for which you will need to hire equipment and minimize delivery costs.

Mistake 2: Not focusing on the areas of estimating that can be most problematic. The areas that most trip up inexperienced estimators are issues of access, the costs of waste, labor times and excavation.

An inaccessible or difficult site can send your time frames and costs skyrocketing. Consider the site carefully at the outset and make contingency for the issues of access. How will you get supplies to the site of works? How will your workers handle gradients? Will you require a crane or scaffolding to perform part of the work? Think it through and allow for it in your estimations.

Similarly, waste costs can add up quickly and eat into your profits. Consider the waste implications of the products you intend to use to make sure you allow for disposal costs and how much of the material you will need to complete the job. Also, using fiddly products with high waste percentages can impact on man hours.

The costs of labour can be difficult to estimate when you first start up your business, especially if you haven’t been the project manager and estimator in your previous working life. You will get better with this over time but try not to be too optimistic when you make your estimates. Remember, people are not machines, they make mistakes, go to the bathroom and take lunch breaks!

The cost of excavation can be make-or-break for landscaping projects and is one of the most consistent areas of estimating errors. There are two main ways to handle this issue to avoid being caught out:

• Call in a quantity surveyor – For any serious excavation projects make sure you consult a quantity surveyor at the time you prepare your quote. The surveyor can give you accurate excavation calculations that an engineer can use to specify the necessary footings. You need to know if you are likely to hit rock or sand that will impact how deep the excavations need to be. If the survey turns out to be incorrect in some way, you can then apply to your clients for a contract variation
• Provide a provisional sum to your client – If you are unsure before you begin the work, do not give your client an exact cost. Give them an indicative price and make sure that this price is only a provisional sum when you make out the contract

Mistake 3: Not debriefing yourself at the end of your project. As we already said, estimating is a science. The best way to know how accurately you are tracking is to look at each aspect of your estimating at the conclusion of each project to work out where you can improve. With this information up your sleeve you will be able to increase your profitability whilst remaining competitively priced in the market. Your trade skills will speak for themselves but there’s no point winning the business if you can’t make a buck.

If you would like more information on accurately estimating the costs of running your business, as well as ensuring you accurately predict the costs of projects, why not consider getting a copy of the LNA Master Landscaper’s Rates Guide: Schedule of Rates for Landscape Works? Now in its 16th Edition, the Rates Guide can help you to work out your overheads, help you with the costs of labour, as well as all the costs associated with completing your next landscape job.