5 lessons I learned in pricing my design/build projects

July 19, 2023 -  By
Sam Gembel

Sam Gembel

Unless you’ve been living under some of the rocks you installed over the last few years, it should be no shock to you to say that costs have changed a lot.

Some of the darkest years of business for me were 2016 and 2017. Our company grew by millions in revenue, but we were bleeding financially. Clients told us we were over their budget for the work we bid on.

My way of fixing the problem was to sell another job, collect a deposit check, and let that carry us through for another week. Many mornings I’d sit in my truck in our office parking lot and ask myself if being a business owner was really my calling.

We took a deep dive into the closeout of our projects. We started using software to help us build budgets around our expenses — instead of just delivering a bid on a Word document with pricing I thought was accurate.

What did we learn?

Expenses were deeper than what we priced on paper. We knew our labor costs but didn’t know our production rates. We could get material costs from our suppliers, but marking it up 25 percent from what the dealer charged wasn’t enough to cover unseen expenses, warranty callbacks and more.

Key takeaways

1. Focus on projects in your skill level and expertise and design for efficiency.

Know that growth comes at a cost. The more efficient and predictable you can make your builds, the better you’ll know how to properly price them.

2. Know your production rates.

Not only will this help you price properly, but it will also help you hold yourself and your team accountable when things take longer than you bid the work for.

3. Know your expenses.

Work with your suppliers to obtain the firmest pricing possible for the materials you install the most frequently. Our material costs and fuel surcharges on deliveries were all over the place. For example, a $54,000 project we priced in March 2022 had a material increase of 22 percent when we installed it 120 days later. Have great working relationships with your vendors because they can communicate with you as prices change based on product availability and supply and demand.

4. Use materials you are most familiar with and know you can get.

Consistency is key to building production rates, firming your pricing and becoming more efficient.

5. Don’t forget to factor overhead expenses into your cost.

Nowhere in my pricing did I account for fuel, design fees, insurance, shop rent, truck repairs, equipment purchases, overhead payroll, overtime and more. Every company’s overhead expenses are different.

From what I’ve learned from my company and working with dozens of landscape contractors, most overhead percentages range from 23 to 33 percent of the company’s revenue. For the sake of easy math, let’s say your company earns $1 million in gross revenue. Aside from your direct material and labor costs, you’ll have $200,000 to $330,000 in unseen expenses. This money comes from somewhere. The sad truth is most contractors (including myself at one point) just eat it right from their profit — if there is profit to eat it from.

Running a landscape business is much deeper than the talents of being a landscape artist. Do some forensics on your numbers before sending out your next proposal. I’ve been in your shoes. I know how you feel. There is a better way to conduct your landscape business and ensure you’re making the profits you deserve from providing the quality services you deliver to your clients.

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