Managing and maximizing labor will have the single biggest impact on the profitability of your landscaping business. Yet too many landscape business owners struggle to find, keep, manage and motivate this single most important asset. Your field labor ratio is one of the most important key performance metrics because labor affects profitability more than any other cost in your company. Case in point: You might come up short on some material estimates occasionally, but we’ll bet your 2G hostas have never backed your skid steer into your client’s swimming pool.
Understanding and optimizing your field labor ratio is a powerful metric in determining how much money a landscape business or landscaper can make in a year. Let’s check out how to maximize your landscape business field labor ratio metric and double your profits.
Field Labor Ratio: Defined
Your Field Labor Ratio is the cost of wages for field (non-overhead) staff divided by your sales revenue. The lower this number, the better because it indicates you are spending less on labor for each dollar of sales earned.
So here’s the massive obstacle facing every company: Labor is both your biggest determinant of profit and your biggest headache. The following strategies can minimize migraines and double your company’s net profits.
In this landscaping article, we’ll cover:
- Sell Jobs That Maximize Revenue Per Hour
- Sell Jobs That Maximize Throughput Per Hour
- Use More (and Bigger) Equipment
- Upsell Easy-to-Install Materials
1. Sell Jobs That Maximize Revenue Per Hour
Revenue per Labor Hour is a really simple and effective number. It tells you how much total revenue (including revenue earned from materials, equipment, overhead markups, and profit) is produced each labor hour.
To calculate your company’s benchmark revenue per labor hour:
- Start by figuring out your labor hours available. First, add up all the anticipated payroll hours for your field staff only. Don’t include overhead staff. Example: 8 field staff x 1700 hours each = 13,600 labor hours).
- Next, subtract ‘unbillable’ hours. These are payroll hours where the staff is paid, but they aren’t producing any revenue (e.g., drive time, shop time, training time, mechanical work, etc.) Example: 13,600 hours @ 80% productive time = 10,800 man hours.
- Finally, divide your sales goal by your productive/billable labor hours. Example: $850,000 (sales goal) divided by 10,800 labor hours = $78.70/man hour.
Pro Tip: Create unique revenue per hour goals for each division in your company. Maintenance work has a lower revenue per hour vs. install work because there’s very little material.
You need to hit your sales goal once you know the benchmark revenue per hour. You divide each estimate’s selling price by the number of labor hours estimated to get that estimate’s revenue per hour. If it’s higher than your benchmark, that estimate will help you beat your sales goal. If it’s lower than your benchmark, it might not be the best job for your company.
Remember: Your most valuable resource is good field labor staff. So you don’t want to tie them up on jobs that don’t produce much revenue.
Make sure to establish strong training systems to strengthen the skill sets of current employees and to onboard and train new hires faster. Greenius has a robust on-demand video training platform with more than 50+ landscaping and Green Industry courses in English and Spanish.
2. Sell Jobs That Maximize Throughput Per Hour
Throughput is the money left in your company after you pay your external vendors. To calculate throughput on a job, you simply take the job’s revenue and subtract your vendor’s costs, e.g.materials, subs, and rentals. The money leftover is called Throughput.
This number is even better than revenue per hour since revenue per hour can be misleading if you do a lot of work with subcontractors or sell high-priced materials at a minimal markup. Your revenue looks great, but if most of the sales go towards paying vendors – it doesn’t help your company. Throughput fixes that problem by showing you how much money is left in your company after you pay your vendors.
Divide each job’s throughput by its estimated labor hours to calculate Throughput Per Hour. The higher this number, the better the job and the lower your labor ratio.
3. Use More (and Bigger) Equipment
Equipment is a fantastic way to reduce your field labor ratio. Your field labor ratio (and revenue per hour) go way up when you leverage equipment to speed up jobs. Not only does each job’s revenue per man hour increase with increased speed or less people, but the time saved on each job can be time earning revenue on a new job. You get benefits to your revenue per hour on both sides.
Let’s take a look at how equipment can lower your field labor ratio
- Trucks: Larger trucks carry a bigger monthly payment, but if you’re hauling/delivering materials with your own trucks, you can save a lot of delivery hours by doubling your truck’s payload.
- Skid Steers: Tracked skid steers carry a hefty price tag but they can be used in the wet Spring/Fall when traditional wheeled machines cause lots of damage. With an average monthly lease of about $750 per month, a 3 person crew needs to save one half-day a month for this machine to pay for itself!
- Power Wheelbarrows: Cost 100x more than your standard 2 handle, 1 wheel version, but most contractors will say they can’t remember how they did work without one.
- Mini-Excavators: Combined with a few work tools (augers, hammers, grading buckets, thumb buckets), they’re the swiss army knife for landscapers. They can get into tight places and dig 20x faster than humans.
It’s almost without saying that equipment purchases or leases are massive investments into your landscaping business. If you can afford it, look into whether you can make a purchase, and then break down whether you should go the new or used equipment route. If your business needs the financing support, LMN Lend offers many rates and financing options that help landscape businesses get the cash they need to make those essential landscape equipment purchases.
Pro Tip: Replace old equipment that’s unreliable. You might feel good having no payments but the breakdowns cause extra labor hours and lots of downtime fixing/transporting the equipment – all of which increase your field labor ratio.
4. Upsell Easy-to-Install Materials
Whether you do design/build or maintenance, there’s no profit margin like an upsell margin. Look for materials that get installed with very little labor (patio furniture, lighting kits, decorative structures, art pieces) and work them into your sales processes. These material types typically have strong markups and drive your revenue up with very few labor hours added.
Every accomplished business owner will tell you that knowing your numbers is critical to success. For landscapers, your field labor ratio is the key to maximizing labor productivity. Put the above strategies into practice to improve your field labor ratio and you’ll be well on your way to potentially doubling your net profits.
LMN software provides tools that help landscape business owners identify efficiencies or opportunities to increase profitability within their business. Book a demo with the LMN Team to find out where your business can find profitability.
