Your landscaping equipment can be one of your biggest assets or a painful liability. When it comes to your tools and machines, does it make more sense to:
- Replace equipment with labor?
- Invest in new equipment?
- Lease or buy?
In this article, we’ll look at equipment costs from a few different perspectives and focus on how you can make equipment decisions that help boost your company’s bottom line.
Equipment vs. Labor
The green industry regularly deals with labor shortages. It seems harder than ever to find, keep, and motivate good, skilled people. There are a few ways to solve this problem:
- Keep advertising job openings, increasing wages, and investing more into HR and recruiting.
- Plan for less growth and limit goals because it’s impossible to find talent to achieve sales potential.or…
- Invest in more equipment to help each person become more productive – increasing revenue without necessarily increasing the number of people.
Years ago, my landscaping business invested in a skid steer for each crew. The goal was not only to reduce sharing (and unnecessary transport) of equipment, but also to improve each crew’s productivity.
Let’s take a look at how this could work for your business:
Say you’ve got a 3-person crew doing residential landscape construction. The industry average daily production for a 3-person crew is somewhere between $2,000 and $3,000 in revenue, per day – or about $100 in revenue per man, per hour (revenue benchmarks take into account _all_ revenue generated, including materials installed).
One of the ways we can improve the revenue generated from our existing people is to invest in – and equip them with, the most productive equipment. A skid steer is a great example. Whether it’s unloading a truck, moving materials, or digging, a skid steer could be doing something to save time almost every day.
$850/month. It’s a significant cost, sure, but probably not as significant as you might think. Let’s look at it this way: Any hour saved by using the equipment, is an hour we can use to generate revenue on the next job. For instance, if having that machine on site will help us save a half a day on a one week job, we just opened a half day’s worth of time to generate revenue somewhere else.
If you can just do that once a month – that skid steer will pay for itself. If we can save a half-day for a 3-person crew, that’s giving us 12 additional man hours for revenue generating work – about $1,200 worth of opportunity. That alone would cover the entire cost of your skid steer, your maintenance, your fuel, and your insurance for that month.
If a skid steer could help your crew save just 2 days a month, that represents about $4,000 of additional revenue per month or about $36,000 per year – without needing to hire more people!
New Equipment vs. Old Equipment
Many contractors struggle with the decision to keep older equipment (with no payments but high repair costs) vs. buying new equipment (with payments but low repair costs).
Every company is different in the equipment they buy, how well they maintain it and how hard they use it. Generally speaking, newer equipment will cost you more in payments but you’ll save on repairs, maintenance and fuel. Less things are likely to go wrong on new equipment, warranties should cover most major repairs and newer equipment is likely more fuel efficient. Most of the time, these two numbers (payments vs. fuel + maintenance) are very similar – almost cancelling each other out.
Putting a price on potential
The hidden cost of owning older equipment with no payments is the cost of downtime. When a machine breaks down, the most significant cost is often not the repair but the productivity lost doing the job by hand. The cost of lost revenue potential is far greater than most owners realize. Remember: The potential revenue of each man hour is $100 per man, per hour. If your crew has to spend a half day wheelbarrowing materials (that could have taken half an hour with a machine), you’ve lost hundreds, or even thousands, in opportunity to generate revenue.
We’ve found that companies running newer equipment generate more revenue with less people and overhead. More often than not, this leads to a healthier bottom line – even if their equipment expenses are higher than average.
Helpful Benchmark: If your repair + maintenance expenses are more than 1.5x your fuel expenses, there’s a very good chance your equipment is costing you more in repairs and downtime than you’d spend on interest or ownership costs of new equipment.
We have built a helpful calculator to estimate the life time cost of equipment, based on interest rate, purchase price, annual fuel costs etc… And with those numbers, an estimated hourly rate/cost based on hours per year usage.
Leasing vs. Owning Equipment
In general, we’ve found that most contractors like to ‘own’ their equipment (no payments) because it feels more risk-averse.
The issue with an ‘ownership’ mentality is that it could stunt growth potential or productivity. Many companies wait until tax season or when they’ve saved up enough money, to buy the equipment needed to improve productivity. Had they leased the equipment, they could have potentially been months, even years, ahead.
Leasing gives landscape business owners the option to have the equipment with a minimal (or no) downpayment. In exchange, they pay an interest fee. With today’s interest rates, it can make a lot of sense for owners to pay the lease interest and keep their capital working for them in other ways to fuel company growth. That capital can be invested in advertising, shop improvements, better terms/pricing for materials, etc.
There are many factors to consider when managing your equipment expenses. Keep this in mind when making decisions:
Sometimes, the costs you can’t see are more important than the ones you can.
Equipment increases your crews’ productivity. The more work they can complete in a day, the more revenue your company will earn, without adding payroll or overhead costs.
Every business is different and what works for one business may not work for another. Sit down with your accountant and consider both sides of the equation: a) What it will cost you to invest in equipment and b) The cost to your bottom line if you choose not to invest. You might be surprised at what you come up with.
If you are new to LMN and want to explore how LMN can help your landscape business – check out our Workshops
If you are an existing customer who wants to take their knowledge of LMN to the next level, we invite you to explore our Webinars and Certification Programs at the LMN Academy.
Disclaimer: The objective of this article is to explore the typical costs associated with equipment options for landscapers. It is not intended to provide or replace professional financial advice. We strongly recommend that our readers speak to a licensed financial professional for advice on the equipment options that work best for their business.
