Small numbers multiplied by large numbers produce large numbers. For instance, if you have an average of five people working in the field an average of 2,000 billable man-hours each per year, you’re billing 10,000 man-hours annually. If you raise your average man-hour rate just $2, you’ll add an extra $20,000 (10,000 MHrs x $2) to your bottom line. If you raise your average man-hour price $5 you’ll add $50,000 to your bottom line. Let me show you why you need to increase your labor rate at least $2 and probably closer to $5 per man-hour.
Brian Lahr is president of Supreme Lawn & Landscaping, in St. Cloud, Minn. We just met for his mid-year review (MYR) in July. Even though we made some significant price adjustments last winter, current economic conditions required us to make even additional ones. We increased the cost per hour (CPH) for his trucks $3 due to additional fuel price increases and a $15,000 increase in the price for a new truck. If you anticipate a 10,000 billable hour lifetime for the truck, the price increase alone translates into a $1.50 CPH increase ($15,000 ÷10,000). Running six crew trucks over the course of a year, the $3 per hour increase should add $18,000 to the bottom line (6 trucks x 1,000 hours per season x $3.00).
Olin Unruh is president of Wetlands Irrigation located in central Kansas. During his recent MYR, we calculated his irrigation service rates for 2023. Due to anticipated cost increases for labor, general inflation and the price of fuel, his rate per man-hour for an irrigation service tech will increase from $5 to $10. If Olin bills roughly 5,000 irrigation service man-hours, this increase should add from $25,000 to $50,000 to his bottom line in 2023.
A lawn care contractor on the East Coast who desires to remain anonymous increased his average rate per 1,000 square foot of turf $1. This increase reflects the average increase in labor, products, fuel and inflation. His technicians apply product approximately 160 days per year and average 100,000 SF per day. This translates into a price increase of $100 per day or $16,000 per season per technician. Multiply this by 10 technicians, and the result is an extra $160,000 added to the bottom line.
Truck and equipment cost increase examples
A. Ride-on mower: Let’s estimate that this mower consumes one gallon of fuel per operating hour, has an operating life of 2,000 hours and cost $13,000 to purchase one year ago. This mower now costs $15,000 and fuel has increased from about $2.50 to $4.50 per gallon. This translates into a $3 increase in the CPH for this mower.
B. One-ton crew truck: Lifetime costs (acquisition, maintenance, insurance, interest, fuel, etc.) used to cost about $140,000 for this vehicle. Divide this figure by its 10,000 lifetime billable hours and its CPH is $14. Today lifetime costs have increased $40,000 to $50,000 ($10,000 added to the price of the truck and $30,000 to $40,000 for fuel). That translates to a CPH increase of $4 to $5.
C. A skid steer or mini-excavator that used to cost $55,000 probably costs at least $65,000 today due to inflation and parts shortages. Burning an average of two gallons of diesel fuel per hour over its 3,000-hour lifetime adds an extra $12,000 to $18,000 to its lifetime cost. These increased costs add from $7.33 to $9.33 to its CPH. (($10,000 purchase increase) + (3,000 hours x $2 fuel increase per GL x 2 GLS per hour) ÷ 3,000 Hrs). The total CPH for these machines went from about $40 one year ago to about $50 today.
Multiply the average number of field man-hours worked by your average number of full-time field employees. Then multiply the total man-hours worked in the field by an average $5 per man-hour increase.
40 weeks x 45 MHrs per week = $1,800
1,800 x 5 FT field employees = $9,000
9,000 x $5 average increase = $45,000
Your average man-hour rate increase may be more or less than my $5. Either way, it is an increase. Remember, a small number multiplied by a big number is a big number.
While customers don’t necessarily like price increases for the products and services that they use, they tend to understand and tolerate them. Ironically, they seem to be more open to accepting price increases than green industry contractors are willing to make them. You need to close this gap.