As a business owner, I understand that the cost of landscape services is a significant concern for many of our clients. We strive to provide the highest quality service while remaining competitive in our pricing. One essential factor that affects our pricing is gross margins.
What Is Gross Margin?
Gross margins are a measure of profitability that reflects the difference between the cost of providing a service and the revenue generated by that service. In other words, it is the profit a company makes before accounting for overhead expenses. Gross margins are important because they indicate how efficiently a company is using its resources to generate revenue. A high gross margin means that a company is earning a significant profit on each service it provides.
At our company, we believe that gross margins are critical to our success. We aim to maintain a healthy gross margin to ensure that we can continue to provide excellent service to our clients while remaining profitable. Here’s how we calculate our gross margins:
Determining Gross Margin
First, we determine the direct costs of providing each service. These costs include labor, materials, and any other expenses directly related to providing the service. For example, if we are providing lawn maintenance, the direct costs would include the cost of the labor to mow the lawn, and fuel for the mowers, trimmers, backpack blowers and trucks. For a mulching job, it would be the cost of the labor to edge the beds, pull any weeds, and put the mulch down, as well as the direct cost of the mulch, pre-emergent, and driving to the mulch yard to pick up material which is a fuel cost.
Next, we add up all the direct costs for a particular service and divide that by the revenue generated by that service. This gives us our gross margin percentage. For example, if the direct costs of providing lawn maintenance were $25, and we generated $50 in revenue, our gross margin would be 50%.
In lawn care and landscaping, 50-60% gross margin is a healthy amount. Anything below 50% is where companies tend to run into trouble. Our industry has much higher overhead and equipment costs than most service industries. I think it’s also worth mentioning that gross margin is NOT gross profit. The gross profit of a company that has a gross margin of 50% is around 10-15% whereas a company that has a gross margin of 60% has closer to a 20% profit. If every company was making a 60% gross profit, every landscaper would be living in a mansion!
Not All Services Have The Same Gross Margin
It’s important to note that gross margins can vary widely depending on the service provided. For example, some services, like lawn maintenance, have a lower gross margin than others, such as hardscaping, landscape design or mulching. This is because the direct costs of providing lawn maintenance are typically lower than the costs of designing and installing a landscape. Additionally, hardscaping and landscaping are higher skill services and in the market place command a higher hourly rate.
We understand that our clients want to know how we price our services. We use our gross margins to determine our pricing structure. Our goal is to provide a fair price for our services while maintaining a healthy gross margin. We also take into consideration the local market and the competition when setting our prices.
We believe that our commitment to maintaining healthy gross margins is critical to our ability to provide the highest quality service to our clients, as well as our employees. We know that our clients have many choices when it comes to landscape services, and we strive to be the best in the industry. By carefully managing our gross margins, we can ensure that we are operating efficiently and providing the best value to our clients.
We believe that gross margins matter because they reflect how efficiently a company is using its resources to generate revenue. At our company, we are committed to maintaining healthy gross margins to ensure that we can continue to provide excellent service to our clients, pay our employees a living wage, while still remaining profitable. We believe that our pricing structure is fair and competitive, and we will continue to strive to be the best in the industry.