[Dale Wiley]

A lot of landscape company's historically think they have top work a lot of overtime because of short seasons, weather... etc. They inccur a lot of overtime at normal company hourly billabe rates and then wonder where the profits went... Consider this:

Company Billable rate is determined this way:

Direct labor cost is average company wage divided by seasonal hours worked by all field produciton is $ 15.05 ( 43%) never higher..

Overhead rates is determined by all company overheads divided by seasonal hours worked by all field personell is $ 14.95
(42% + - ) upper limits...this includes all equipment.. no materials.

Total Cost per hour is $ 30.00. 15% net profit desired is $ 4.50 per hour.

Total Company billable rate is $ 34.50 per hour.

Company contracts work at at that rate.

Job goes into OT. Company COST has now went to :

$ 22.58 for direct labor.
$ 14.95 for overheads. ( There are increases here, difficult to quantify and apply here.

Cost with NO PROFIT is now $ 37.53 for a net loss of
$ 3.03 per man hour on that job.

The effect is then expotential, because that will impact the net profits on other work that is profitable, driving that profit down to $ 1.47 per hour or 4.3 % net profit, which is not consistent with the company needs of 15% and is a very poor ROI on the invesment and probably will not met the overall long term needs of the business.

This is on fixed rate contracted work at your company billable rates. If you can add on $$$ to cover that OT, then your OK... if not then your losing money.

[Paul]

OK I have a couple of questions.
At what time does it make sense to add employees?
If I run 10 men full time at (labor rate here is $35 hr.) for 32 weeks and only run straight time 40 hrs per week payroll is going to cost me $448,000! Now I can run 7 men those same weeks but add 9.5 hours per week to their time sheets still with the same payroll of $448,000. I have reduced my payroll costs (because of graduated unemployment rates, lowered my W/C insurance rates (it only gets figured on straight time)

All above numbers include taxes that the employer needs to pay.

Here's what I've found over the years, Owners never really figure out what they have to pay employment taxes. These are direct numbers that never get added to the bottom line of what a employee costs the owner. Depending on the state this could be anywhere from 23% to 35% of the workers wages. So now we have a owner that thinks he's on top of the game adding in 15% profit while it's really costing him another 10% to 20%...........

Over time can reduce costs ok I shouldn't say reduce costs I should say minimize costs ............... Now for me to add those three men to my crew I need to add another truck, trailer, and tools to support them. Along with increased costs in General liability and auto insurance. Now add in increased fuel costs.... and support for the new equipment (I need to add in extra replacement costs) my standard overhead is now rising.

At some point you do need to add people when your running OT but make sure your are going to add enough profit on and cover all your bases before you do. Don't go adding people on unless you have the sales and forecast enough sales to cover the expenses that your company will incur.

[site]

Dale you have hit on a subject that I haven't seen discussed too often. It is never easy to forecast exactly how much manpower you will need for a season. For a couple of years I tried to add employees and avoid paying overtime. It didn't work for me.
I would look around at all those employees and say to myself "I don't have enough work scheduled. I had better sell some more jobs." Then I would rush out and sell the first couple of jobs I could find. These were the same jobs I would have passed on with a smaller crew, but I had bills to pay.
Another mistake I made was failing to develop experienced leaders for the added crew members. You can imagine the disaster that followed. I was sending marginal crews to marginal jobs and hoping for my typical results. Usually I would have to send a hand picked "good" crew back to the marginal jobs to fix mistakes. Meanwhile the "good" crew's job would suffer at the hands of the "other" crew. It was a vicious cycle. We also ended up working a fair amount of overtime to try to stay on schedule.
One morning it hit me like a slap in the face. I looked at the 13 people working for me and thought "These people aren't working for me, I'm working for them. And, I'm losing money like crazy." Right then and there I started to clean house. Over the next six weeks I got rid of seven employees and 5,000 headaches.
This year I stuck with 6 employees all season. I paid a fair amount of overtime, but had my most profitable season yet. I had $116,000 in payroll, and have done just over 1 million in sales. From now on I will think long and hard before adding employees. I would much rather pay overtime.

[Paul]

Site reminds me of when we started to expand, One contractor used to call me up and ask for the A-Team
I soon learned how to break up a crew of experienced people and each them to do certain job. Digressing a bit, when we where doing well over 1million a year, I had certain crews that would handle different types of work. Now all crews could do most of the work, we had but for streamlining I had 2 hardscape crews, and 1 softscape crew. One crew would build the walls, another would install pavers and the third would install plants, sod or seed. The 10th man would be the deliverly driver/equipment mover.

[Dale Wiley]

At what time does it make sense to add employees?

Good question...it can be different for every company...

I have projected out my overhead for next year. This baiscally drives how many production hours I need to sell to pay overheads and achieve the net profit I want. I look at the numbers of direct labor hours that will b e required and what I feel will be the growth factor we will see or feel comfortable dealing with. Not more than 20% growth in a given year is still manageable, both financailly and operationaly with out screwing up real bad.

I then put the cap on the number of employees that I need to complete the production hours required to meet company overheads and net profits goal's. I track the production hours sold, and track the production hours completed so I know where I am at at any given hour of the day.

If I see the sales rising over the projected sales with 20% growth added in, then we look at what we want to do..hold the line or look at some type of expansion plan the we have not projected for.

The labor rate I put up includes that labor burden including taxes. Health insurances and holidays are covered in overhead catogories.

I had $116,000 in payroll, and have done just over 1 million in sales

That is the best per employee gross sales I have ever seen. I have worked directly with over 125 landscape company's and most have been hard pressed to make 100K per employee and some have been down around 70K.

Another mistake I made was failing to develop experienced leaders for the added crew members.

Training program.. training program.. training program.. learn to earn.. job classifications and skill set achievement levels for each job classification and level within the job classifaction. By the time the employee has completed all levels, you will probably will be paying them $ 17 an hour or more, but they will have a journey man level of skill's, and with a good set standard of work quality, work behavior, good progressive discipline outlines and policy, a fair production based bonus program..

You would be surprised at what motivated employees can accomplish. Most landscape companys operate at a prodcution efficency level of a maximum level of 80% to 82%. I have seen multi million dollar company's operating at 75% effiency and bidding at those rates.

That support time of 12% to 25% is where employees can really help you out. That is like billable time just waiting to be billed. The employees if presented with the properly constructed bonus program can add 5% to the billable hours just by streamlining the support process, much like Paul did with his skilled crews and the jobs being done by the best qualified crew. Having that driver help big time.. if an employee is offered an opportunity to make more money in a 40 hour week, and you can bill 45 to 50 hours while the employee works 40 and is bonused for the additioanl hours, that employee will find ways to become more efficent than you or I ever thought of...

Now for me to add those three men to my crew I need to add another truck, trailer, and tools to support them. Along with increased costs in General liability and auto insurance. Now add in increased fuel costs.... and support for the new equipment (I need to add in extra replacement costs) my standard overhead is now rising.

Very true... but are you not also adding another 120 billable hours per week ?? $ 16,800 per month or $ 151,200 in a 9 month season..that should cover the increased capitalzation required to field the 3 man crew..the overhead rate should stay the same or even drop..

The one thing in OT that is hard to cover is the increases on payroll based items... WC, liability insurances, fuel coists.. real hard to quantify..little easiuer to predict if your planing the growth.

have reduced my payroll costs (because of graduated unemployment rates, lowered my W/C insurance rates (it only gets figured on straight time)

Not in my state... total payroll determines WC rate payments here..my WC goes up parallel to overtime payments.

[Stonehenge]

site - doing that biz volume for the # of employees is fantastic. I'll have 6 guys by early-mid season next season, and the goal is to hit just over half mil.

[Paul]

Here's my point: those 3 men reduce my standard over head by $16.74 but then raise it $4.20 to equip them. So I would see $12.54 reduction per hour in over head.
But with my increase in W/C and Unemployment taxes (it pushes my company to the next higher rate (a .75% increase) makes it not worth the extra support needed to train and equip them. Now if I could lower my base pay rate (I can't do that due to unions and state laws)

[agla]

Availability of qualified help comes into play a lot more in different regions of the country. If you don't have the men, the only way to do more volume is to do more hours.

Who does not want to not pay time and a half? Who does not want to keep operational costs down? Sometimes a bigger gross at a smaller profit percentage is going to mean more profit. It is all fluid depending on each company's ability to get jobs, get help, get the job done and then to manage. Some individuals are better at different aspects of the dynamic and will arrive at success in different ways.

Reality for each individual company and text book management do not go hand in hand. Almost every new young landscaper asks these questions:
How much is the standard mark up on product?
How much is the going rate to charge for labor?
How much can I expect to make a year?

There is no concrete answer. It is all based on so many different circumstances and abilities. The same is true in management. Yes, keep expenses low, profit high, and volume growing every day. But each of those are effected totally differently by circumstances including region, economy, availability, demand, competition, and so forth. Further throwing a monkey wrench into it is the ability, education, and personality of the company owner as to what and how much he can handle managing and producing. There is no right model that everyone should follow, just the right one for each company's circumstance and abilities.

That is just an opinion, I am not a business guru. I don't think that most landscape companies are run by business guys turned landscaper, but by landscapers turned business guys.

[Nebraska]

That is just an opinion, I am not a business guru. I don't think that most landscape companies are run by business guys turned landscaper, but by landscapers turned business guys.

Alga that is a FACT! In my case I was a sales manager turned self-employed landscaper and slowly evolving into a real business owner.

[site]

During my "large crew period" I was listening to business gurus who suggested standardizing procedures and breaking down tasks into manageable peices so that almost anyone could do the job. However, I was lacking good foremen, so the training was weak at best. It might have worked better if I had been adding employees slowly and carefully, but I wasn't. Another thing that happened when I let the crew size get out of hand is that by necessity I was further away from the work being done, and a lot of things went wrong. All the while I was listening to the advice in my head and trying (too quickly) to build a business that would run itself.
When I unloaded the excess employees I also unloaded the notion of the business fuctioning without me. I know now that my strong point is directing the jobs. I'm going to keep it simple and chase high profits. When I die, or quit, the value of the business will probably plummet, but hopefully the high profits in the shot term will make that easier to swallow

[Stonehenge]

site, if you die, I think you'll have a hard time swallowing anything.

I do find your story compelling, that you saw a problem and took what had to be difficult steps to right the ship (letting go several people).

[scl]

Man this is so appropriate.
As of next year (or maybe nexr week), I NEED to get some help on board. I've been fighting this because of all hassle but its gotta happen.
Dale and Paul both make great points, years of working in another biz and a little school have helped but it still scares me.