It is relatively easy to recover labor costs on a landscaping or lawn maintenance job. You estimate that it will take X labor hours to finish a job, so that's what you bill the client for. But what about all of the time your guys spend sitting in a truck traveling to and from jobs—which can become somewhat problematic if you're in the maintenance or lawn care business?
Financials expert Frank Ross says there is no unequivocal best method for recovering travel-related indirect labor costs. He offers one caveat, though: You have to be consistent.
"If you estimate a certain amount of travel time to a given job, you have to track it to that job," Frank explains. "You also have to budget that time to the job, and your pricing strategy has to reflect it."
Some contractors, especially maintenance contractors, simply assume that there will be a certain amount of drive time every day. They then work hard to keep this time to a minimum through efficient routing and tracking mechanisms. But they basically treat drive time as an overhead cost. Frank says this isn't necessarily a wrong way to go about it.
However, Frank would prefer to see a company assign drive-time cost to specific jobs. Consider the following two examples:
- Job #1 is 10 minutes from your shop. If you're sending a three-man crew, you're looking at a half hour (30 minutes) of travel-related indirect labor cost.
- Job #2 is 45 minutes from your shop. If you're sending a three-man crew, you're looking at 2.25 hours (135 minutes) of travel-related indirect labor costs.
The problem is that both of these jobs are contributing an equal amount to help recover your total travel-related cost—IF you are treating drive time as overhead and then assigning a certain percentage of overhead to jobs. But that doesn't make sense because Job #2 requires significantly more travel time.
You want your pricing strategy to reflect your true costs. "You simply can't drive that far and provide the same value for the same kind of price," Ross points out. Too many of these types of jobs can erode your overall profitability.
One more benefit of tracking drive time to jobs. It is very helpful when establishing accountability among crew leaders. "When you can tell a crew leader that he's in charge of a certain block of time for his crew on a given day, and that block of time includes drive time, that crew leader can take 100% responsibility," Frank explains. "It's simple: The landscape company owner is going to make more money when his crew leaders take ownership of time over the course of a day. It creates another control mechanism for the owner."
If you're like 90% of landscape contractors, you could use some assistance with financial matters such as recovering costs. Frank Ross can help. Check out his new training program: A Better Way 2 Learn Financials. You can download the first two lessons for free!