# Figuring costs



## Mick (May 19, 2001)

There is a lot of talk about figuring costs whenever someone asks “what should I charge” but the problem is that most likely that person has no idea how to figure costs. If they did, they wouldn’t be asking that question in the first place. Since a person asking that question is probably someone starting out with a truck and a plow and not much else, I decided to keep this simple and avoid things like figuring costs of loaders or sanding/salting etc.

This is not intended to be authoritative, but rather someplace to start for suggestions from others with more experience and business knowledge than I have. Feel free to correct anything - I’m hoping to create a thread to refer to when the question comes up.

To figure costs, you will need to start with some basic assumptions:
1. Equipment - 
A. Use replacement costs. Payments (how much, whether you 
have any or not) are irrelevant. The guy who says he 
doesn’t have to make as much as someone else 
because his “equipment is paid for” is doomed to failure 
and won’t be around more than a couple of years - if that.
B. Allow a realistic amount for maintenance and repairs of 
even new equipment. If you don’t have any idea, a mechanic
or someone on this site. 
C. Allow for labor costs. Sure you are doing it yourself - so pay 
yourself. Besides, you just may have to pay someone at some
point.
D. Allow a reasonable profit. Only you can decide what you want to
make.

Ok, as an example, let’s say you have decided to plow with a used truck that costs $15,000 and a plow that costs $4,000 and expect the truck to last five years and the plow to last ten years. Your replacement cost of the truck is $3,000yr ($15,000/5ys) and the plow is $400yr. You have determined that you should expect about $1,500/yr in repairs and $300/yr in maintenance. Your yearly equipment cost is $5,200. Now you will also need to get the figures for insurance (both Commercial Vehicle and General Liability). Lets say $1200 and $800 respectively so that’s an additional $2,000 per year. Total yearly cost of business is now $7,200. Now for labor costs. Let’s say you want to set up a route of five hours. You determine that the average wage for someone to plow is $12/hr, so a five hour route will really involve labor for six or seven hours (travel, maintenance etc) so labor costs will be $84/day. You expect to be out ten days, so labor costs are $840/yr. (You’re using subs so you won’t need Workman’s Comp, Unemployment Insurance etc of employee-related costs.) Now you’re up to $8040/yr. If you figure a 30% profit margin, that’s $2412. You need to make $10,452 over a winter. Now you determine that the average driveway is worth $30 and with a three inch trigger, you will be plowing an average of 12 times over the winter. One driveway will bring in $360/yr. You will need 29.0333 driveways (round up or down, whatever you want). If you want to figure hourly, you will be billing 60 hours (five hours plowing per route times 12 snowfalls that get plowed). So you need to charge $174.20/hr ($10,452/60). If you want to figure how much do I need to charge each driveway and keep my route to five hours, then use $10,452/12(snowfalls per winter)/5 (hours per route)/x (# of driveways you can do in an hour - let’s say six). So you‘d need to charge $29.03 per driveway.


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## greenpastureslc (Oct 3, 2005)

Thanks Mick. Alot of good info there. I just emailed it to myself to keep it close by.


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## elmo1537 (Aug 31, 2005)

*One more thing*

You forgot to mention one of the biggest factors. FUEL!! I know that on average I will usually spend about 10 dollars per hour on fuel if you do the math based on your figures thats 50 dollars per five hour rotation. Time 10 times that you expect to plow that is 500 dollars that has been missed. Now i know that your scenario is not supposed to be perfect but I see 500 dollars as the difference between a good profit and a below average profit.


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## Mick (May 19, 2001)

Thanks, Elmo1537. Yes, I agree with that. I'm sure there are other things to include, also.


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## elmo1537 (Aug 31, 2005)

*You live in Maine*

Did you use your figures for this scenario. I thought that maine got a lot more snow than you figured. I could be wrong


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## Dwan (Mar 24, 2004)

Would be nice to make this thread a sticky. Mick is one person that has a leval head on the cost to do business.


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## Mick (May 19, 2001)

elmo1537 said:


> Did you use your figures for this scenario. I thought that maine got a lot more snow than you figured. I could be wrong


Some, but not all. I wanted to mix it up. There are just too many variables - such as your equipment, triggers, types of insurance etc.

Thanks, Dwan. I was hoping it would be helpful and not seen as just a waste of time reading it.


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## AmericanHandymn (Dec 1, 2004)

Great post...very well thought out and simply worded with examples. Thank you :salute:


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## BreyerConstruct (Aug 17, 2004)

Simple, yet informative.

If you can read & think, you can figure your business off of this model.

Creating a sticky sounds great.

Thanks for taking the time Mick.


~Matt


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## Chris-R (Jul 9, 2005)

Mick: As usual, you have posted something worth keeping. You are a wealth of knowledge. Thank you for sharing it with everyone.


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## Mick (May 19, 2001)

Bringing this back up as it might help with some of those "what do I charge" posts.


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## Mark Oomkes (Dec 10, 2000)

Dwan said:


> Would be nice to make this thread a sticky. Mick is one person that has a leval head on the cost to do business.


Amen. Or every new member could be automatically directed to this thread.

Fuel should be included in overhead, just as the maintenance and replacement costs would be. Overhead is everything that it takes for your business to operate, from the stamps to send your invoices to insurance to utilities to internet access for visiting PS to fuel. This is far from an exhaustive list of overhead items.

Mick hit on the other 2 pieces of the pie already--labor and profit. Labor burden is not just the hourly wage, but also WC, UA (FUTA & SUTA), Medicare, FICA and any other tax burdens\insurance related to paying yourself of employees.

Profit is up to you and this is really the only piece of the pie that can fluctuate without hurting your business in the immediate. You can operate without profit for awhile, but not forever. This is a number that can be used to 'get' jobs as long as you are aware that you will be taking a hit on your profit and you have profit built into your price to 'give'.


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## RJ lindblom (Sep 21, 2006)

excellent thread.


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## Young Pup (Aug 13, 2004)

Mick,

As usual another great thread. I was looking at the date when this was started and it said 11/7. I thought cool it was today. Looked down and you bumped it from 11/07/2005. But how in the heck did you get it exactly one year to the date. 

Keep up with the good information that you post. 

I do have one question though. Because of me being on both sides of the industry green and white my insurance is for both. Wouldn't that make some of the costs a little different? I am just saying that my costs would be over 12 months right?

JP


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## Mick (May 19, 2001)

Young Pup said:


> Mick,
> 
> As usual another great thread. I was looking at the date when this was started and it said 11/7. I thought cool it was today. Looked down and you bumped it from 11/07/2005. But how in the heck did you get it exactly one year to the date.
> 
> ...


Really, pure coincidence. Just thought of it this afternoon. I actually have a file of a few responses I've made and was going to post it again. Then I thought "Why not just bring up the old thread?".

Anyway on the question about insurance for white and green, what I do is separate them for calculating purposes. I have the same situation. My policy is based 50% on Landscaping rate and 50% on Snowplowing rate. So, I use 50% of the premium in figuring snow-related costs. Actually it would be a little more than that cause the snowplowing rate is higher than the landscaping rate, but I'm lazy. Your insurance policy should show what percentage applies to what category or it might show actual costs for each. In my example, though, I didn't want to get that technical and confusing, so I just used the yearly policy to show how it is used to figure costs.


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## Young Pup (Aug 13, 2004)

Thanks Mick,

I will pull the insurance and see if I can find the breakdown. 

JP


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## mcwlandscaping (Sep 8, 2005)

excellent thread! very easy for people to understand and very informative!!!! thanks for taking the time to do that!


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## Rcgm (Dec 17, 2000)

Great thread.So I got this big lot Mick.Was wondering what to charge? Hehe Just kidding.

Very useful and I think it will help everyone out in someway.


RCGM
Brad


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## jbone (Mar 18, 2006)

great thread! I think it was great that you provided examples and included all costs so nothing was left out. I know this may be a bit much to ask but it would be beneficial to see something similar for commercial use. But I understand theres a lot more variables to that than residential But thanks again!

Also: as a side note people should TRY to figure in costs of fuel as well.


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## Mick (May 19, 2001)

Rcgm said:


> Great thread.So I got this big lot Mick.Was wondering what to charge? Hehe Just kidding.


$10,000 per inch  . You'd only need to get thiss one bid for the whole season using a pickup and 7.5' plow. Tell them they should be glad to have you.


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## Mick (May 19, 2001)

jbone said:


> I know this may be a bit much to ask but it would be beneficial to see something similar for commercial use. But I understand theres a lot more variables to that than residential


Anybody with more experience with commercial properties want to try another thread for this? I'm sure it would be a long one.


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## Mark Oomkes (Dec 10, 2000)

Mick said:


> Anybody with more experience with commercial properties want to try another thread for this? I'm sure it would be a long one.


Why would it be any different for commercial? The only difference is amount of time for performing the actual work.


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## jbone (Mar 18, 2006)

Mark Oomkes said:


> Why would it be any different for commercial? The only difference is amount of time for performing the actual work.


Im no expert but I would also think you would have to include acreage, contracts, business hours, a lot more equipment, salt, spreaders, employees, subs, etc.


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## Mick (May 19, 2001)

jbone said:


> Im no expert but I would also think you would have to include acreage, contracts, business hours, a lot more equipment, salt, spreaders, employees, subs, etc.


I think what Mark is saying is that you would still use the same principles. Just apply those things to existing categories.


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## Mark Oomkes (Dec 10, 2000)

jbone said:


> Im no expert but I would also think you would have to include acreage, contracts, business hours, a lot more equipment, salt, spreaders, employees, subs, etc.


By acreage, if you're referring to the property that your\my business is using that's part of overhead. If you're referring to the customers' property, what difference does it make? You're providing a service (selling time) not acreage.

Equipment requirements are also part of overhead, just like the Mick's example, except he was using just a truck with plow. If you have a spreader, use the same formula, it just adds to the equipment costs.

Labor is added to the overhead costs, as I explained in my earlier post. Subs can be handled in a multitiude of ways, either make sure your costs involving the sub are covered or just markup their hourly rate by a certain percentage to cover your costs and add some profit.

Contracts? I don't understand, you should have a contract with any customer and this is included with overhead as well as the lawyer's fee in drawing up\reviewing the contract.

Business hours? Other than determining what level of service and how much TIME will be involved in servicing the account, I don't understand this either.


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## jcesar (Sep 14, 2006)

Mick, 
You did a very nice job of breaking this down. I hope it is as Informative to everyone, as It is intended. Thanks for the analogy. It helps everyone, to see how things are figured, so they have a better understanding of where to start.


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## Added Touch (Nov 10, 2006)

Great information , thanks all !!!!


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## Added Touch (Nov 10, 2006)

*Pricing Help ...bump*

Thought this might be helpful so I am bumping.

Tom


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