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Figuring costs

Discussion in 'Introduce Yourself to the Community' started by Mick, Nov 7, 2005.

  1. Mick

    Mick PlowSite.com Veteran
    from Maine
    Messages: 5,546

    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.
     
  2. greenpastureslc

    greenpastureslc Junior Member
    Messages: 26

    Thanks Mick. Alot of good info there. I just emailed it to myself to keep it close by.
     
  3. elmo1537

    elmo1537 Senior Member
    Messages: 116

    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.
     
  4. Mick

    Mick PlowSite.com Veteran
    from Maine
    Messages: 5,546

    Thanks, Elmo1537. Yes, I agree with that. I'm sure there are other things to include, also.
     
  5. elmo1537

    elmo1537 Senior Member
    Messages: 116

    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:cool:
     
  6. Dwan

    Dwan Senior Member
    Messages: 879

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

    Mick PlowSite.com Veteran
    from Maine
    Messages: 5,546

    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.
     
    Last edited: Nov 9, 2005
  8. AmericanHandymn

    AmericanHandymn Junior Member
    Messages: 12

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

    BreyerConstruct Senior Member
    Messages: 132

    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
     
  10. Chris-R

    Chris-R Senior Member
    Messages: 321

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

    Mick PlowSite.com Veteran
    from Maine
    Messages: 5,546

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

    Mark Oomkes PlowSite Fanatic
    Messages: 10,857

    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'.
     
  13. RJ lindblom

    RJ lindblom Senior Member
    Messages: 346

    excellent thread.
     
  14. Young Pup

    Young Pup PlowSite Fanatic
    Messages: 5,489

    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
     
    Last edited: Nov 7, 2006
  15. Mick

    Mick PlowSite.com Veteran
    from Maine
    Messages: 5,546

    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.
     
    Last edited: Nov 7, 2006
  16. Young Pup

    Young Pup PlowSite Fanatic
    Messages: 5,489

    Thanks Mick,

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

    JP
     
  17. mcwlandscaping

    mcwlandscaping 2000 Club Member
    Messages: 2,557

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

    Rcgm Senior Member
    Messages: 613

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

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


    RCGM
    Brad
     
  19. jbone

    jbone Senior Member
    Messages: 154

    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.
     
  20. Mick

    Mick PlowSite.com Veteran
    from Maine
    Messages: 5,546

    $10,000 per inch:drinkup: ;) . 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.