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Know your bottomline?

Discussion in 'Business Fundamentals' started by BuffaloSnow11, Sep 18, 2011.

  1. BuffaloSnow11

    BuffaloSnow11 Member
    Messages: 36

    hey everyone, :)

    Ive struggled to learn the costs of business and have read numerous posts on this site and others discussing costs and estimating jobs. I want to go over what my costs are estimated to be and why. For other new people like myself, this may help them understand all the costs they need to figure in and if im wrong on something, hopefully one of the pros here can set me on the right track. So please feel free in giving advice on calculating operating costs. I wanted to post this and openly discuss the costs of operation vs the costs of business. This post is partly what ive learned as a new business owner and partly a request for insight from the pros who have been in the business a while so please bear with me. The last thing i want to do is be a low baller where i burn myself and everyone else long term or be a high baller where i essentially do the same thing. I want to know my base cost of operation and avoid under/over charging customers. I have been figuring out my costs and have come up with a few numbers that i was relieved to see were comparable to what some other senior members have posted in other threads. I have seen people post that their hourly cost is around $100/hr up to $125/hr. I have run the numbers a few different ways and come up with comparable figures both before and after profit is actually considered. The way i figured it one way came out to about $102/hr in actual cost to break even. The other way i figured the numbers came out a bit higher, but comparable. The second way turned out to be $107/hr to break even. Below im going to list my estimated costs and how i came up with these numbers. This is something ive spent many days trying to figure out how to calculate my bottom line and perhaps it may help someone else who's trying to calculate this too. I am a professional in my first line of work and desire to be nothing but that in this business as well. I admire and respect this site, the organizations/associations represented here and the professionals who are here to help the new guys, which makes this business community more effective in serving and fairly charging our customers. :salute:

    this is a lot of figuring and partly explanation to other new guys who are considering getting into this business as i have. try not to fall asleep if you are a pro and looking to help on the topic. :sleeping:

    My basic applicable cost categories are costs of operation, as follows:

    Insurance, Income tax, Employer taxes, Fuel, Labor and Equipment Maintenance
    Materials such as deicers are bought by the ton as needed by job, not really a factor for an hourly cost to operate the business. i mention this more later.

    These categories are directly related to the cost of operation on any given job and are required to complete the job legally. Other costs such as vehicle payments, equipment such as plows/spreaders etc, cell phones, computer, internet, gps tracking, etc are all INVESTMENTS in a business. Investments are costs yes. Costs of business as a whole, not costs of operation on a job. If I choose to have a cell phone, gps tracking, internet, computer etc. than that may greatly influence the profitability of my company. These are not costs that effect Mr. Jones' lot being cleared by the end of the day and he should not pay for it directly. Plows, spreaders and other equipment are an investment that I am making because it takes money to make money. Mr Jones is not purchasing my spreader, plow, etc nor is my equipment up for stockholders to buy shares of. These are investments I buy for myself to give me the ability to provide a SERVICE at a fee. In the end it is my responsibility to determine what level of profitability i need to make per job to replace my equipment down the road when it is worn out or pay for these other costs of business. Maintenance of equipment is billable in my opinion because you are losing wear and tear on your investment to the completion of getting Mr. Jones' lot done. Mr Jones compensates you for his lot wearing your equipment during service. Maintenance, however, is not replacement. Maintenance is regular service and replacement of parts that are normal wear and tear.

    I am not including the following costs as part of the basic cost of operation:

    These include cell phone(s), Trucks/equipment themselves, plows/spreaders, computer, website fees, advertising fees, accounting fees, legal counsel fees, registration/inspection of equipment, cost of payroll processing, human resource management, bank loans, credit cards, etc.

    If you include all of these costs and more then your cost figured on a bid will be astronomical and nobody will want to pay what you ask. These expenses are sometimes initial investments made for a business venture at the risk of the business owner and sometimes they are later investments made to increase profitability and growth of your company in the market. Im sure some may disagree with me, but i can operate a business without marketing/advertising, websites, cell phones, internet, payroll, etc. I am investing in the computer and internet im using to be on this site in hopes that what i learn here will increase my profitability.

    On to the break down of the true (basic) costs of operation:

    Insurance - If you dont have insurance you are either looking to be an amateur lowballer who will get burned long term or looking to get sued and lose your pants. Insurance is pretty straight forward. You need general liability coverage and commercial vehicle coverage to do most average commercial lots. If you go into really big stuff then you need more. Best thing to do is consult your insurance provider. For me im spending about 1,000 on general liability and 1,800 on commercial vehicle insurance. Total im paying $2,800 in insurance costs to operate my business and to complete my jobs.

    Income Tax - self explanatory. Contact your accountant to have an idea how much you will pay in tax based on the amount you are looking at making this year. You should have an idea roughly how much you can make based on the amount of equipment you have and how much work that equipment can accomplish. Once you know all the costs of operation and add in a degree of profit to cover other expenses and growth, you will have a figure to tell your accountant.

    Employer Taxes - Ugh... sigh. Despise these, but to be a professional you have to play by the rules and that means the government's rules. In NY you have to pay worker's comp and unemployment insurance. This will vary on the business because they give different rates for the normal tax and sibsidiary tax for unemployment insurance. These rates also fluctuate based on your specific business' history. Consult your CPA for your own figures. http://www.labor.ny.gov/ui/bpta/TAXRATECALC.shtm and http://www.labor.ny.gov/ui/employerinfo/frequently-requested-information.shtm for NY unemployment info.
    In NY workers compensation info is at http://www.wcb.state.ny.us/content/main/Employers/EmployerHandbook.pdf and http://www.wcb.state.ny.us/content/main/Employers/Employers.jsp.
    I dont have an established business yet and I dont have my final figures on these costs for myself because i dont know how many employees ill have. likely ill have 2 other than myself working.

    Fuel - This is my most difficult estimated cost because many things effect this. In discussing it with other people you have to consider vehicle's gas mileage, weight, # of inches of snow pushed, how heavy is snow pushed, distance between your business and the job site, driving habits (lead feet from a stop), average speed in transport, average speed while plowing, cost/gallon at the pump, etc. Countless variables effect fuel consumption and the price paid so I find this the most difficult to estimate and forecast. In discussing Fuel with Grandview, a helpful member here who lives in my area, it was suggested to use 3 trucks for the 6 lots i was looking at taking on. Of those 3 trucks I should figure 1 tank of gas per truck for the day to complete each event snow flies. I have a 2008 F250 which can cost around $110 a tank depending on costs at the pump. My consumption may vary based on all those variables and use less one day and more another. So I am figuring $110 - $330 of fuel for the workload of 1-3 trucks respectively.

    Labor -This will vary from place to place and depends on the going rate in your area. Another factor is how much do you have to pay for someone reliable. I read on another thread a bonus incentive to reliable employess as part of their pay. Basically you figure what you want to pay them. Say you want to pay your shovelers 12 an hour and the plow drivers 15. (in some areas it will be like 20/25, but not here) you may give your shovelers 9/hr and bank the 3/hr til the end of the season. likewise the plow drivers may make 10/hr for their checks and get the other 5/hr banked til the end of the season and get the lumpsome as a bonus. This helps to encourage employees to stick it out to the end of the season. It was also suggested that the bonus be penelized if the employee doesnt show. first offence they lose half the bonus and the second offense they lose it all. Its more effective then saying you better show up unless hospitalized or dead. Both get your point across, but one is definately more of an incentive. Right now Im going by paying 15/hr for 2 employees and to pay myself, so $45/hour in labor costs.

    Materials - This would be salt/deicer products that are related to a specific job. This is something that can be figured seperately for a seasonal rate and just added into the bid. Here salt by the ton is roughly 65/ton give or take. So then you have to figure in your charge to spread it. Maintenance of the spreader is a factor, fuel and time. This is where additional money can be made on a contract. whatever you charge should take those things into account and the level of profitabilty your overall costs of business will be. Since the spreader is my investment, and the salt is their purchase when signing the contact, I am not figuring in a direct cost of operation to complete the job. The maintenance on the spreader is included with the maintenance of the plow and truck, a seperate category. As the provider of this service the money may have to be fronted at first until payment is received. Whether i am spreading salt on one job or another will not change my bottom line to break even for my cost of operation. I know someone who charges 125 for a ton of salt with the spreading fee. That more than pays for the salt itself, the maintenance to the spreader, the labor and fuel to apply, etc. Therefor if you are salting, it wont hinder your operating costs and i wont use it to figure my base hourly cost of operation. it can be added to the contract later as needed.

    Equipment Maintenance - When a truck breaks down, a plow, a spreader, etc its gonna cost you. sometimes thousands to repair, especially if its the transmission, the suspension, engine, etc. To account for the inevitable cost of repair an amount of maintenance/repair must be figured into the hourly cost of operation. every hour operation continues maintenance and repair inevitably draws closer. I am figuring $10 an hour into my costs on any job that ill bid.

    Insurance: $2800/yr
    Income Tax: I set aside 20% for now and hold my profits til I know where i stand.
    Employer Tax: Im setting aside about $1,000 currently til i have an accurate figure.
    Fuel: $330/event
    Labor: $45/hr
    Maintenance: $10/hr
    Fuel: $330/event
    Labor $45/hr

    Hours / Events per season in my area:
    This can vary a lot, especially if lake Erie doesnt freeze.
    Im going by 28 events i have to come out. half of those events ill make additional trips out.
    Each lot im looking at is approximately 45 mins-1 hour to complete based on storm.
    28 events = 28 hours per lot + 14 hours for additional trips = 42 hours in the season/lot
    42 hours x 6 lots = 252 hours in the season worked.

    Fuel at 330/event becomes 330 x 28=$9240/season
    Labor at 45/hr becomes 45 x 252hrs=$11,340/season
    Maintenance at 10/hr becomes 10 x 252=$2520
    insurance per season =$2800
    Employment tax set aside=$1000
    income tax is taken into account during the bid process but costs and profit must be 80% of the bid. 20% remaining of bid is aside for income tax.

    9240 + 11340 + 2520 + 1000 = $26,900 in seasonal costs of operation
    $26,900 / 252 hours = $106.75 / hr to operate.
    Then add in % of profit for the business to account for other costs and growth.

    Im looking for insight from some professionals here if I made any mistakes, or i missed something. As i read in other threads, some professionals place their operating costs around $100-$125/hr. I seem to fall in that range with or without profit figured into the equation. From what I understand legally, we arent supposed to discuss set rates for customers that all businesses should follow because that interferes with the spirit of competition and keeping costs down for consumers. I wont get into profitability rates or what to charge the customer, but Im interested in discussing the costs of business itself.
    This was a lot of figuring and explaning it took a lot of time so now i see why others havent already posted something similar to help new guys like me.
  2. grandview

    grandview PlowSite Fanatic
    Messages: 14,609

    Here's the short of your post. Guys in Buffalo subbing get around 50 an hr with their truck.

    how are you registering your company?
    Are you a snow only company?

    Since snow season is on 6 months your insurance expense should be figured the same way.
    Last edited: Sep 18, 2011
  3. Spucel

    Spucel Senior Member
    Messages: 413

    Nice post!!Thumbs Up

    Couple of things....

    Did you figure in the additional clean up trips to the lots in your fuel/labor costs?

    I have to pay my general liability for the entire year but I am only on the commercial policy for the months that it snows then I go back on to the personal policy with momma. Saves big cash.payup
  4. chevyman83

    chevyman83 Member
    Messages: 55

    Nice post. This will be my first year with more than 1 truck/plow and am currently attempting to figure out these costs for my self. If I follow correctly the $100-125/hr cost is to operate all 3 trucks together correct?
  5. NickT

    NickT Senior Member
    Messages: 707

    Very informative post, makes a lot of sense looking forward to hear more input from other members.
  6. merrimacmill

    merrimacmill PlowSite.com Addict
    from MA
    Messages: 1,822

    I would suggest the budgeting tools that the landscape management network has on their site. Its worth the money, and is very helpful to get started. Just google the name and watch the videos.
  7. grandview

    grandview PlowSite Fanatic
    Messages: 14,609

    I think its per truck.
  8. BuffaloSnow11

    BuffaloSnow11 Member
    Messages: 36

    I am not looking to sub, at least not exclusively. I may sub out my work to others however.
    I am not a snow only company. My company manages property year round for a variety of needs. Doing snow exclusively leaves a lot of time in the year that no money is made and insurance for a snow only business actually costs a lot more than other businesses that are year round. I plan to focus my business on snow removal, but by doing spring, summer and fall work i am legally entitled to better insurance rates. I do everything legally. Thumbs Up
  9. BuffaloSnow11

    BuffaloSnow11 Member
    Messages: 36

    I figured 14 additional hours of labor for fuel and laborper lot beyond the initial trips per snow event.

    As for insurance i spoke to my insurance agent who explained the pros and cons of various insurance rates available to me. basically by me offering more services year round it is cheaper than a snow only business 6 months a year.
  10. chevyman83

    chevyman83 Member
    Messages: 55

    I don't see how it can be all his figures are as a whole
  11. BuffaloSnow11

    BuffaloSnow11 Member
    Messages: 36

    That is what i am figuring yes, but that is based on the number and size of lots im looking at and grandview's advice that it will take 3 full tanks of gas for 3 trucks to stay on top of and complete 6 commercial lots that are 24,000 sq ft - 40,000 sq ft. That is also providing your employees are at 15 /hr, etc.

    your individual bills may be slightly different. this is my example of what my bills appear to be, but i wont know til i complete a season how accurate it is. im hoping some of the pros here can say whether these figures look accurate based on their own experience.
  12. chevyman83

    chevyman83 Member
    Messages: 55

    Personally I think your fuel expense is high compared to your expected hrs per event.

    6 lots x 1 hr ea = 6 hrs + 1/2 for return cleanup = 9 hrs / 3 trucks = 3 hrs per truck
    $110 per tank of fuel. I'm guessing about 30 gal tank? 30 gal / 3 hr = 10 gal/hr per truck

    I don't think my 454 big block is that thirsty. But I do agree that when predicting costs it's better to figure on the high side. Just saying that actual fuel cost probably won't be that high.
  13. Brian Young

    Brian Young PlowSite Veteran
    Messages: 3,382

    This is a great post wether it be wrong or right. This is what guys should be doing before they even start thinking forming a business. One thing I don't understand though, how can you not include a truck, plow or spreader into the cost of an operation. We have 3 different costs, a cost per hr for a truck, a loader and a skidsteer. These to me are all things to include into the cost of operation. Its up to you to decide if you need a 60k truck or a 20k truck to plow snow with but either way I think need to be included because without them you obviously wouldn't be able to provide that particular service.
  14. Mick76

    Mick76 2000 Club Member
    from Maine
    Messages: 2,157

    Buff, I agree with Brian above...... I wish everyone that posted would do their homework like you've done... kuddos too you!...... This is something that might help you..........
  15. BuffaloSnow11

    BuffaloSnow11 Member
    Messages: 36

    Yes i think its high too. i thought gas was going to cost me a third of that. maybe my first guestimate was actually low.. maybe it was accurate i have no idea. this current figure for 3 trucks was advice i got on this site to do the 6 commercial lots im looking at. maybe the amount of time im estimating for each lot is wrong, but i dont think so. these arent shopping malls and other people i know who have been to these lots guessed about an hour each, unless they were wrong too. if you want to see the lots, there are measurements and photos in a thread under bidding and estimating, the thread is called first year, have mercy, advice pls!

    i fugured i could complete all these 6 lots with one truck, although i was looking to use 3 for better service because 1 truck would take several hours to return in a bad storm.
  16. BuffaloSnow11

    BuffaloSnow11 Member
    Messages: 36

    For bidding and estimating you can have formulas that show plows = $x, spreaders = $x skidsteers=$x for your lot Mr. Jones. that is one way you can figure your estimates.
    My problem with that is when starting out you owe everything on just about everything. If i add up the cost of my truck, spreader, plow, blower, etc the number quickly gets out of control. How then do i dvide how much of that number Mr. Jones should pay for? It was making my bids really high. Maybe there is a better way to figure these things out. Thats what im trying to discuss. I need to accurately figure my costs and its proving very difficult without the experience of a few serious seasons under my belt. I like the simplicity of the $x per specific type of equipment, but i dont know how to even come up with that number without coming up with the cost of operation first. Maybe you could elaborate to help me understand how to be more accurate.

    thanks for the input!! :)
  17. alsam116

    alsam116 Senior Member
    Messages: 210

    with your truck and plow and spreader take how many years in service you will get out of the piece and then divide the cost of the equipment by that many years. example: plow $5000 new youll get 5 years out of it(minimum) so thats $1000 per year, now divide that by the estimated hrs per year you have the plow working and thats what it costs per hour for the plow. then add that to the COST of the hour you have figured out.
  18. BuffaloSnow11

    BuffaloSnow11 Member
    Messages: 36

    im not sure how many hours or properties i can cover in a season per truck without overloading myself/neglecting properties and while still maximizing the profit/hours that i can work in a season.
  19. Spucel

    Spucel Senior Member
    Messages: 413

    Well start out with what you know you can handle and as you get more expirence under your belt add more properties. I would rather start out slower and have all of my ducks in a row then try to do it all at once and not have the quality you want.
  20. Brian Young

    Brian Young PlowSite Veteran
    Messages: 3,382

    Thats great advise! There are no amount of spread sheets, calculation's or fancy ways of estimating that will replace experience. Its not rocket science that the closer things are the better your bottom line will be. I was taught to find your aprox. hourly rate you add ALL of your expenses and divide the total by the amount of total hours. Then don't forget to add in a typical business profit of somewhere around 35-40%, well in this industry it's more like 5-15% profit. Compare these prices with other companies in your area (make sure your sitting down) and go from there. There's a large snow operation in my area who runs 18 front loader's, about 15 of his own trucks, 12 salt trucks and subs out around 30 guys. I'm sure his overhead is considerably higher than mine but he's charging the same price for things as I am. Find a local college kid who's major is business and give him a project to do,lol.