BIDDING AND CONTRACTS
by Joelle Steele
Among the questions I am most frequently asked is "how much should I charge?" Unfortunately, how much you charge depends on the way your business is structured. If you are a sole proprietorship with no employees, operating out of your house or apartment, your pricing structure will vary significantly from an incorporated concern with two or more employees operating out of an office with a greenhouse and company vehicles. The catch to this is that if you are one of the "little guys" who plans on growing, it is very important that you think like the big guys and run your business in much the same way that they do.
I often hear owner-operators say, "I just want to stay real small with a few good accounts." Why? Why take on the responsibilities of a business if you don't want to expand? Being an owner-operator is extremely difficult in the long run and it leaves you with very little flexibility. For example, what happens if you want to take a vacation, or become ill, possibly even disabled? What happens if you just get burned out on maintenance? Sure you can hire someone to take over the maintenance for you, but can you afford them? And for how long? Especially if you have been structuring your pricing according to only your own needs.
Think ahead. Think about the economy, inflation, recessions, increases in overhead, insurance, potential losses, possible cancellations, wanting to buy a house, a boat, travel, sending the kids to college, etc.
There are only a three sure ways to make a significant profit in the interior landscape business: installation and plant sales, leasing (interior landscape), and retail sales (garden centers, wholesalers).
If you rely strictly on maintenance for your livelihood, listen to this: if you were to charge $25 per manhour, you would only break even paying a technician about $7.00 per hour! That's because labor rates consist of the employee's salary, employer tax contributions including matching of social security taxes, unemployment insurance, medicare, disability insurance, workers compensation insurance, and all expenses related to the performance of that employee's duties including, but not limited to, vehicle payments, fuel, repairs, chemicals, tools, supplies and equipment, plant replacement costs, training expense, supervisory time and expense, and clerical administration of payroll and other employee-related expenses such as paid holidays, paid vacations, paid sick leave, profit-sharing, retirement programs, etc. Raising your rate every year won't help much either, because all the other costs that make up the hourly rates will go up as well.
So, if you think you want to stay small, think again — and think smart. Many companies start out thinking small, find out they have to grow in order to survive, and are then forced to face the "agony" of trying to change their entire method of operation in order to do so, usually losing many of their clients in the process.
There are no hard, fast rules for bidding and estimating in any industry. One of the most important things you can do for yourself is to make yourself a series of checklists to remind yourself of all the factors involved in a project. Such a list should include items to remember in assembling an estimate. For example, some items could be water access and irrigation, window tinting, controlled watering containers, elevator access, security access, parking costs or validations, non-guaranteed existing plants, possible replacements, initial cleanups, seasonal color/annuals, pest control, etc.
You can photocopy your list and take a copy on each estimate appointment. Leave plenty of room on it for a plant count and/or a detailed description of the job site for use in calculating maintenance time allotments.
The most frequent estimate we're confronted with is for maintenance of existing and/or new plant materials. The main services are watering, grooming, pest control, etc. When the plants are older and more mature, we allow more time per visit for transplanting or pruning. So, why do we have so many problems bidding on maintenance? The answer: we aren't thorough. That's one reason the checklist is so helpful, so necessary.
To give a thorough estimate, you need to think ahead, and not just from week to week. Many interior landscapers lose accounts when "extra charges" for transplanting, insect control, and refurbishments become excessive. After all, you're supposed to be maintaining the client's interior landscape and that means doing whatever is necessary to keep everything alive and healthy. Be sure you include these factors in your estimates. Replacing an old plant or tree is not always an option. Most of the time you just have to keep it alive.
The basis of a good estimate is anchored in the time allotment. If you are intimidated by the thought of allotting time for the care of 25, 100, or 1,000 plants, there are formulas you can use to simplify the process.
Some years ago, I performed some time and motion studies for interior landscape maintenance, and I have since discovered that this basic amount of time per plant per visit (which includes everything short of major transplanting) holds true. My figures were confirmed by several interiorscapers who used similar calculations with great success.
My figures were basically two to three minutes per indoor plant, and that time allotment is designed to include the time spent getting to the plant, removing scissors and clippers from holsters, filling water buckets or pressurized watering devices, hauling trash away, etc. That can be increased or decreased according to all the environmental factors influencing the account, whether or not you use subirrigation, etc. For example if you have ten plants, two of which are marginatas in a hot window, you can hypothetically say eight plants at two-and-a-half minutes each and two plants at three-and-a-half minutes each for a total time allotment of twenty-seven minutes per visit. You can of course, round that off to thirty minutes and multiply that figure times your maintenance rate broken down into a per minute rate.
If you have an hourly rate of $25 per hour, your rate for a thirty minute visit would be $12.50. To that you can add any extras such as parking fees or extra travel time outside your regular area, etc. To get your monthly rate, multiply the weekly rate times 52 weeks in the year to get a yearly rate which you then divide by 12 to get your monthly rate, and round it off.
On the whole, I am opposed to making a half-hour stop for $12.50 because it is simply not cost effective unless you have at least two or more other stops in the same building or in the same neighborhood on the same day. For all other accounts, I recommend establishing a minimum stop charge equivalent to your hourly rate. This doesn't mean you can't do a half hour account, only that you make money when you do it. Remember, the smaller the job in this business, the less money you make per hour, because it all gets eaten up in the biggest of money wasters — travel time, the time when you are not making any money at all, but you are still spending money in vehicle expenses and employee wages and benefits.
Evaluate your maintenance routes regularly to make sure that you are maximizing the maintenance time and minimizing the travel time. I have revised maintenance routes for efficiency and profit for several companies over the years and, in one instance, I reduced travel time by 65% overall — the complete elimination of seven routes. This resulted in the reduction of the labor force by 25% — nine people. It may not seem politically correct to lay off personnel, but when there is that much waste over a period of years, simply because no one ever bothered to streamline the routes as they grew, it becomes a necessity to keep the company going and not have to lay everyone off permanently.
With installations as with maintenance it is important to be thorough. Once again, use a checklist approach and mark down everything you could possibly need: vehicles, containers, soil, topdressing, saucers, protective mats, dollies/hand-trucks, stakes, twist-ties, and labor (manhours). Don't leave out anything. The more thorough your checklist, the less likely you are to have to "absorb" a cost later. Remember that all those seemingly little items can really add up over the space of a year and you could be "absorbing" a big chunk of your profits. And, don't forget costing out the labor. Include everything: design time, checking availability, ordering, selecting (plants and materials), pick-up, delivery, preparation and staging, installation, and any administrative costs.
How much you mark up your plants and materials depends on how much you want to make on the job and whether your net justifies the job. For example, if you do a job that grossed $5,500 and your net profit is only $200 and it took an entire day to do the job, then you missed the boat. You should ideally make a profit equivalent to at least 1/5 (20%) — preferably 2/5 (40%) of the total project price. On a $5,500 job you should be shooting for a profit of at least $1,000. A $200 profit on a $5,500 job simply isn't worth the effort.
The markup on plants and materials varies considerably depending on your clientele, your individual business structure, and what the market will bear in your geographical area. Large metropolitan areas generally have the highest markups. Markups on containers vary according to the same criteria as do plants, plus the consideration of the manufacturer's suggested retail price and the availability of those containers in the retail sector. After all, if they can buy it in a store for less, why bother buying from you?
When it comes to leasing there have been many different formulas used but only one or two are actually sensible and economically sound. I once took a survey in which I spoke to thirty different interior landscape companies to find out how they calculated their lease rates. Out of all those companies, only five were using the same method. The others used similar methods, but all in all, there was really only one that stands out as being the most complete. This method was not used most frequently, but the companies using it were making solid profits on their leasing and were financially stable with strong, healthy growth patterns. You can use this method as a guideline to developing a formula that works for you.
Example of a Leasing Formula
Plants $1,000 x 100%........$2,000
Materials $500 + 50% ........ $750
Subtotal .......................................... $2,750
Sales Tax .........................$179
Guarantee ....................... $250
Labor .............................. $400
Subtotal ............................................. $829
TOTAL ................................................................ $3,579
Total Divided by 12 = Monthly Lease .......$298
Plus Monthly Maintenance .....................$125
TOTAL MONTHLY CHARGE ....................................... $423
The way it works is: Mark up the wholesale cost of the plants by 100 percent (double the cost); take the wholesale cost of materials and mark them up by 50 percent; add sales tax (required in most states on leases of this kind), installation labor, and your projected (estimated) guaranteed replacement costs. Divide the total by twelve (for the monthly rate for a one-year period even if the lease is for twenty-four months). Now, add your monthly maintenance fee to that rate.
You may wish to reduce the markup if you have a two-year contract, but if you don't mark up at all, you won't start making a profit until the second year, barring any major replacements — or cancellation of the lease if the client goes out of business or moves.
Variations on this formula include charging for the installation labor up front, charging deposits of first and last month, using a sliding scale of payments in a declining balance manner over the first three years, and offering buyouts after the first year in amounts ranging from $500 to $1,000.
When you lease, you are leasing your own property, your own assets. They are depreciating in value for the most part and their initial cash value could have earned you money had you invested it elsewhere. So, waiting to get a return on your "depreciating" investment is not good business, particularly if you had to finance the purchase through a bank or through your nursery. You must find a way to earn the investment return you miss out on while your "cash" is sitting in a hot office building being nibbled away at by mites.
With guarantees, there are no cut-and-dry formulas either. You can use a percentage of the wholesale cost of plants based on your average projected yearly loss. In other words, if you are running at a loss of 17% per year, you can use that percentage times the wholesale cost of the plants in your installation. Some companies use a sliding scale with flat rates for certain increments of the wholesale plant costs. For example, say $5 per month for up to $500 wholesale, then $10 per month for $500 to $1,000 wholesale, then $15 per month for $1,000 to $1,500 wholesale, etc.
You cannot do business without a contract. Period. Relying on verbal contracts is unprofessional and foolhardy to say the very least. Don't be intimidated or overwhelmed by the idea of a legal document filled with a lot of mumbo-jumbo that you can't understand. Not all contracts are written that way nowadays (the contract templates I write and sell at my website, www.contractkingdom.com, are written in simple English), and the benefits of a contract cannot be emphasized enough. A contract is just an agreement between two parties — the contractor and the client. It spells out what the responsibilities are for each so that they both understand what their respective roles are in the transaction. That's all there is to it. And while you do need the services of a lawyer, a contract doesn't have to cost you the proverbial arm and leg.
When you consult a lawyer about your contracts, save a bundle by either purchasing a contract template online and then customizing it, or by drafting the contract yourself from scratch, jotting down every single item you can think of that you want to be included in the agreement. Then give that document to your lawyer and let him/her read it and make suggestions or rewrite certain paragraphs to make sure they are not ambiguous or wholly inaccurate. Let your attorney suggest ways in which you can improve on the terms, etc. so that you are fully protected should there ever be a dispute with a client. Remember that what applies to you generally applies to the client, and vice versa. For example, if you are allowed to take legal action to enforce the contract and can recover attorneys fees from your client, the client can do the same. This is not always stated, but it is true regardless. Ask your attorney for further clarification of this should you require it.
Never make the mistake of using someone else's contract for your own, especially in this industry. Before I started selling contracts to the industry, I took about forty-five different sample interiorscape contracts to a lawyer friend of mine who specialized in contract law. He informed me that only three were what he termed "legitimate" and enforceable. So either draft your own contract and take it to an attorney to edit it, or buy a contract online, and take it to an attorney for review.
This article last updated: 03/02/2009.