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Here is what Steve said in an earlier post. Here is my view on knowing your costs.
The first thing you want to do is figure out how many billable hours you will work in a year.
You could calculate that by saying you will work 40 billable hours in a week for 50 weeks of the year. Now obviously this will vary depending on a lot of variables.
But say we go with 2,000 billable hours each year.
Now you want to take all your expenses both personal and business and divide them by 2000.
So as an example,
$400 monthly car payment
$800 monthly house payment
$400 monthly gas
$200 monthly insurance
$250 monthly equipment
$700 monthly tax payments
______
total = $2750
Now take that figure and multiply it by 12 months.
$2750 x 12 months = $33,000
Ok, now let's divide that by your annual billable hours.
$33,000 / 2,000 hrs = $16.50 per hour.
So we now know that you must make at least $16.50 per hour to cover your expenses. If you want to make a 15% profit on that you would then say.
$16.50 x 1.15 = $18.97 per hour would include your expenses plus a 15% profit.
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That is a very simple basic view of knowing your costs. If you want to get into it even further, you can break down each piece of equipment and know what you need to charge per hour per piece of equipment.
How do you do that?
Take a mower you purchased.
Say it's $1,000 and it is designed to last 1,000 hours. With that in mind, you will want to figure it will need to be replaced after a 1,000 so you will want to use the following calculation to figure it's cost per hour of usage.
$1,000 / 1,000 hours = $1 per hour to use.
Now what about blades, oil, gas? You can figure out how often you change the oil. How often you change the blades. How often it burns through gas.
ex.
oil is changed every 20 hours for a cost of $4.00.
It burns 1 gallon every 2 hours for a cost of $3.00.
blades are sharpened every 20 hours for a cost of $5.00.
over that 1,000 hour lifespan how much will these additional expenses cost?
(1,000 mower life span hrs) / (change oil every 20 hrs) = 50 oil changes over the life span of the mower
(1,000 mower life span hrs) / (needs gas every 2 hours) = 500 gallons of gas over it's life span
(1,000 mower life span hrs) / (20 hrs per blade sharpenings) = 50 blade sharpenings
50 oil changes x $4.00 per change = $200
500 gallons of gas x $3.00 per gallon = $1,500
50 blade sharpenings x $5.00 per sharpen = $2,500
Now let's total it all up.
That $1,000 mower over it's 1,000 hour lifetime will cost you...
$1000 mower + $200 in oil + $1,500 in gas + $2,500 in blade sharpening = $5,200.
$5,200 / 1000 hrs = $5.2 per hour.
So every time you use that mower, you have to include in your expenses an additional $5.2 an hour.
You can do this for all of your equipment. Your truck, trailer, mowers, trimmers, etc etc. And then you will know how much your costs truly are per hour.
Does this help.
This is still all basic in it's explanation and we can get into the topic more if needed. I am just trying to not make it too complex and crazy for the first post.
Ya, except he for got Commercial vehicle insurance (dont get caught without it), and oh yeah Uncle sam takes 1/3 of everything you make (after legit expenses) in taxes, and maybe even your state.
In order to Make that 16.50 per hour You need to divide that time .66 for a real income of 25 per hour, then comes commercial vehile insurance, here its around 250 a month divide by 4.3 or another 58 bucks a week. (about another 1.5 per hour)
Then there is your liability insurance, mine is cheap only 1M business unbrella liability for 2K per year ( another buck an hour)
My cost of doing business (fuel, equipment replacement, repairs, maint etc is 13.28 per hour)
so
13.28+1.50+1.00+25 is 40.78 per hour for me, yours might be different.
Helpers cost me 10 in wages, 1.5 in workers comp, 1.6 in matching soc sec taxes plus 1.25 in unemployment insurance or 14.35 per hour, yours may be different.
I add 30 percent for his wages (profit and overhead) for a 19.08 billable hour.
Total for 1 hour with a helper is 59.86.
Dont think because you can do the job in 1 hour with a helper you can do it in 30 minutes with one - don't happen.
It will take 45 minutes.
These figures were based on working 52 weeks, at 40 billable hours per week
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