Understanding chargeout rates and business costs

Settling your hourly rate at a level that is profitable is extremely difficult to get right but it is the single most important aspect of any business that should get the closest of your attention.

Make a howler with your calculations and trading will come in below your expectations and if you are relying on profitability for expansion, you could easily waste a whole year as your competitors, who may have been more diligent, pass you by.

That is why I have started on a series of simple tools that will assist in understanding and applying the costs to your operation so that you can trade profitably.

It does take a bit of work and thinking but when your business and personal life depend on it, it could be the most valuable time you have ever spent.

For someone who is looking to start a small gardening business, I have produced a simple spreadsheet - calculating your hourly rate - which helps to understand how a charge out rate is achieved.

I have also added a formula - Treating your travel costs as a cost of sales - for turning your fuel costs into an hourly rate so that you can apply apportion costs accurately to each project rather than setting a rate as an overall over head.

The advantages are, you can identify if a job is going to be worthwhile to price for or if you can be competitive enough. The example I have highlighted, which details 840 miles at a cost of £600 for a six week project, provides evidence that a competitor who is within a couple of miles of the project will complete the job sooner without the fuel costs.

You will have to make your mind up if you can compete or if you are willing to try and reduce the time on site with the potential for quality reductions or absorb the cost to remain competitive?

Many garden related businesses take a guess and do not really know if they are pitching at a profitable rate or not and just rely on cash flow to keep them going. The problems start when economies slow or a long stretch of poor weather means this constant flow of can leaves them vulnerable.

You need that fat, which profit will provide, to cushion against catastrophe - get this right and you will be a force to be reckoned with.

Comments

[worms]

I think you need to add a conversion factor to turn the miles per gallon into litres of fuel or p/l in the spreadsheet. Easily done by adding in a multiplication factor of 4.6 in to D36:D47 or F36:F47.

Or have I missed something?

[Philip Voice]

Good point worms - I will amend the sheet

Thanks

[John Whiting]

Hello

i'm new to the site, so would you be kind enough to send me a copy of the spreadsheet. Many thanks. John

[Philip Voice]

Hi John

The link to the spreadsheet is in the text above:
http://www.landscapejuicenetwork.com/forum/attachment/download?id=2074886%3AUploadedFi58%3A10146

Hope it helps?

[robin ainsworth]

good figures - but i wish we had 40 hrs for 50 weeks though with no rain, paid holidays /sick pay and pension !

[SelectGardens]

My way is this-

Day rate = Wages + business costs divided by working days in a year.

Hourly rate = Wages + business costs divided by working days in a year divided by billable hours per day.

Working days = 365 - weekend days (104) - annual leave (30) - bank hol (9) - unproductive days (8) = 214

Billable hours = on an 8 hour day approx 6

Hope that helps someone

[sparks]

I'm not a gardener, I'm an electrician and the above post isn't far off the mark. A rule of thumb is to assume you will only work three weeks a month. This will bring your billable hours to 1440 hours per year.

[Judi Samuels]

Thanks everyone.. I've read all your comments, really useful stuff! :-)

[stuart prendergast]

Hello,

I have just discovered this site very informative indeed.
I have clicked the link to the spreadsheet mentioned above but it just says page not found.
Could anyone help?

regards

Stuart