Ever wonder how much of your landscaping business revenue should go toward labor?

Labor costs are one of the biggest expenses in business. You can’t afford to be unsure how much revenue is spent on your workforce and what that figure should ideally be. 

Without clear visibility into labor expenses for each project, you risk shrinking profits or your ability to scale. That’s why this guide breaks down:

• The percentage of revenue to be diverted to labor based on industry standards.

• How the labor percentage affects your profitability.

• Common labor-cost inefficiencies in landscaping operations.

• Ways to reduce labor costs to increase your business's profitability. 

The goal is to help you benchmark labor costs and implement strategies to optimize workforce efficiency and profitability.

What percentage of revenue should be allocated to labor in landscaping?

Most landscaping businesses spend between 25% and 50% of their revenue on labor. Where you fall in that range depends on several factors, including: 

• Your business model 

• The type of services offered 

• Company size

• Local wage rates

• The complexity of your job

That said, industry benchmarks show that a well-run landscaping business with a 10 to 14% net profit margin typically aims for a 45 to 50% gross margin. To hit that target, labor would generally account for around 25 to 30% of the revenue.

Here’s a simplified breakdown. If a project's revenue is 100% and you’re targeting a gross margin of 45 to 50%, materials may account for 20 to 25% of the revenue, while labor consumes 25%.

This ratio works well for landscaping companies offering maintenance services, where material costs are minimal. However, for design-build companies, material costs are higher, so the labor percentage might drop to 20% to maintain a healthy margin.

Also, if you’re a large business with overhead labor (non-field workers), you should factor 11 to 15% into your labor percentage to cover those indirect costs. 

NB: If labor accounts for more than 50% of revenue, it likely signals operational inefficiencies that can erode profits.

How does labor percentage affect profitability in landscaping?

Labor costs are crucial to your business’s profit margin and affect your ability to scale business operations. If it eats up too much of your revenue, you’ll struggle to hit a healthy profit margin. 

Imagine your company earns $1 million in revenue.

• Labor costs take up 25% ($250k), which falls into the ideal percentage range.

• Materials: 25% ($250k) 

• Gross Margin: 50% ($500k)

• Overhead costs [equipment, rent, admin]: 36% ($360k)

• Net profit: 14% ($140k)

Here, your margins are within industry benchmarks, and you are making solid profit. 

However, a higher labor percentage, say 40% of total revenue, will have a devastating impact on profit. Here’s what you’ll have: 

• Labor costs: 40% ($400k)

• Materials: 25% ($250k) 

• Gross Margin: 35% ($350k)

• Overhead costs (equipment, rent, admin): 36% ($360k)

• Net loss: 1% (-$10k)

When labor increased by 15%, it put the business in the red.

So, why does labor affect profitability so much?

Because it’s essentially a semi-fixed cost in landscaping projects. Once you send an estimate to clients and it's approved, it becomes very difficult to increase the price. 

So, if labor runs longer or your team underperforms, the business bears the cost, directly cutting into your profit. 

Understanding the nuance of labor costs when building estimates

That’s why it’s important not to underestimate labor costs during bidding. In addition, you should leverage job-costing tools to consistently track actual labor costs against estimated costs to catch overruns. This makes it easy to adjust pricing, staffing, and scope accordingly. 

Now, while it’s advised that labor costs should always be within industry benchmarks, there are times when being high is justifiable:

• More maintenance projects: If your company takes on more maintenance jobs, minimal material is used. As such, labor takes up a larger percentage. This still leaves room for a healthy profit margin if you control overhead and stay efficient.

• Labor-intensive or custom jobs: You need professionals with specialized skills. Labor percentages may go higher than industry averages as long as it’s reflected in estimates. 

• Geographical and market factors: If you’re in a region with a high cost of living and wage rates, labor costs will undoubtedly be higher. Just ensure this reflects in your pricing to maintain profitability.

How is labor cost calculated in a landscaping business?

Calculating labor cost goes beyond hours worked or wages. While they’re definitely a part of it, you also need to consider the labor burden (the hidden costs of hiring someone). These include:

• Benefits

• Taxes

• Overtime

• Insurance

• Paid time off

• Training

• Retirement contributions

With all of that in place, here are the steps involved in calculating labor costs:

• Start by estimating the hours required to complete the project. This calculation should reflect the complexity and scope of the job, including crew experience and efficiency. 

• Define the hourly wage for employees or contractors.

• Determine labor burden costs. Add up workers’ compensation, payroll taxes, health insurance, benefits, and paid time off as a percentage of base wage. It’s typically 30% of the base wage.   

Then, use this formula to calculate total labor cost: Hourly Wage × (100% + Labor Burden Percentage)×Total Hours

Practical example: Your company’s hourly wage = $20

Labor burden = 30%

Total hours = 40

Labor cost: $20 × (100%+ 30%) × 40 = $1,040

Beyond wages and labor rates, don’t forget overhead costs like crew transportation, admin, equipment maintenance, and uniforms. These don’t go into the payroll, but significantly impact your total labor expenses.

What is direct vs. indirect labor in landscaping?

Most landscaping business owners typically think of the crew laying pavers or applying fertilizers. But they often overlook people behind the scenes—the estimator or administrative assistant ordering materials.

Both types of workers play a key role in a project’s success and impact your costs. Here’s how they differ:

Direct labor is the work done by your crew or contractors directly involved in executing landscaping services on-site. 

This covers activities such as planting, mowing, hardscaping, irrigation, and other hands-on tasks that contribute to the completion of a landscaping job. 

Direct labor costs are typically tracked by hours spent on a job and form a key part of job costing and pricing.

Indirect labor refers to the tasks performed by other employees (office staff, supervisors, etc.) who support landscaping operations but don’t directly work on the projects. 

It refers to scheduling projects, assigning tasks, ordering materials, organizing training, documenting records, and other administrative tasks.

What are common labor cost inefficiencies in landscaping operations?

You’re spending more on labor than you should and getting less profit? That’s called labor cost inefficiency. 

Below, you’ll find different ways you might be wasting money and time on workers and how to stop them. 

1. Inefficient scheduling and dispatching waste labor hours

Picture this: You have two landscaping crews and two projects—one on the west side of town, the other on the east. Let’s call them crew A and B, and project A and B for clarity. 

→ Crew A is already working near Project B and has a few hours left before they’re free.

→ But instead of assigning them to nearby Project B, you send Crew B (who’s idle) to Project A, then across town to Project B.

→ So, Crew B wastes 2 hours driving between job sites instead of working; hours you’re still paying for, even though they generate no billable income. 

That’s inefficient scheduling, and this happens when you rely on spreadsheets and manual tools to plan routes, monitor schedules, assign projects, and track progress. 

A smarter approach is to use visual scheduling software like Aspire’s, which provides detailed insights into your operations. 

Its dispatch board lets you see new and existing projects, job locations, who’s assigned to what, project deadlines, hours to be spent, and more. 

This ensures you allocate crews efficiently, minimize downtime, and streamline assignments. 

2. Inaccurate job costing results in underbidding

Think of job costing as the psychic of your landscaping finances. It involves tracking all the costs associated with a project, from labor to materials, equipment, and overhead, for loss or profitability. 

Simply put, it shows you whether you made or lost money so you can price future jobs correctly and identify more profitable projects for your business.

Now, imagine getting it wrong by 10%. You risk bidding for projects way lower than you should, eroding margins and limiting profitability.   

The best way to avoid this is to closely track labor hours, materials, and overhead, preferably using a job costing tool. 

Aspire’s features pull data directly from different sources: 

• Labor material

• Hours

• Other expenses that impact a project’s profitability

The end-to-end business management software provides real-time visibility into estimated versus actual costs. 

This allows you to use historical data to inform future bids, ensuring profitability and an opportunity to scale business operations.

3. High employee turnover increases training costs

Constantly hiring and retraining staff is bad for business, as it creates a cost cycle:

• A new crew is hired, probably gets a hiring bonus, and undergoes training (a direct cost).

• Since they’re new, they need time to get used to your company’s pace. This means needing more time to complete the same work: a productivity loss.

• They make more mistakes, requiring additional labor time for rework (a quality cost).

• When they finally become more productive, they quit or perhaps get fired, and you start the cycle again: lost investment. 

In numerical terms, tasks that take one of your experienced landscapers two hours to finish might take a newbie four. 

You’re paying double for the same work. 

And if the new hire quits after a couple of months, you repeat the process, paying more money. 

The best way to solve this?

• Take time to screen job applicants for cultural fit and reliability, not skill alone. 

• Create a structured onboarding process to train employees faster and reduce mistakes.

• Provide employees with clear career growth paths for motivation.

• Offer a competitive salary and benefits to build loyalty and morale.

4. Untracked overtime inflates labor costs

Peak seasons (spring and summer) bring in a flood of projects, and crews often work long hours to keep up. 

While more work is great, failing to track hours accurately, especially overtime, can eat into profit. Workers get busy and are unsure whether they spent three or five hours on a project. 

Assume they used three, but because there was no effective time tracking system, they logged five. That means increased labor costs for your business. 

To avoid untracked overtime, ensure employees and contractors use Aspire’s mobile app to clock in and out on job sites. This gives you real-time visibility into labor hours and overtime, ensuring accurate labor costs. 

5. Lack of task delegation increases the indirect labor burden

Another way labor costs typically increase is when managers wear many hats. One minute, they’re supervisors in the field, and the next, they’re handling admin tasks or equipment maintenance. 

It’s certainly good to have such proactive managers. However, that can cause delays, as there will be lapses in operations. 

Imagine the manager who ought to assign tasks on a Monday morning being stuck in a discussion with clients. Landscapers are delayed in the office till the manager is done. That’s idle time, not generating billable income. 

Here’s how you can handle this: 

• Hire capable operational employees and delegate tasks.

• Build standard operating procedures to guide workers in different scenarios without them needing supervision. 

• Leverage software to automate and assign tasks. Aspire, for example, is landscaping management software that centralizes operations. It helps streamline task assignments and communication between field and office teams. This way, you don’t have to execute tasks manually.

How can landscaping businesses reduce labor as a percentage of revenue?

Labor typically takes a considerable chunk of your overall revenue. But what if you could reduce that percentage without sacrificing quality or output?

The key is to improve labor efficiency and optimize how work is done. Here’s how:

1. Cross-train employees to improve flexibility

Build a team that can easily pivot into different roles without delay, saving labor hours and improving job site flow. 

Install crew members who are skilled in laying sod, planting trees, and mixing and pouring concrete into small features. Or irrigation techs trained in lighting installation, edging, and trimming techniques. 

Johannes Hock, president of Artificial Grass Pros (AGP) recommends cross-training because it ensures existing team members can handle a variety of tasks, which means the company won’t need as many people on a job. This has helped cut AGP’s labor costs by 15% over the last year.

The idea is to build flexibility so teams aren’t idle, reducing labor costs. 

However, ensure you discuss this idea with the crew before implementing it, or you could face resistance. Show them how this will benefit the business, and if possible, offer incentives to motivate them. 

2. Use performance-based bonuses to boost productivity

Incentivizing high-performing crews improves their output and productivity. It motivates them to complete more quality work in less time, which means more work is done daily without increasing regular wages. They won’t feel it because there’s a reward coming.

Higher productivity translates to increased profit because labor costs shrink, becoming a reduced percentage of your revenue. 

Using performance-based bonuses also reduces rework and overtime. Your crew members become more motivated to complete projects correctly the first time, reducing the risk of do-overs or overtime pay.

Here’s an example. A $5,000 maintenance project typically takes 40 hours at $25/hr. That means you’ll spend $1,000 (20% of the revenue) on labor. 

However, a performance-based bonus can motivate workers to complete the project in 30 hours. This way, labor drops to 15% of revenue ($750), without reducing the hourly pay.

→ There is a balancing act involved, though—bonuses must be big enough to incentivize but not so big that they all but wipe out any additional profits made by the job being finished sooner.

If you decide to use this strategy, leverage Aspire to monitor job timelines, crew work hours, and production rate to determine who’s eligible for the bonuses.

3. Improve job planning and project estimating

Inaccurate project planning or job estimation can lead to under-budgeted jobs with little to no profit, or overstaffed crews that inflate labor costs. 

Better planning ensures you accurately cost jobs and assign the correct number of workers at the right time. This helps reduce labor costs and maintain a healthy profit margin.

Aspire helps you create precise estimates for new projects using real-time data from previous jobs, including material usage, labor hours, and equipment used. 

This means data, not guesswork, backs each new bid and ensures profitability. 

4. Invest in better tools and equipment

Using smart modern landscaping equipment can help reduce the hours crews spend on a job site, significantly cutting labor costs. 

A simple example is investing in a powered mulch blower that allows one or two crew members to do a job that might otherwise need four people using wheelbarrows and rakes. This reduces the number of hands needed on a job, reducing labor hours without slowing down the project. 

Another example is using a stand-on mower instead of the walk-behind model, as it could cut mowing time by 25-30%. That switch can save the crew several hours while covering more ground. 

5. Analyze unprofitable services or clients

Sometimes, it’s not your team, it’s the services or clients that drive up labor costs. 

For instance, say you do seasonal cleanups for residential clients. The job generates some revenue, requires four crew members to work a full day, and incurs transport and disposal fees. However, the client pays a flat fee.

The project was likely profitable at one time, but upon review, it’s clear the business is barely breaking even, and the client won’t budge on increasing the budget. 

That’s an unprofitable service and client, especially when the same work hours can generate more profit on higher-margin commercial maintenance jobs.

But how do you know if a job or customer consumes more labor than they’re worth?

By consistently tracking your operations. 

Aspire’s reporting feature lets you break down performance by client and service type—tracking labor hours, material use, and profit margins. 

This helps you identify what’s dragging down your labor costs or bringing the most profit, to help you make better decisions.

Over to You!

Labor cost is one of the biggest factors affecting your profit margins. If it regularly exceeds the 50% industry benchmark, you risk shrinking profit and the ability to sustain or scale the business. 

That’s why it’s critical to: 

• Track labor consistently to ensure its cost falls within the benchmark

• Estimate jobs correctly to avoid underbidding

• Identify opportunities to reduce labor costs and improve efficiency 

But more importantly, use smart digital tools like Aspire to control every part of your landscaping operations. 

This landscaping management software enables you to track work hours, optimize routes, schedule and assign tasks effectively, cost jobs, create estimates, and generate accurate reports. 

Want to see it in action? Book a demo today and get deeper insights into how Aspire helps you run a more profitable business.

Frequently Asked Questions (FAQs)

What are the effects of seasonal fluctuations on labor costs?

Seasonal fluctuations cause increased labor demand during the peak seasons of summer and spring, but a drop-off in the fall and winter. This typically results in high labor costs during peak seasons, from overtime to temporary hires and inefficiencies that lead to reworks. 

And during slower months? You have underused labor, which means increased costs and layoffs, resulting in additional training investment when work picks up.

Here’s what you can do to ease the effects of seasonal fluctuations:

• Cross-train employees to form multitasking crews that can shift roles as demand changes.

• Offer year-round services for consistent revenue. 

• Invest in scheduling tools to optimize routes, effectively delegate tasks, and avoid overtime during peak seasons. 

• Pre-sell seasonal contracts to lock in revenue and crews early.

What labor laws and regulations must landscaping businesses follow?

Labor regulations a landscaping business must follow include: 

• Minimum wage and overtime: Pay at least minimum wage as the federal or state government stipulates, and 1.5x extra for overtime. You may want to go above minimum wage to attract loyal, experienced workers.

• Employee vs. independent contractor classification: Misclassifying workers to avoid benefits or taxes can lead to tax penalties, which eat into your profit. 

• Time tracking and record keeping: Maintain accurate records of hours worked, breaks, and wages paid to comply with labor audits. 

• Workers’ compensation and safety: Provide insurance and follow OSHA safety guidelines to protect workers from workplace injuries and your business from liability. 

What are smart hiring and retention strategies for landscaping businesses?

Here are some ideas you can leverage to hire and retain employees:

• Start the recruitment process early, ideally before peak seasons

• Leverage an employee referral program

• Highlight clear career growth and advancement opportunities

• Invest in training opportunities

• Build a positive team culture