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If you’ve ever struggled to price your services, you’re not alone.

Many residential lawn care and landscaping companies have a hard time knowing how much to charge, especially in the early days of their business or during periods of significant growth. It can feel like a balancing act—trying to charge enough to make money without pricing yourself out of a job.

The process is even more stressful when you base decisions on guesswork or assumptions about the market. Should you just trust your gut? Copy someone else? Or try to price as low as possible to build a customer base?

Thankfully, there’s an answer. In order to price your services appropriately, you need to calculate your benchmark revenue per man hour.

This one simple metric is all you need to charge your customers with confidence. It’s unique for each company, and once you’ve identified yours, you can quickly and easily evaluate your pricing against it.

What is revenue per man hour?

Revenue per man hour is a key performance indicator (KPI) that shows you how much money your company brings in for each billable hour of labor.

For example, if your company generated $100,000 in revenue last year and you billed for 5,000 hours, your revenue per man hour was $20 ($100,000 / 5,000 hours = $20/hour).

While this is good to know, it’s only useful as a KPI when you have something to compare it against. To find out whether you’re charging the right amount for your services, you need to identify your benchmark revenue per man hour.

How to find your benchmark

To calculate your benchmark revenue per man hour, you need to:

1. Review data from past years

If you’ve been in business for more than a year, look at your records first. This is a good place to start as it will give you a sense of which customers generated the most revenue, and whether or not it was enough to meet your expenses.

2. Determine total expenses for the year

Determining expenses is the most labor-intensive part of the process, but don’t rush through it. The goal of this step is to find out how much revenue you would need to generate in the coming year in order to break even (not lose money).

As you add up all potential expenses, make sure to account for equipment repairs and maintenance, possible new hires, marketing costs, business expansion efforts, and other incidental costs.

(If you don’t already have a budget in place for your business, this is a great time to create one.)

3. Add desired profits to expenses to identify your revenue goal for the year

You’re probably not in business just to break even. Once you understand what’s needed to recoup your costs, decide what your profit margin should be for the year. Then, add that to your expenses to come up with your overall revenue goal for the year.

(If you’re not sure how to calculate your profit margin, this article from Fast Capital 360 is a great resource for small business owners.)

4. Determine billable man hours for the year

To come up with billable man hours, multiply your total number of crew members by the hours you expect each of them to work for the year. Next, decide what percentage of the time will be billable (e.g., spent on a job instead of driving, gathering equipment from the shop, etc.).

For example, if you have five crew members and you expect each of them to work 2,000 hours per year at 80% billable time, your calculation would look like this:

(5 x 2,000 = 10,000 hours) x .8 = 8,000 billable hours

Note: Only include field staff in your calculation as they are the ones who work billable hours.

5. Divide revenue goal by billable hours

The final step is to divide the revenue goal you created in step 3 by the billable hours calculated in step 4.

If your revenue goal is, for example, $150,000 ($125,000 to cover expenses + $25,000 in profits), you can divide that by 8,000 billable hours to come up with a benchmark revenue per man hour of $18.75.

$125,000 (expenses) + $25,000 (profit margin) / 8,000 billable hours = $18.75 per hour

Know your business

As Jacob Godar of GROW Comm describes in his video on calculating revenue per man hour, pricing based on “market rates” is tempting but dangerous. It’s easy to assume you should price your services at or below what your competitors are charging, but that’s not necessarily the case.

Too many landscaping businesses fail because they undercut themselves—winning bids but losing money.

While you don’t want to set unreasonable profit expectations, clients make decisions based on a variety of factors—and cost is just one of them. If you do high-quality work, communicate clearly, and treat people with respect, customers will be happy to pay more for your services.

The key is to understand your business, recognize the added value you offer, and set profit expectations accordingly.

Stay in business

If you don’t already have a budget for your business, it can take some time and effort to prepare a list of expenses for the year. The return on this investment of time and energy will more than pay for itself, though—probably faster than you think.

Armed with your benchmark revenue per man hour, you can evaluate current customer relationships, create informed estimates, and track progress throughout the year.

Pricing based on assumptions about the market is risky. Calculating a benchmark revenue per man hour—and using it to price your work—can help ensure your business is profitable for years to come.

Interested in software that can make tracking labor hours even easier? Sign up for a 14-day free trial of Aspire Crew Control, scheduling and reporting software that takes the headache out of crew scheduling—and calculates your revenue per man hour automatically per customer.