How to Measure Costs to Meet Budget and Expectations
Meeting a customer’s expectations and budget means you need to do two things well:
- You need to estimate jobs properly to provide what the client wants within their means, but also make the company a profit;
- And you need to provide better-than-expected customer service.
When these two things go hand-in-hand, you’ll have a customer who can’t wait to recommend your services to friends and neighbors, and you’ll also have money in the bank.
So how do you deliver on those expectations when everyone these days wants more bang for their buck? And how do you estimate projects correctly so you don’t end up in the hole, or having to beg the client for more cash? Read on to learn how.
The correct measurements
The key ingredient to owning a successful business that meets clients’ budgets? Understanding what it costs to perform each job.
The recipe for a successful business in the landscape design/build industry includes knowing your costs and knowing how to estimate jobs, then you can make the right recommendations to clients about what services they can and cannot afford, says Jerry Gaeta of J. Gaeta Business Planning LLC, who spoke at Hardscape North America educational sessions at GIE+EXPO in October.
“We don’t know our costs,” he said of a common industry pitfall. “If we knew our costs, we’d fight for our money.”
The worst thing a business owner can do is “guesstimate.” Sooner or later, Gaeta says your luck at guessing how much a job will cost to perform will run out. This could result in your company having to recover the cost to do a job that was underestimated or going back to a client and asking for more money, which no one wants to do.
The question you need to ask, he says, is: who is paying for a service or a piece of equipment? The company or the clients? “The costs for all the equipment need to be paid by the client or it will come out of your perceived net profit — your company is paying for it,” Gaeta says.
At Gaeta’s educational session, he provided this equation, which shows how you can properly estimate your costs: material, labor and burden, equipment and subs + overhead costs of company/indirect and G&A (general & administrative) = your cost to break even + net profit (price of project)
He pointed out that “equipment” also includes the cost to run it, such as gas and maintenance. Also, knowing your man-hour rate with the rate of your equipment package will help you estimate labor costs.
“Estimating will take your projected overhead costs for the year and allocate a portion to the direct costs needed to perform a project,” he explains.
If you take your overhead and your direct costs, you get your break even, he says. Estimating systems are based on recovering direct costs to establish a break-even point. Then, at this point, the net profit can be added to establish the price of a project.
The more overhead you pack into your company, the less money that goes in your pocket, Gaeta noted. Therefore, he said it’s necessary to pre-budget your salary and remember: the more staff you bring on, the less money there is left for you.
Customer service is part of the recipe
Establishing a project’s price has to do with more than just the cost of equipment and labor — it has to do with your company’s performance, Gaeta says, because efficiency is the name of the game in the green industry. When a company provides excellent customer service and completes a project efficiently, the cost is acceptable because clients are satisfied with the return on their investment.
Take the Ritz Carlton. As growth consultant Jason Cupp explained during his educational session at GIE+EXPO, the Ritz Carlton is a prime example of the gold standard of customer service. The hotel chain tries to meet its guests’ needs before guests even know what they need or want. Employees at every level of the organization are empowered to provide excellent customer service, Cupp says.
“We sell feeling and emotion. We don’t sell pools and lawns that are cut perfectly. We sell feelings and emotions,” he emphasizes.
Clients want to know and be known, he says, they don’t want to be just another number. Nowadays, with online reviews and research, clients are more informed and more discriminating, so the value they place on a service isn’t just in the price, but in the feeling they get from working with a company.
“Clients won’t settle for mediocrity,” Cupp says. “Companies that are mediocre aren’t in business long, and it’s likely a result of customer service.”
Don’t underestimate how valuable customer service is — with just one bad experience, customers may decide not to use you again. And you can ensure that doesn’t happen by creating a client-centric company culture. The company can’t focus on the owner, Cupps says, it needs to focus on the client.
“If we truly have this focus in our heart every day — if the leader focuses on it, your people should be just as focused and deliver on that, too,” he says.
One way Cupp said he coached his team to serve clients was to empower managers to spend certain amounts, within limitations, to solve a problem for a client so the client would get what’s needed and not lose that feeling that was created when the relationship was first established.
“If you can’t deliver operationally what you promised in the sale, it’s just lip-service,” he says.
Another key tip: Clients need to hear what the end results should be, Cupp says, and then back that up with what the incremental results will be, explaining to your client how each step will be completed.
The right mix of ingredients
In the end, customer service and estimating jobs correctly will leave you and your clients satisfied. While properly estimating the cost of doing a job may seem tricky, after some practice, labor production hours can be estimated and produce a uniform estimating system for your company, Gaeta says. He recommends you review job costs weekly — this will keep you in tune with how the tasks are actually performing in the field. Gaeta said he learned a lot by talking with his crew and asking how he failed on the job. They would tell him if he underestimated the time needed or the number of laborers.
“Job planning is done from the estimate — you break the job down by function and based on man-hours, and you can estimate manpower and equipment needed,” he says.
Remember, everyone in your company needs to learn the word no. Gaeta warns that you have to be able to walk away if you’re not getting the price you should for the service you’re being asked to perform. If the service is not bringing in a profit, then that affects the future of your company, your family and your employees and their families, he says.
And no one wants to be left with ingredients turned sour.
The Right Cooks in the Kitchen
In business, just like in baseball, Cupp says it’s necessary to constantly develop the bench — in other words, always keep looking for good employees. And, as hard as it may be, if you find a better employee for a position, hire him or her and “prune the dead branches,” he says.
Cupp says the following two ingredients will help cultivate the right kind of team:
Leadership — Everyone must have a vision of where you’re going and where you’re going to take the team. “Good leaders are proactive, have perseverance, make unpopular decisions, apologize for things they shouldn’t have to, do what they say and say what they do [and] come to the table with a solution not a problem,” Cupp says.
Initiative — Great employees recognize when something needs to be done, and without being told, just do it. This mindset makes everyone feel empowered to do their job well and help the company grow.