“Where did my profit go?”

There’s often more than one answer to that question, but this question brings us to one very common answer:  Whoever is pricing the work doesn’t understand the difference between a profit markup and a profit margin.

Do you understand the difference?  Here’s a quick test: 

What’s 15% profit on service that costs $100?

Did you answer $115?  If so, keep reading!  This is one lesson that will really help your bottom line.

To get a 15% profit margin on $100, you need to add more than $15.  How so?  Well let’s look at the math.  The formula for a profit margin is this: 

(Price – Cost) divided by the Price.

Looking at our example, the price is $115 and the cost is $100.  So we do ($115 – $100), which equals $15 and then divide by the price, which was $115.  $15 divided by $115 = 13.04%.  That means that, at $115, you are only earning a 13% profit margin!  Your formula for a 15% profit just cost you almost 2 full percent. 

How did that happen?

The formula for a profit margin is PRICE – COST divided by PRICE.  To calculate their profit margin, most people take the cost of the item and add the % profit they want to earn.  In the case we just looked at, 15% of the cost ($100) is $15… so we added that to the cost ($100) to arrive at a price of $115.  But the formula for profit margin is (PRICE – COST) divided by the PRICE (not the cost).  You need to divide by the price to find the margin.  $15 is 15% of the cost ($100), but it’s only 13% of the price ($115) and that’s how you ended up with an actual profit margin of 13.04%. 

When you add 15% of the cost to arrive at a price, that’s called a profit markup.  It is an accepted method for calculating a profit, but it’s not the profit you think you earned and it’s not the net profit margin your accountant will hand you back at the end of the year.  Repeat the “markup mistake” in your pricing all year, and you’ll find your bottom line is short of what you expected.  When your accountant calculates your net profit margin, they take your sales, minus your costs, and divide by your sales again.  They use a profit margin.

How do I calculate a profit margin to price my work?   

It’s easy to calculate a profit margin, you just use a different formula.  The formula for a profit margin looks like this:

COST divided by (1 minus desired PROFIT MARGIN).   Remember that your profit margin should be expressed as a decimal.

Continuing our example, to find a 15% profit margin on $100, the formula would look like this.

1. $100 divided by (1 – .15)  (where .15 is a 15% profit margin)
2. (1 – .15) = .85
3. $100 divided by .85 = $117.65

To make a 15% profit on $100, you need to price the service at $117.65.  Let’s make sure this works:

1. PROFIT MARGIN = (PRICE – COST) divided by PRICE
2. ($117.65 minus $100) = $17.65
3. $17.65 divided by $117.65 = .15
4. .15 = 15% profit margin

So now you know the important difference between a profit margin and a profit markup.  Better yet, you might have just found some profit that’s been “missing” from your business, and you can fix it by just updating your math.  Price your work with a profit margin, and see if your bottom line doesn’t improve.

The Landscape Management Network, LMN, offers tools and education to landscape and green industry contractors to help build and develop more sustainable, more profitable businesses.  To find out how LMN can help you build a pricing system for your company and improve operations and profit, check out the website at www.landscapemanagementnetwork.com.

Why should your company be on Twitter?

Your company should have a Twitter account to expand your marketing reach for no cost.   It’s free to setup an account.  There are no monthly fees.  If you can invest the time to type 140 characters (Twitter’s maximum length), than you should use Twitter. 

How can Twitter help you improve your landscape, irrigation, lighting, grounds maintenance, or snow and ice sales?  Seasonal care tips, specials, gardening advice, a gardening calendar, plant advice, outdoor living space ideas, ways to live environmentally friendly, eco-friendly gardens, water conservation tips, weather updates, snow event updates, pool care and maintenance tips… the possibilities are endless.  And even if your message only gets 1% of the attention that Humphry Slocumbe recieved, that’s still 3,000 people getting your message… at no cost to you. 

Twitter might be “new”, but its just for computer geeks anymore.  There are about 150 million registered users of Twitter.  If Twitter was a country, it would be the 8th largest country in the world.  And if you don’t have a Twitter site, you are letting that opportunity pass your business by. 

So go and set up an Twitter account, and start coming up with creative posts that inform your customers (posts should be useful and interesting to your prospective clients) and promote your landscape business and brand.   Meet new customers.  Stay in front of existing customers.  Meet some new hires.   The possibilities are endless. 

How do I create a Twitter Account?

It’s easy!  It will take you less than half an hour.  And to make it even easier, Landscape Management Network has published and posted a free guide that will guide you through the process of setting a Twitter account up for your company.  It’s fast, it’s free, and it’s another way for customers to interact with your business.  

To download your copy of the guide to create a Twitter account for your landscape business, just click the link or the picture below. 

Create a Twitter Account for your Business

Click here to download the free guide to creating a Twitter account for your business.

Landscape Management Network, LMN, provides education, tools and resources to help great contractors build and become great businesses.  For more information on how LMN can help you build a better business, click on their website:  www.landscapemanagementnetwork.com.

• Build a plan for profit for the 2010/2011 Snow + Ice Season
• Calculate the actual costs of your snow equipment and how to recover those costs
• Calculate a proper overhead recovery factor for snow + ice services
• Create a profitable pricing system for your snow + ice services

WHO should attend:  owners, finance personnel, estimators
WHEN:  Thursday, Sept 16th, 2010 – 8:30am to 4pm
WHERE:  LMN classroom @ Landscape Ontario Headquarters, Milton, ON
HOW MUCH:  Non-LMN members $50.  LMN members $25

Can’t Take a Day Away?  Milton too Far?
LMN member surveys indicated many of you just can’t make it to Milton for each event.  We’re listening.  We have released an entire series of budgeting videos for your snow and ice division on YouTube (for free!).  To watch those videos, click on LMN’s YouTube site:  www.youtube.com/lmnvideo.

www.youtube.com/lmnvideo

How to Register?
Please contact us at info@landscapemanagementnetwork.com, or call us direct at 1-888-347-9864.

These videos were built for any contractors providing snow and ice services.  They will help to ensure that your company has a plan, based on numbers, to be competitive and profitable in the snow and ice control sector. 

In a tight economy, its more important than ever to make sure your work is priced right to cover your costs, your overhead and your profit.  A snow and ice operating budget will ensure that you’ve built a plan for your snow and ice division that’s calculated to:

• Earn a fair profit on your snow and ice services
• Price your snow and ice services competitively and profitably
• Make accurate decisions on wages, equipment and subcontractors using numbers and logic instead of emotion

Live on YouTube, we’ve released a series of videos that will walk you through the process of building an operating budget for your snow and ice division, creating a pricing system, and estimating with numbers based on your plan.

Stop hoping for profit.  Plan for it.

Check out the videos anytime, anywhere its convenient.  You’ll find them on YouTube at www.youtube.com/lmnvideo, or click on the picture below.

Click on the picture to launch our video page

To preview the first video in the series – an introduction to operating budgets, click play on the video below.

If you have any trouble watching the videos, just download this help guide to walk you through the process of watching each video, in order.

Click Here to Download YouTube Video Help Guide

The Landscape Management Network (LMN) provides business systems, tools, and education for contractors, for a better, more sustainable, more profitable industry.  To learn more about any of the systems, software, or practices seen in these videos, go to www.landscapemanagementnetwork.com. 

• Are you trying to grow your business?
• Would you like to sell your business and have it worth something?
• Are you trying to improve the wages/owner’s salaries in the business?

Seth Godin is an entrepreneur, marketing exert and award-winning author who recently posted a very down-to-earth way of looking at focusing on the work, or the goal.  Here’s a condensed version of what he says…

When using an axe to split logs, it’s awfully tempting to aim at the top of the log.

After all, if you miss the log entirely, it’s dangerous or at the very least, ineffective. One can argue that if you don’t split the top, it’s pointless—nothing else will happen.  The problem with aiming at the top is that the axe loses momentum before its work is done and you end up with a stuck axe and half a split log.

No, the best approach is to focus on splitting the bottom of the log. Split the bottom and the top takes care of itself….  I’m not talking about turning the log upside down or some other semantic trick. I’m pointing out that if you aim at the top (at getting started), then you don’t split the wood. If you aim at the bottom (by way of the top) then you do. Hitting the top of the log isn’t, the point, it’s merely the beginning of the stroke. In other words, don’t focus so much on starting something. It’s the follow through that will get you there, so the beginning must be with the end in mind. And yes, this actually makes wood chopping far easier.

To read Seth’s entire blog post – and many other great articles, click here.

Try and look at your business the same way.  Are you focused on getting through this day without a mistake, or on building a profitable company?  If, as an owner, you spend your time and energy getting through days without mistakes (hitting the top of the wood), chances are that you are missing opportunities to improve success.  Focus on what you want from the business (growth, profit, expansion, sale/franchising) and see if you don’t see better results.

Landscape Management Network (LMN) helps landscape contractors set and achieve goals for their landscape businesses.  From budgeting (a plan for profit) to pricing to systems and training, their tools enable their members to build a plan for profit, to improve execution and productivity, and capture the enormous opportunities the green industry has to offer landscape businesses.  For more information on the Landscape Management Network, click on their website here:   www.landscapemanagementnetwork.com.

Facebook enables you to connect regularly with customers, leads and potential employees.  First and foremost, your Facebook page is another way potential customers can find your company when searching for contractors on the Internet.  Let your Facebook page start your sales process for you using by posting jobsite before/after pictures, landscape care tips and tricks, company news and/or promotions.  Updates to your company page will automatically show up on your fans’ pages – enabling you to actively, but not intrusively, market your services and strengthen customer relationships.

Twitter is newer tool and many businesses are just learning how to make it work.  Twitter enables you to post ‘Tweets’ – 140 character mini-messages that you can use to:

• Promote specials or time-of-year services
• Link to pages on your company website
• Make company announcements
• Post links to garden care tips and tricks
• Announce that you’re hiring

To see how some other contractors are using Twitter to promote their landscape companies, read this article here:  http://www.lmnblog.com/lmn/?p=577

With over 500 million Facebook users and 120 million Twitter users, you won’t find a better opportunity to market to so many people at such a low cost.  In fact, since both are free, you only need to spend some time setting it up!

How do I create a Facebook page for my company?

We’re here to help.  The Landscape Management Network has created and posted a free guide to creating Facebook page for your company.  Just click the link below to download and read this guide.

Click here to download a guide to create a Facebook page for your landscape company.

The Landscape Management Network (LMN) helps great landscapers build great landscape businesses.  For more information on the tools and systems offered by LMN, visit their webpage here:  www.landscapemanagementnetwork.com

http://www.cat.com/landscaping/news-and-events

IFMA Sustainability Guide for Landscaping

This is a great opportunity to get some free education for you and your staff that can help you boost sales, improve services, and capture a new and emerging market in your area.

Click the picture to download the guide, or click on the link at the bottom of this post.  http://www.ifmafoundation.org/documents/public/Landscaping.pdf

To read more about the IMFA foundation, you can visit their home page here:  http://www.ifmafoundation.org/index.cfm

In an effort to better serve members located across North America, we’re launching many of our tutorial and training videos on YouTube.  You can now view Operating Budget training videos at our YouTube page…  www.youtube.com/lmnvideo 

Videos to teach how to build a snow and ice division budget are currently in production and will be available on our YouTube page before the end of August.  We’ll post an update when they are released.