How to Calculate the Break-Even Point for your Landscaping or Water Gardening Business
As the old adage goes, "it takes money to make money." Even though water gardening and landscaping companies require minimal start-up costs, you will still need to account for these costs in your financial planning. Anyone can start a landscaping business. But only those with proper financial management skills will make a profit doing so.
The break-even point is extremely important in a start-up landscaping or water gardening business, because it is the moment at which your company begins to show a profit. This is one of the most exhilarating moments in a company's lifetime; it is a moment wherein the owner can jump for joy, because his/her hard work is paying off.
Your break even point is determined by your fixed start-up costs, the net revenue you make from all of your jobs, and the variable expenses you incur while performing these jobs. It is recommended that you calculate your break-even point beforehand because it is important to understand how much cost you will incur, so you know how much to quote customers for jobs. In order to calculate your break-even cost, first you must add up all your start-up/fixed costs. For example, a typical landscaper may require:
- A truck ($50,000)
- Tools ($1,000)
- A cell phone ($500)
- A budget of $5,000 to cover advertising costs (E.g. brochures, newspaper advertising)
In this example, the start-up costs would be $56,500.
Secondly, you will need to estimate how much you will be charging for the typical job, I.e. the per-job sales (Let us assume a per-job sale of $5,000 for the purposes of this example).
Revenue per job: $5,000
Finally, you will need to estimate how many variable costs you will incur while performing each job. In our example, let us assume that each job will require:
- $1000 in material, and
- $200 in part-time wages.
This brings our per-job variable costs to $1,200.
To calculate the break even point, subtract the per-job costs from the per-job sales, and use this number to divide start-up costs. This break-even point is the number of jobs that you will need to perform before your company begins to make a profit.
In our example, the break even point would be $56,500 / ($5,000 - $1,200) = 14.9, or approximately 15 jobs.
Please feel free to utilize the break-even calculator to help you calculate this number. Make sure to play with all the numbers to plug in different scenarios.
Is your break-even point feasible? Can you see yourself doing this many jobs after investing your pre-defined start-up costs? If not, you may have to re-evaluate your situation by:
- Increasing your per-job revenue(thereby increasing price), or
- Decreasing your fixed start-up costs and/or variable per-job costs.
Try changing these variables and re-assessing your break-even point!
How can I increase my sales/Revenue?
Either increase your sales volume, or increase your sale margin.
First of all, you should compare yourself to competitors in your local area to determine how much they are charging. Are they charging more than you? If so, your pricing may be below the competitive standard in your area. You have the option of raising your pricing to increase your per-job revenue margin, or alternatively, keeping your pricing low to attract higher volumes of business. Remember: Lower prices may provide you with lower per-job revenue, but you may be able to make it up by attracting MORE jobs (thereby increasing your sales volume)!
Are your competitors charging less than you? If so, you may face reduced sales volume, due to pricing competition. Customers generally want lower prices, UNLESS you are able to offer them more in terms of value-adding services. For instance, Lexus generally charges more for a car than does Toyota. However, they can get away with this because they are offering significantly MORE in terms of luxury features and customer service! Customers are willing to pay the increased prices because of this added-value. Therefore, you do not necessarily have to fear if your competitors are pricing their services lower than yours, provided you are willing to offer them a better and more complete package.
In conclusion, this is a difficult question to answer, because the answer is different for every business. The answer to this question depends largely on the market that you wish to target. Are you targeting budget customers who just want a quick-and-easy, basic pond? Or are you targeting residents in Beverly Hills who would be willing to pay more for better service? These are considerations that have to be addressed in your business plan.
How can I decrease my costs?
Shop around for the best pricing. A pick-up truck, for example, is a substantial start-up investment. Do you really need to purchase a pick-up truck? Or would it be cheaper to try out the business by leasing one in the short term?
Where are you getting your supplies? The industry is currently set up such that retailers usually partner with contractors to offer them supplies. Have you shopped around to find the best source for your supplies?
AquaYard is currently looking for contractors because we can provide them with high-quality supplies for rock-bottom wholesale prices. You will find that we do not charge the premium for our products that other water gardening suppliers currently charge. We can help you lower the variable costs you pay for each job, effectively increasing your net profit!
For more information about potential business opportunities, please call us at 1-866-4POND11, or e-mail info@aquayard.com.
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