← Profits with Pajak
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Let me ask you an easy question. Are you profitable or are you just busy? Because in the green industry, it's very easy to confuse the two. Your trucks are rolling, your crews are out working, invoices are going out. But if you don't understand your production rates, you may be working harder than ever and still not producing the profit you think you are. So today we're going to talk about one of the most important KPIs in the entire industry, production rate.
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Today's episode is brought to you by Yardbook, the all in one CRM for your lawn care business. And as an exclusive partner of this podcast, you can get started today and begin simplifying your business and maximizing your profits. Sign up now@yardbook.com the link is in. The show notes. Time now for Profits with Paycheck, an essential podcast for you in the green industry who are looking to unlock the full potential of your business. Hosted by John Page, your certified financial coach, the show features in depth discussions with successful entrepreneurs, thought leaders and industry experts. Providing practical advice and proven strategies on financial planning, operations, marketing and sales. Profits with PayJack has valuable insights and action steps that you can implement today for creating long term success. Now here's John Pajak.
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Welcome to Profits with Pajak, the podcast where we talk about business strategies and financial insights for the green industry. I'm your host, John Pajak and today we're talking about a set of numbers and metric that quietly determines whether your company is actually profitable or if you're simply staying busy all season long. So we're going to talk about production rates and I want to kick this off because, you know, it's pretty easy sometimes to just look at what your labor rates are. You know, this is where a lot of owners unintentionally miscalculate their business, you know, because let's just take a mowing crew, right? We'll take a two man mowing crew. You have like one employee, maybe that's your crew lead that makes 20 bucks an hour. You got another guy that does like 17 or 18 bucks an hour, let's say 18, you know, that means your straight wages are $38 an hour. And this is where many of the owners stop doing the math. You know, they say, oh, my crew cost me, you know, $38 per hour. But that's not the real cost. You know, that's, that's just a starting point because when you're running a legitimate business, it's going to add additional cost to every wage that you pay. You know, you have to look at all the labor burden itself. You know, you're, you have an employee, you have the payroll, and you've got taxes. Like you got your Social Security and your Medicare. Those are your FICA taxes that, that's 7.65% of wages. You have unemployment taxes, you got workers comp, You've got payroll processing costs. You know, a lot of guys forget that. Training time, uniforms, paid holidays, pto, you know, administrative support. That's tied to managing the employees. You know, and when you start adding those things together, that labor burden, it typically adds 20 to 40% on top of wages. So that $38 an hour crew may realistically cost the business closer to like $55 or $60 per hour once it's fully burdened. And that's before the crew even starts producing revenue. And you gotta remember too, this is not that number. You know, if you're saying, let's just, let's just pick, you know, $57 an hour, okay? That does not include the equipment, the fuel, vehicles, your overhead, or your, even your profit. So if you misunderstand what your crew actually costs, it becomes very easy to price work that keeps you busy, but never produces the, the margin and profits that your business needs. And this is what, this is where the production rate comes in, okay? Because this is a KPI, a key performance indicator that, you know, this is a fancy way of saying, hey, this is a number set that you really should pay attention to when you start looking at your production rate. It answers one simple question. How much revenue does your crew produce per hour while they're working? And once you know that number, you could compare it to your hourly cost of running your business. So let's continue along with this example here. You know, if your labor is costing around 55 to $60 per hour, we still need to add equipment costs. We need fuel, we need maintenance, equipment, depreciation, your truck expenses, your insurance, I mean, rents. This is just a, you know, this isn't even a very detailed list of all the things that you have with your overhead, okay? And once you figure all these things out, you know, those costs often push a cruise operating cost closer to 70 or $80 an hour before you start adding the rest of the overhead in. You know, like office expenses and software and marketing and phones, insurance, the admin costs. And of course, we need to make money, right? So we need to also add our profit in there. What's our desired profit margin? And when you, when all of that is factored in, you know, many lawn and landscape Companies discovered, you know, that they need to produce around $150 per production hour just to operate sustainably. Now, again, that number. That's not, that's. Don't write that down and say that. That's written in stone, okay? That's not. I'm just using an example, okay? Because depending on your business, that might be the right number. That could be way off. So please just don't assume that when I say $150 an hour is what they need. This is just an example, okay? But, you know, let's just say we, we're going to use that $150 per hour, okay? Look what happens when production rates fall above or below that number. So if your crews are averaging, say like $140 per hour, you're losing money because just, just to break even, it's, you know, that's $150 an hour. If you're on at, you're only generating 140, you're losing money. It's like negative 6.7%. Okay? That's, that's not sustainable at all. You know, you basically sent everybody out. Everybody worked everybody, you know, everybody else is going to get paid, but, you know, you don't have anything left. As a matter of fact, it would have been almost. Not, it would have almost been better that you didn't even go out and work at all because you wouldn't have expended all those things. But, you know, if you start looking at it now where, you know, you understand how many, how much it cost you and how many, you know, how many projects or how many jobs you could get done in a day, you know, let's just say the production improves, right? And you, you, you see, hey, this is how much revenue we brought in and how many hours we worked. And, you know, it's like, okay, now we're making, say, $180 an hour. Well, now you're making progress because now you're, you're, you know, you're up 20%, and that's good. You know, that's where you, you know, you should be. But let's just say you get your production time, you know, your production rate to get to $200 an hour or more, then the, the business becomes healthy. Now we're talking at like 33% or more when it comes to our margins. And this is why production rate is one of the most powerful KPIs that you can track because it removes the illusion of being busy. It's going to show you whether your Work is actually profitable now for us. You know, this, this is where things really get interesting. You know, we're not, we're looking at, yes, our daily production levels, but we're also looking at it not just to track the entire day, but we track, clock in and clock out times for each individual property. Why? Well, because an underperforming property can easily hide inside a profitable route. You know, let's, let's just say nine. You know, let's just say your crew is going to service 10 properties a day. Okay, let's keep the math easy. But, and nine of them, they perform exactly as expected. But one property takes like twice as long as it should if you're only looking at the daily average. The problem, that problem property, it disappears inside the numbers, it gets hidden. It's like you got a dog hiding in there. You know what I mean? But when you track the time at the property level, you could quickly identify which accounts are performing and which ones are dragging your production rate down. And you know, for this we, this is why we use the job profitability report Inside Yard book. That's a CRM we've been using since 2015. And it's, you know, especially that feature that is extremely helpful and useful to us because, you know, I love using that report because it shows exactly which jobs are meeting our target hourly rate and which ones failed. And once you see that data clearly, the solution becomes obvious. You know, you could be like, oh, these 10 are, you know, was on the route today. Everything, our, our numbers, our production rate for the day came out great. But then you see that one dog hanging there, it's like, oh, wait, what happened here? Why is this so off? Oh, well, you know, when we look at that job profitability report, we could determine what needs to change. You know, maybe the, maybe that property needs a price increase because we miss allocated. Or we, you know, we, maybe we just made a mistake with how long it was actually going to take us to get it done. Or maybe, you know, we, maybe our, our crew isn't properly equipped. Maybe they need different equipment to improve the efficiency. So it's like the price could stay the same. But hey, you know what, we were cutting that one with a 36 inch mower and it really should have been a 52. We, you know, it's like, can we get that on that property? Yeah, of course. Okay, good. Then we should be using a 52 inch mower instead of the 36. That gets us, you know, that would improve our production or efficiency. And you know, so maybe Maybe we need to match the, a different piece of equipment to that property to make sure it's profitable. Or, you know, maybe the crew needs better training or maybe some kind of motivation. Maybe they're. It's in the middle of the day or something and it's just like, oh, this is a one where we take a break and we're moving slower than molasses for some reason. You know, maybe it's right after lunch. Maybe, maybe they tend to do that one right after lunch and they, you know, have a big, big feast and they're moving slower. You know, you don't know. But the thing is, you know, sometimes it's a combination of all three. Maybe it's the wrong piece of equipment, maybe the guys aren't motivated and you know, we need to bump that price up because of, we, we misinterpreted how much time it would actually take us. But you know, one, one quick note. If you're not currently using Yardbook, I strongly recommend checking it out as your CRM. If you, you could get a 30 day free trial of their business level, which is a premium package. It's 34.99 per month. You get 30 days free. When you use promo code PAYJACK and you sign up for it, you can use Yardbook for free, but a lot of the best features are in the 34.99 subscription. So just go check that out. You know, you go to yardbook.com, you get signed up. If you're already using Yardbook and you're still on the free package, go into your billing section and enter that enter pay jack is your promo code and it will switch you over and give you 30 days free of all the cool stuff I just talked about. But it's honestly, it's one of the best tools available for organizing your business. And you know, that job profitability report and amongst others, there's probably like a dozen reports on there that really help you understand your numbers. But anyhow, just to balance everything out here, I want to give you some takeaways to help you with your business. Back when I was getting my lawn care business off the ground, I was juggling routes, invoices and customer notes with paper and prayers. It was chaos until I found Yardbook. Yardbook gave me the structure. It helped me track chemicals, route efficiently, invoice faster, and most importantly, it helped me grow a profitable business. If you're tired of duct taping your systems Together, go to yardbook.com and sign up for free. And if you're Ready to go premium use promo code paycheck to get your first 30 days on me. So let me give you three simple actions you could take this week. First, calculate your true hourly break even rate. You know, this is one of the things that we do with budgets, break evens and bottom lines. That's the workshop that I offer that really dives deep into your numbers to make sure that you're, you know, charging appropriately so you could be profitable. But you know, you, in order to do this, in order to track or to understand your true hourly break even rate, you gotta understand what your crews have to produce per hour to cover your labor, your equipment, your overhead. And don't forget your profit. You know, you have goals in life, you want to, the things that you could achieve are solved by making profits. So you want to make sure you understand what your hourly break even rate is. Second, I want you to track your production rates for a week. So really, I mean, the more data you have, the better because there could be, you could take averages at that point, but just even one week of data can reveal a ton about your operation. So I would highly suggest, you know, keeping getting as much data collected as possible. But even if you just had one week, that could dramatically start. It'll tell a story about your business that you never even knew about. And then third, identify any underperforming properties and then figure out why, you know, is it pricing, is it the equipment selection, is it the crew efficiency? You know, once you know the reason, that's when you could fix the problem. So your production rate, it's not just another number. You know, it's the KPI that reveals the truth. It's, you know, it definitely tells you if your crews are generating profit. You know, it's like, are they making money or are they just staying busy? You know, because I don't know about you, but I don't like just being busy. I want to do all these things for some benefit. And you know that it's. To me, there's no point in doing something where it either costs us money or we're just breaking even. But you know, when you start measuring the production rates accurately, your business starts to show you where improvements need to happen. And this is exactly why, like, you know, maybe you do $1500 a day and you worked, you know, 10 hours, it breaks down to, you know, $150 an hour. If you're, if that's what it costs you per hour, it's like you went out there and killed a 10 hour day and you basically just broke even. Like, he didn't make any money. Everybody's going to get paid and everything, but at the end of the day, you didn't produce anything. I know that's kind of like a wild concept for some guys, but it's like, this is how you get, you know. You know, a lot of guys have that feeling of like they work all the time and at the end of the week or at the end of the month or whatever, it's like, man, we did all this work end of the season. You know, Some guys wait till the end of the season to figure out whether they made money or not. Like, don't do that. Wait, don't, don't wait that long to figure out if what you're doing is profitable. You got to do, you got to figure this out on a, basically almost on a daily basis. If you track it, I'll tell you what, if you could track this for like three weeks and you find out you're profitable, then, then you could kind of lay off it, you know. But especially when you're just really trying to get things dialed in, if you track it every day, man, I'm telling you, it's gonna really, you're gonna see some differences. But again, if you're not tracking these production rates, if you're not understanding like what it's like, oh man, we did a really good day. We did $1500. And you're like, well, it's 150, $150 an hour just to stay afloat, you know, without making any money. It's like, what are we doing here? But anyway, um, once you identify those things, then you could really start seeing like, oh man, we need to talk to Ms. Herf Nerbler and tell her we either need to raise prices or maybe it's again, like, maybe it's something that she doesn't even have to know about. It's like, oh, we gotta get a bigger machine on her property because this 36 inch mower is not cutting it on her on her property. But, you know, if this type of conversation about numbers and pricing and profitability is something you want to go deeper into, I want to invite you to apply for my coaching group. And this is a very focused group with a very limited membership. It's not open to the public. It's not like, oh, you're going to be in a group of like 100 people. It's not even anywhere close to that. I, you know, we only open seats occasionally when space becomes available. And right now we are accepting a few new members and at the moment there's only three seats left. So inside this group, you know, we work through things like, you know, production metrics and pricing models and break even calculations, operational strategy, business development. You know, it's not just like everything in there that we talk about, but we are very specific. We're goal driven. It's nice because there's a lot of things that we talk about. The concepts, you know, some of them are from the podcast, other things are from my own business and how I was I've become successful and and we, and we apply them directly to your business. So if you're interested, there's a link in the Show Notes where you could submit an application and I review every application personally to make sure that the group stays focused and productive. And again, as of right now, there's only three seats currently available and once those are filled, the group's going to close again. So this sounds like the type of environment you want to be a part of. Click on the link in the Show Notes and applying. So as always, I want to say thank you for listening and God bless. Keep pushing through and we'll catch you on the next one. Thank you once again for listening. If you've enjoyed the show, please leave a review and share it with fellow business owners. Your support means the world to me and helps keep the show going strong. I want to give a special shout out to our friends at Yardbook. Their continued support has been instrumental in bringing this podcast to you week after week. If you haven't checked them out yet, visit yardbook.com and see how they can give you the tools to streamline and manage your lawn care business. Also, don't forget to explore the resources and upcoming events that I've collected just for you in the Show Notes. These are curated to help you stay ahead in your business with the latest tips, tools and networking opportunities. Whether it's a new tool, an insightful article, or an event you don't want to miss, I've got you covered. Until next time, keep pushing through and God bless.
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Sam.