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BENCHMARKING: Don’t Let Green Put You In The Red

Business Management, Green Issue

Everyone is thinking green and how they can incorporate it into their lives. However, there are some important benchmarks that you need to know.

Jim Huston | September 10, 2008

Green never looked so good! One positive that comes from the recent run up in fuel prices is everyone is thinking green and how they can incorporate it into their lives.
As a green worldview moves from the granola-eating crowd to Main Street; perceptive entrepreneurs, such as landscape contractors, are paving the way for a market adjustment that is huge and may take years to mature.
I’ve helped a number of “green” companies compile their budgets and calculate pricing for their products and services. Some provide sustainable landscaping, while others install solar panels. The process for pricing and job costing green services is no different than any other product or service. It’s all material, labor, equipment, subcontractor costs; general and administrative overhead costs plus net profit.
However, there are some important benchmarks that you need to know.
Daniel Wilson of Wilson Environmental Landscape Design is an environmental contractor out of Santa Barbara, Calif. His company installs sustainable landscapes that include edible forests, rain water retention cisterns, water reclamation, recycled materials as well as native, Mediterranean and drought-tolerant plants. He is also a nationally recognized consultant in this area. He shares that you have to know your client and how much your market will bear. Eco-hipsters of the past had big ideas but no money. Fortunately, sustainable landscapes are becoming popular and the general market is embracing both its philosophy and its products. Typical gross profit margins (GPMs) on residential “green” projects he says should be, at a minimum, in the range of 35 percent, +/- 5 percent. However, be prepared to work to find the people who will pay your price.
Jeffrey Sheehan, president of Confidence Landscaping near San Jose, Calif., says clients in the high-end residential design-build market are somewhat ignorant of the sustainable landscape concept. Once informed, though, Sheehan’s clients (many in the pricey Silicon Valley market) are open to it and often embrace the concept. Margins on such projects, usually costing multiple hundreds of thousands of dollars, are similar to what he has seen on traditional landscapes in the past — in the mid 30 percent GPM range.
Dan Potkay, general manager of Brite Idea Energy in Egg Harbor Township, N.J., was once a landscape contractor in the Atlantic City market. Seeing an excellent future in the solar energy business, he joined forces with his present employer. Gross profit margins as a percent of sales are similar to those in the landscape industry. However, due to the high cost of solar panels, his crews generate six to eight times the amount of revenue than a landscape install crew. Therefore, his GPM dollars for a day of production far exceeds that produced by a typical landscape installation crew.
The process for pricing green services is no different than that for pricing traditional service lines. Commercial installation work should realize a GPM near 25 percent, +/- 5 percent. Residential installation projects should see a GPM in the 35 percent, +/- 5 percent range. Green consulting work, for now, is considered a specialized service. Hourly rates far exceeding $100 per hour, and even $200, are not uncommon. But you have to know your costs.
Just because green projects and services are in high demand does not mean you can ignore keeping track of and a tight reign on your costs. If you ignore the basics of accurate cost estimating and timely job costing, your product line might be green but your wallet and your face could very well end up being quite red. LL

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