A commercial landscape installation contractor in Massachusetts had bought a lot of equipment when the economy was strong and the need for additional equipment was great in anticipation of future growth. Fortunately, most of what he bought was paid for. This contractor had two full-time mechanics on staff who were quite busy keeping trucks hauling, mowers mowing and skid-steers operating. Unfortunately, the economy collapsed and his revenue, instead of growing as anticipated, plummeted by half. Much of the equipment sat idle.
However, the two mechanics, minus proper guidance, burned through cash and repair parts as they worked on parked equipment. This contractor’s total cost for equipment (costs for fuel, repairs, mechanics, depreciation, insurances, etc.) on his profit and loss (P&L) statement ran between 17 and 18 percent of sales; 3-4 percent above the industry benchmark of 14 percent.
A commercial landscape installation contractor in Nevada had minimal depreciation on his books. During the recent recession he hadn’t purchased any new equipment. Fortunately, this owner had an excellent full-time mechanic whom worked on the right equipment at the right time. His total cost for his equipment ran 7 percent of sales – way below the industry benchmark.
A residential landscape contractor in Massachusetts had a full-time mechanic who was constantly busy. Like the contractor in Nevada, he hadn’t purchased much new equipment during the recent recession. Like the other Massachusetts contractor, this contractor’s cost for equipment ran about 18 percent of sales.
Industry benchmarks for equipment costs. Benchmarks tailored to the landscape industry can be very useful to establish a baseline for monitoring equipment costs. The total cost for equipment normally ranges between 10 percent and 14 percent of sales. (The chart below shows how it breaks down).
Interestingly, if straight-line depreciation is high; repairs, parts and labor for mechanics is usually low. Conversely, if costs for repairs, parts and labor for mechanics are high, then depreciation is usually low. This makes sense. Repair costs for new equipment should be low but such costs for older, fully depreciated equipment should be high as it needs more repairs.
Maintaining a junk yard. The older your equipment gets, the more maintenance it needs. Some contractors like to keep larger equipment (mowers, trucks, skid steers, mini-excavators) until it “rusts” to death. One contractor had his full-time mechanic tear down, repair, sand blast and repaint all of his equipment during the winter months. The cost for doing so could have bought him new equipment. However, in his mind, he was saving money repairing old equipment instead of purchasing new equipment.
Monitor your mechanic. Having a mechanic, especially a full-time mechanic, on your staff is a mixed bag. If you keep equipment until it rusts to death, your mechanic will have plenty of work. You, the owner, need to set priorities for what gets worked on. You also need to monitor costs for parts and labor. The Nevada contractor had an excellent mechanic who was properly directed. His total equipment costs were very low, even though his equipment was old. On the contrary, the other two contractors experienced excessively high equipment costs. This was primarily due to mechanics who were monitored improperly, maintained excessive equipment or worked on antiques – or all three.
Create a balance. Equipment is an essential part of a landscape contractor’s operation but it has to be the right equipment. If used, maintained and monitored properly, it can increase productivity significantly while costs for doing so remain within acceptable parameters. However, if it is abused and/or maintained improperly, costs often get out of control. In addition to costs getting too high, productivity in the field often diminishes significantly.
Having a mechanic on staff may be necessary and a good solution for your equipment maintenance requirements. However, having the wrong mechanic or one who isn’t provided proper direction can exacerbate your problems and add to your costs. Maintaining a junkyard of antiques can also be very expensive. While antiques are fun to look at and collect, they have no place in a dynamic landscape contracting operation.
JIM HUSTON runs J.R. Huston Consulting, a green industry consulting firm. See www.jrhuston.biz; mail firstname.lastname@example.org.