Average Man-Hour Rate for Landscape Jobs

Average Man-Hour Rate

One of the most common questions I get is regarding “What should I charge per man-hour?” It seems to be the one landscape business owners battle with the most in their minds as well. There’s a lot of uncertainty on how to come up with your man-hour rate. And there are questions swirling like “At what point do you price yourself out of the market?” …and “What is the client going to say when they see the hourly rate?”

Before I dive into that, let me define what I mean by man-hour.

A man-hour is “per employee, per hour”. So if you have 3 crew members on the job site for 8 hours, that’s 8×3, or 24 man-hours.

Now, how do you calculate your man-hour price?

Well, I don’t recommend basing it on what others are charging in your local market. I mean sure, that’s interesting info to learn, but don’t use those numbers on your own quotes. We need to go find your own man-hour price. Once we’ve found that, I’ll share the averages I see in the landscape industry.

How to find your man-hour price

Finding your own man-hour price consists of 3 components

• your direct labor costs
• your overhead costs
• your profit goal

Direct labor costs

Your direct costs are essentially your cost of payroll. And if you pay an employee $25/hr, your business’ cost isn’t $25/hr. It’s more. The simplest way to find the business’s cost per hour is to take your total cost of payroll for that employee and divide it by the total amount of hours worked in a year.

When I say “total cost of payroll”, I mean not only their wages but also the taxes, benefits, etc that you pay for that employee. Every locality is different, but the true cost is usually around 20% higher than the “wage per hour” cost.

So if an employee costs you $50,000 a year in wages, but then you pay health benefits, local and state taxes, payroll taxes, and overtime, that same employee probably costs your business closer to $60,000 -/+ a year. You can go look in your own records to find the exact number for your own employee(s).

If they worked 1,800 hrs that year, overtime and everything included, that means the direct labor costs are $33.33/hr

Overhead costs

Now, moving to your overhead costs. These costs are all the expenses your business has to keep the doors open and operate. Insurance, marketing, phone and internet, shop rent, office supplies, office admin, owner’s salary, vehicles, and their maintenance… Any expense your business has that you can’t pass directly on to a customer and job on an invoice is an overhead expense.

And you’ll want to project the worst-case scenario.

You don’t want to be conservative and calculate that you’ll have $200,000 in overhead expenses, but then you actually end up having $220,000 in annual overhead expenses in real life. That $20k difference will need to come right out of your profit. Better to shoot high on these expenses.

You’ll want to add all of those overhead expenses up, come up with an annual number for these expenses, and then divide them by the total billable hours worked by all employees in your company.

In finding the total billable hours for the year, don’t include the hours worked by any overhead staff. Such as office admin, marketing staff, or even the hours you work as the owner “running the business” and are not on the job site. Don’t even include unbillable hours from your crew, such as training, rain days, etc.

The result is the dollar amount per man-hour that you need to add to your direct costs per man-hour, to cover all those overhead expenses.

Let’s say you found that your business has $220,000 in overhead expenses per year. You have 5 employees that work 1,800 billable hours per year. That’s a total of 9,000 billable man-hours per year in your company. Divide the $220k by 9,000 and you get $24.44 per man-hour in overhead expenses.

Now, let’s do the math:

$33.33 in direct costs + $24.44 in overhead costs = $57.77 as your breakeven.

Profit goal

Now we need to add your net profit margin.

If you want to add a 15% net profit margin, take the $57.77 and divide it by .85 (if you want a 10% profit, divide it by .90. If you want 20%, divide it by .80)

At 15% net profit, you’ll get $67.96 per man-hour.

You can do all this math manually, or you can use a nifty little man-hour price calculator I made to make it easy.

Average man-hour price in landscaping

For context, most of the businesses I see do some type of installation work. I don’t talk to many that strictly do maintenance, like mowing, so that will affect the averages I have here. Installation and design/build landscape businesses require more expensive equipment and overhead expenses, which will affect the average man-hour price I show here.

Bottom range

The bottom range I see in man-hour pricing for landscape businesses that do design/build, installation, and recurring maintenance is in the $60-70 per man-hour range.

Mid range

The average is more in the $70-90 per man-hour range.

Top range

And the top end is in the $90-130 per man-hour range.

What’s interesting is it’s not just the “big” businesses that fall in the upper range. I just helped a 2 man operation build a budget and calculate their man-hour price and it came to $120/hr.

It just all depends on your costs and your production capacity. With 2 people, they were limited to the production capacity of… 2 people. But had the expenses of a full-on design/build landscape company. This meant their expenses were high, but their billable hours were only the capacity of 2 people, which drove the cost per hour up.

On the flip side, if you have more crew members doing billable work, the total lump sum of overhead expenses is spread across more man-hours, and the overhead recovery amount per man-hour tends to drop a bit. But then you better actually perform that many billable man-hours of production in a season, or you’ll be in trouble. If you project 9,000 billable productive man-hours of labor in a season, but then only actually do 8,000, you’ll be short 1,000 hours of overhead recovery.

This is why having good data is important, you need to be able to accurately project, so you can dial in your own man-hour rate accurately.

Man-Hour rate conclusion

At the end of the day, your man-hour rate is your rate. Your goal is to make sure your direct costs are being covered, your overhead costs are being covered, and you’re achieving your profit goals. If you’re doing all 3 of those, then burn your energy on marketing to generate the leads you need to sell your work at your man-hour rate.

If you insist on lowering your man-hour rate, there’s one way to do that. Cut expenses somewhere.

It’s usually easier to find clients that will pay your rate than it is to cut enough expenses to have a meaningful impact on your man-hour rate.

But no two situations are alike. You could take any of the one-liners above out of context. Hit reply if you have any specific questions about your rate or your situation. I’ll be happy to help.

Cheers!

Weston