How to Calculate the Cost of Goods Sold for Your Landscaping Business

Knowing the Cost of Goods Sold (COGS) is critical for any landscaping business that wants to increase profitability. A COGS helps business owners price services more accurately and manage cash flow better by tracking:

• Direct costs

• Material

• Labor

• Equipment

Correctly calculating COGS lets you price competitively while maintaining healthy profit margins.

In this guide, we’ll show you how to calculate COGS for your landscaping services and introduce Aspire’s industry-specific software, which can simplify the process, give you better control, and increase efficiency.

What does “Cost of Goods Sold” (COGS) mean?

The cost of Goods Sold (COGS) refers to the direct costs of landscaping services. It includes expenses such as materials, direct labor, and equipment used in a job. 

Calculating COGS helps business owners understand the true cost of delivering services, allowing them to price more accurately and achieve better profit margins. 

For example, COGS for a lawn care job would include:

• Material costs, such as mulch and fertilizer

• Staff wages

• Equipment fuel

By knowing their COGS, small businesses can make better decisions about their pricing strategies, keeping their services competitive and profitable. A lower COGS means higher gross profit margins and more to the bottom line.

Next, we’ll examine why calculating COGS is vital for landscaping businesses.

Why is the Cost of Goods Sold important for landscaping businesses?

When landscaping business owners track COGS accurately, they can price their services to cover all direct costs—materials, labor, and equipment—and account for all costs to have a healthy profit margin. 

→ This allows them to be competitive without sacrificing profitability.

By calculating COGS, business owners can also track profitability per job and see which jobs are the most profitable.

Bad COGS tracking can mean you underestimate job costs and have lower profit margins or losses. Accurate COGS also helps with resource allocation – so you don’t overspend on labor or materials for a job. Without knowing your COGS, your business will struggle with cash flow, finding the money to pay operating expenses, and investing in growth.

What are the main elements of COGS for landscaping?

Cost of Goods Sold (COGS) for landscaping businesses includes several key components that reflect the direct costs of delivering services. 

These components are mainly:

• Raw materials

• Labor

• Equipment and machinery

Understanding these components helps business owners know their actual costs and be profitable.

Materials

Materials in the landscaping industry can include soil, plants, mulch, fertilizer, and pavers for hardscaping jobs.

Accurate tracking of material costs is critical to:

✔ Avoid overspending on jobs 

✔ Accurately estimate job costs

Landscape professionals can better forecast expenses and improve profit margins by managing material costs. 

Choosing the proper inventory valuation method, such as FIFO or LIFO, can significantly affect material costs and how they are calculated and reported.

Labor

Labor costs include employee wages and subcontractor payments. Accurately tracking hours, including overtime, and assigning them to jobs is critical to calculating labor costs. 

This way, landscaping business owners can ensure each job is profitable and in line with budgeted labor costs. 

It is also important to distinguish between direct labor costs and indirect costs, such as administrative salaries, which are not included in COGS.

Equipment and machinery

Equipment costs include maintenance, depreciation, fuel, and rental fees for specialty equipment you don’t own.

These are big components of COGS for any landscaping business, as equipment is used in every job. Accurately calculating these costs means the company can price its services correctly and cover the total cost of equipment usage. 

Variable equipment costs include items like:

• Fuel

• Office supplies and software such as QuickBooks

• Equipment maintenance

These costs change based on how much you use them. In contrast, fixed costs, like rent and managerial salaries, stay the same no matter how many jobs you have.

The following section will show how to calculate COGS for lawn care business jobs.

How can you calculate the Cost of Goods Sold for your landscaping business?

When calculating COGS metrics, remember to separate administrative costs like office salaries and utilities from direct costs.

1. Track direct material costs

Use tools or spreadsheets to record the materials purchased and used for each job, such as soil or plants. It’s important to associate these material costs with individual jobs to avoid overspending for a single contract and accurately track job costs.

Aspire makes estimating more manageable by automatically factoring in margins and markups for materials, labor, and other direct costs into your job bids. It also allows you to update your pricing based on historical spending habits so you stay up to date with costs.

2. Calculate labor costs

Track the hours employees work for each job, including wages, benefits, sales, and payroll taxes—link labor to individual jobs to avoid mistakes and underestimating.

The Aspire Mobile app improves labor tracking with easy clock-in/clock-out from the field so you can track labor for every landscaping and lawn mowing job. Managers can see jobs in progress with location geo-stamps for each crew so you have complete visibility and accurate billing data.

3. Factor in equipment costs

Estimate equipment usage per job, whether it’s calculating depreciation for owned equipment or rental fees. Include fuel, maintenance, and repair costs when calculating total equipment costs for each job.

Aspire allows you to manage and track equipment expenses so all associated costs are accounted for when calculating COGS, including equipment maintenance, fuel usage, and depreciation tracking.

4. Add it all together

Once you’ve added all the direct costs for materials, labor, and equipment, you have your final COGS. Accurate COGS calculation is vital to knowing your net profit on financial statements and overall fiscal health.

With Aspire's reporting features, you can see a complete breakdown of your direct costs. The platform gives you real-time access to all your financial data, so you can filter by property, division, or team, making COGS reporting easy.

Now that you know how to calculate COGS, let’s look at some common mistakes to avoid during this process.

What are the common mistakes to avoid when calculating the Cost of Goods Sold?

Mistakes can lead to underestimating expenses and overestimating profitability. Also, overhead costs like marketing for new customers and administrative expenses should not be included in COGS.

Overlooking small costs

Failing to account for small materials like fertilizers, seeds, or transport costs can skew your COGS calculations.

These small items may seem insignificant, but they can significantly impact profitability when added up over multiple jobs. Tracking every cost, no matter how small, ensures your COGS is accurate.

Aspire streamlines the purchasing process. Once a job is won, all materials and supplies are carried over to the system. The platform ensures that every item, even from inventory, is tracked and allocated to the correct job so nothing is missed.

Incorrect labor tracking

Using rough labor-hour estimates can skew your COGS calculations and profit margins. Not tracking actual hours worked means you risk underestimating the cost of labor, which can eat into your profits. Labor costs, including wages, benefits, and payroll taxes, must be tracked for every job.

The Aspire Mobile app instantly syncs labor hours to the platform, so your team doesn’t need to spend days reconciling data for payroll. With the geo-stamped clock-in/clock-out features, operations managers have visibility into teams on their routes and accurate job cost data. 

Ignoring equipment depreciation

Not factoring in equipment depreciation can artificially inflate your profit margins. Landscaping businesses rely on machinery; not accounting for wear and tear, fuel, and maintenance can give you an unrealistic view of profitability. Ignoring these costs means you’re underpricing your services, which could lead to cash flow issues later.

Aspire helps you track equipment costs, including depreciation, fuel, and maintenance, so these costs are reflected in your COGS. Correctly accounting for equipment depreciation ensures your income statement reflects your financial performance.

By avoiding these mistakes, you can calculate your COGS more accurately, and your landscaping business will be financially healthy. 

It’s your turn now

COGS tracking is crucial to any service business in setting competitive prices and managing cash flow and profitability. 

You can make informed decisions and avoid common financial traps by tracking the costs of materials, labor, and equipment. Aspire’s software makes this easy, automates COGS calculations, and gives you valuable insights to help you manage your finances.

Ready to take control of your business’s finances? Book a free demo with Aspire.