Overhead Cost Management for Landscaping Business Success

Managing overhead costs in the seasonal landscaping industry is tough.

Uncontrolled overheads, such as fixed administrative costs (employee salaries, audit fees, legal fees, legal expenses, and labor costs), can eat into profits and limit growth.

This guide will list the tools and strategies for overhead management that landscape business owners can use to keep them in net profit.

Using business apps and accounting software to manage expenses, invoices, and fixed assets is key for landscaping companies.

Points:

• Overhead costs are a challenge.

• Uncontrolled expenses are damaging to your business.

• Practical ways to manage your overheads to at least break even.

What Are the Overhead Costs for a Landscaping Business?

Overhead costs are the ongoing expenses not directly tied to a specific landscaping project but are essential for running the business. These costs include both fixed and variable expenses:

• Fixed costs: These don’t change with the level of business activity. Examples are rent for office space, insurance premiums, and labor hours/salaries for permanent staff. These provide stability but must be managed to ensure your business’s income covers them.

• Variable costs: These change with the amount of work your business does. Examples are fuel, cost of materials for jobs, and wages for seasonal or temporary labor (landscape contractors). Managing these costs will help you stay profitable during busy and slow periods.

And don’t forget less apparent overheads like marketing expenses, software subscriptions like Quickbooks (for accounting), and utility bills, which also contribute to your total overhead. These costs aren’t always obvious but are necessary for the business to operate and will impact your gross profits.

Other often-overlooked overheads:

• Owner’s pay (Since the business’s profit is not your pay as the owner, you must factor in your billable hourly rate.)

• Unbillable labor

• Landscaping costs

• Shop rent and other office supplies (even if you are working out of your garage at home)

• Equipment depreciation (and equipment maintenance)

• Miscellaneous expenses like employee uniforms, donations, impulsive marketing spending, credit card processing fees, training, and travel to green industry conferences

Now that you understand these costs, you can manage your finances and ensure your pricing covers them. This will also help you decide which landscaping services to offer and ensure that you add the correct markup to at least break even.

Now, let’s get to managing your overheads.

What are Some Best Practices for Controlling Overhead Expenses?

Controlling overhead expenses is crucial for maintaining profitability in your landscaping business. 

Operating costs, which include expenses directly related to manufacturing and selling a product, such as labor, materials, and production costs, should be carefully monitored.

Operating expenses, which are related to the day-to-day running of the business, are also vital for business operations and support profit-making activities.

Overhead costs cannot be conveniently traced to any specific revenue unit and do not directly generate profits but are vital to supporting the business's profit-making activities.

Below are some best practices to help you manage and reduce these costs effectively. 

Price for Profitability

Calculate your overhead percentage and add it to your pricing.

Overhead percentage = (Total overhead costs/total revenue) x 100

Then, add this percentage to your pricing to ensure all costs are covered and desired profit margins are achieved.

Aspire’s landscape estimation software creates job bids using historical data and approved margins. This means profit margins are maintained on even the most complex jobs, and your unique rates are applied and adjusted for scope changes.

Track Your Expenses

Tracking expenses is key to managing overhead costs. Use accounting software and expense-tracking apps to monitor and record all business expenses. Review these regularly to find areas to save and keep your financials up-to-date.

Landscape job costing software automates cost tracking and gives you real-time drill-down reporting. Take control of profitability like never before with Aspire.

Negotiate and Source Smartly

Negotiating with suppliers can save you a lot. Consider purchasing used equipment and get multiple quotes to get the best deal. These strategies reduce costs without sacrificing service quality.

Landscape purchasing software ensures your teams have everything they need in the field with full visibility into inventory. It lets you attribute consumables to work tickets for more accurate billing.

Invest with Efficiency

Look for ways to upgrade your workflow to justify investing in new software or equipment. Upgrading to better systems and tools will increase productivity and reduce long-term costs, making you more competitive and profitable.

Aspire’s cloud-based business management platform has fully customizable workflows that allow contractors to scale smoothly and profitably without being held back by old, inefficient systems.

Outsource Strategically

Outsourcing tasks like payroll and marketing can be cost-effective, allowing you to focus on the core activities that drive your business. You can use external subcontractors to increase efficiency and reduce the overhead costs of doing it in-house.

Marketing Pro is a complete marketing solution that integrates with Aspire so field service contractors can build hyper-targeted audience lists, customize every campaign with a simple drag-and-drop editor, and access pre-built templates for landscape and janitorial businesses. 

Increases response rates, drive sales, and nurture existing customers while winning back former or inactive ones—driving customer acquisition whether your company is a fast-growing startup or small business.

Reduce Waste

Reducing material waste, improving fuel efficiency, and minimizing equipment maintenance downtime are crucial to managing overhead costs. Implement practices that ensure materials are used efficiently, routes are optimized to save fuel, and equipment is regularly maintained to prevent breakdowns.

Landscape scheduling software from Aspire helps by letting you drag and drop work tickets to create and edit your schedule. You can toggle between week and month views to see capacity and push schedule updates to the mobile app, so your team is always where they need to be.

Implement these best practices to manage and reduce overhead expenses and increase the profitability and sustainability of your landscaping business.

Now, let’s get into calculating your overhead percentages.

How to Calculate Your Overhead Percentage

Calculating your overhead percentage is critical to profitability and pricing. Follow these six steps to make sure you have a clear understanding of your overhead costs:

1. List all expenses: Make a comprehensive list of your business costs, such as rent, utilities, taxes, insurance, and building upkeep – these are your overhead costs. Exclude direct costs like materials and labor tied to services. Keeping a record helps you identify areas to streamline and save. Also, consider indirect costs like growing labor costs, more vehicles and equipment, more office space, and legal fees and expenses – these can impact your profitability and scalability.

2. Categorize each expense: Group your expenses into categories. Fixed costs are those that remain the same, like rent and salaries. Variable costs change with business activity, like fuel and seasonal labor. Some expenses may not fit into one category, so use your judgment. Proper categorization makes it easier to manage and review your finances.

3. Add the overhead costs: Add your monthly costs to get your total annual overhead expense. This is the cost of running your business before direct costs. Accurate overhead calculation is crucial to pricing, as it covers all expenses and ensures profitability.

4. Calculate the overhead rate: The overhead rate is how much of your revenue goes to overhead. Calculate this by dividing your total overhead costs by your direct costs and multiplying by 100. For example, if your overhead costs are $40,000 and your direct costs are $100,000, your overhead rate is 40%. This means 40% of your revenue goes to overhead expenses.

5. Compare to sales: To see how your overhead costs relate to your revenue, divide your monthly overhead costs by your monthly sales and multiply by 100. For example, if your monthly sales are $200,000 and overhead costs are $50,000, your overhead rate is 25%. This helps with pricing and budgeting.

6. Compare to labor cost: Assess your resource usage by comparing overhead and labor costs. A lower percentage means more efficient resource usage. Divide your monthly overhead costs by your monthly labor costs and multiply by 100. Regularly comparing these percentages will help you identify areas to improve.

Overhead cost management means a healthier bottom line and more sustainability.

Let’s get to the steps for managing overhead costs in your landscaping business.

Manage Your Overhead Costs and Find New Ways to Drive Growth

Managing your overheads is critical to your landscaping business’s success and growth. Try expense tracking, smart sourcing, efficient investing, and strategic outsourcing. Overhead management is an ongoing process that must be reviewed and adjusted regularly. Refine your strategies to stay competitive and profitable – that’s what running a landscaping business is all about.

Good overhead management means understanding all your expenses, from fixed costs like rent and insurance to variable costs like fuel and seasonal labor. With Aspire’s business management software, you can get real-time insights, streamline operations, and make informed decisions that increase profitability.

Investing in the right tools and software will make a big difference to your business’s ability to scale.

Ready to manage your overheads better and focus on getting more landscaping customers?

Book a free demo with Aspire today and see how our business management system can help your landscaping business.