Sargent's solutions - investigating the business case for investing in new kit

There are solid business reasons for improving efficiency by investing in new equipment.

Q. I run a two-man maintenance business, mainly grass and hedge cutting. I feel I want to improve my efficiency by investing in new equipment, but find it difficult to reconcile the costs with increased productivity. I am sure we will be faster and more proficient, yet at the same time carrying out the same job for less money at the end of the day, thereby financing my customers. What would you advise?

A. I assume that you are charging your clients an hourly rate and therefore any improvements in productivity that arise from your investment in new equipment will not reap additional rewards for your outlay as matters currently stand.

It may be helpful to look initially at the way you operate your company. If you are charging a simple hourly rate, and have done so for some time, your customers may be reluctant to alter their arrangements. It is an unfortunate fact that maintenance clients become hidebound by "normal practice" when it comes to contractors. They expect you to arrive on site at a given time, work a certain numbers of hours, carry out routine projects and bill them at the end of each week or month for that work and perhaps extras as seasons require.

As far as they are concerned, nothing must alter. Some simply do not like change. Same time, same people, same jobs, same costs - even agreeing the occasional increase in rates is most unwelcome.

I hesitate to say that your dilemma is evolutionary, but the more established you become as a business, the greater the need for efficiency in your company. There are many successful businesses that exclusively carry out maintenance works without feeling the need to expand into more general landscaping to increase profits.

However, your productivity and profitability must evolve, and always in an upward trajectory, otherwise inflation and other price increases will eat into your finances. Nothing ever stands still. To survive, you must increase productivity or prices on a regular basis.

Two clear paths

In essence, there are two clear paths to consider. One is to change your service offer, to both established clients and new enquiries, to recognise your proposed investment. Every business is different inasmuch as we all have different financial needs and costs. Some firms have little or no overheads, others have high costs. Some people need a certain level of income to support their families and lifestyle/school fees etc.

Therefore it is a very useful exercise to make a clear and honest assessment of your outgoings, both professional and personal. Ensure that you include everything, especially wages and anticipated increases in the near future. Once you have a figure, add a percentage to cover anticipated inflation or possible increases in outgoings over the next couple of years. Perhaps a new vehicle or larger premises are on the cards. Project your assessment for the end of next year, not the current one.

Divide that sum by 1,800 working hours for the year to arrive at an hourly rate, based on your existing costs and working methods, spread over a 12-month period.

The next step is to arrive at a figure for the total outlay you anticipate to purchase your new equipment. Again, divide that sum by 1,800 (working hours) and aim to recover the full cost of that money in one year. I appreciate that there will be a residual value left after that period, but from a practical point of view you should consider any life you can get from those tools after that time to be a bonus.

Now that you have all the relevant information in front of you, and assuming that you did not have any unwelcome surprises once you worked out your current rates and compared them with your actual outgoings, you have an hourly rate that reflects your status quo.

Additional factor

You should then add another factor into your quotes, to include the enhanced costs of providing your clients with an increase per hour/day to cover the cost of your new purchases, increasing/more efficient working abilities.

This should enable you to show that you can carry out the job using existing methods at pounds x per hour or pounds y per hour if they choose to have fewer hours/more productivity. The choice is then theirs, and if you can prove a time/cost saving they should have no issues with your increased rates. In effect, they will be choosing to "hire" your new equipment.

Obviously, this formula is only required for existing customers because all new clients should receive the higher-rate figure only, or perhaps develop a price per individual project or part thereof if the contract can be broken down.

I have always maintained that we should be properly paid for our skills, but so many contractors do not appear to appreciate that the more we learn, the greater our knowledge, the more extensively serviceable we become as craftspeople. We should reflect this ever-growing talent in our charges. Gardeners are expected to maintain the same rates, year after year, as though we are still only capable of a certain craft level.

At least by increasing your productivity, by improving the types of equipment offered to your customers, they cannot quibble over paying more money for the same job and any increase in productivity may be utilised to increase the number of customers using your time. All we have to sell is ourselves and our time. Increased efficiency equals increased profits.

Alan Sargent is an independent gardens consultant at the School of Garden Management.

- See www.tsogm.org


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