Gross Margin: What Does Having Control Over It Really Mean? A Guide.

The gross margin of your commercial landscaping business reveals how well you manage costs, set prices for your services, and maintain a profit.

You won't have to worry about paying bills and taking care of overhead costs if you have a solid gross margin. You’ll have the resources to expand and invest in your company. Typically, the gross margin for a profitable commercial landscaping business can range from 15% to 45%. 

As a business owner, you can calculate how much it costs to provide the service and how much income is generated from this one number. Monitoring gross margin trends can reveal potential issues with your supply chain or client retention procedures. It might even aid in developing price plans.

Understanding the gross margin

Your landscaping business’s gross margin pays for all of the overhead. It includes indirect costs like vehicles, supervisors, and mechanics, as well as sales, general, and administration costs like salespeople, office staff, administration staff, yard rent, and your salary.

Your business’s gross margins depend on the following factors:

• Hourly Average Wage
• Labor cost
• Estimates for materials, equipment, and other resources
• Pricing
• Efficiency and execution of the operation
• Job costing
• Overhead costs
• Unexpected costs
• Renewals
• Vehicle costs, workers’ uniforms, etc.

The largest expense in the commercial landscaping sector is labor. In maintenance operations, materials typically account for 2 to 6% of revenue. In installation operations, they can reach 30%. Nevertheless, depending on the type of business you run, the labor cost to complete the work can be anywhere between 25 and 55% of revenue.

Why do you need to monitor and measure gross margin?

Since it makes it easier for you to maintain track of your labor and material costs, your gross profit margin is crucial. It can be used to determine if these costs increase or decrease over time.

You can use this to determine whether you need to adjust your supply or rethink a contract. For instance, if your gross profit margin decreases over time due to rising labor costs, it might be time now to cap the labor cost or update your contract pricing. This could imply that you need to find a new supplier or renegotiate the cost of the materials.

Besides, net profit is the amount that is left over after covering overhead expenses. Without knowing the gross margin, your business simply becomes a group of extremely diligent people making a living rather than a profit.

In the end, your goal as a business owner is to achieve a just and reasonable profit. And you will lose money if you don't start your pricing strategy by concentrating on gross margin.

Challenges to maintaining a healthy gross margin

The need for commercial landscaping businesses to sustain healthy gross margins has never been more difficult. This is due to rising competition, a troubled economy, labor shortages, supply chain issues, and gas price hikes. To maintain profitability, businesses must keep a tight check on their gross margins. 

As mentioned above, several aspects of your business can eat your gross margins. However, without having the proper understanding of where your money is draining, you might become unaware of your part in the same. Poor judgments can cost the company a lot, from using outdated technology, and having no clear view of crew hours, to cost leaks. 

The inability to account for all expenditures and billables can also result from a lack of visibility into the different aspects of businesses. Some landscaping businesses even struggle to identify their optimum gross margin, which leads them to settle for a lower number.

What does having deep visibility into your gross margin really mean?

The first step to raising your gross profit margins is to gain a complete grasp of your inventory. You can make wiser decisions about material orders, crew scheduling, job costing, etc., after knowing:

• which service is performing well
• which service area is cheaper
• how much each service contributes to your bottom line 
• what is your gross margin return on investment (GMROI) from all your services

You’d also need visibility into:

• Exactly where your labor’s efficiency can be improved and what property, which crew, which ops manager, and which equipment are involved
• Where you are undercharging by locating actual vs. estimated gross margin
• Material and equipment cost vs. estimate to identify gaps

Additional Read: The need for operational visibility in a landscaping business. A guide.

This will help you avoid margin-eroding markdowns. Finding the causes of unanticipated drops in gross margin can be challenging. The only thing businesses typically do in the interim is to pull the levers they can easily access, which are usually marketing, sacking crew members, or lower pricing. However, if the true problem is, for instance, the contractor overcharging you for supplies, then raising prices or lowering promotional discounts is exactly the incorrect course of action.

How to have a deeper understanding of your business’s margins

Bookkeeping and tracking don't have to be difficult. However, if all you're doing is keeping track of your spending so your accountant can file your taxes, you're missing out on a wealth of data that can help you manage your company's finances and cash flow.

Software that automates tiresome, repetitive operations, such as walking off properties to measure sites, estimating labor, material, and equipment costs, and decreasing labor costs, can be beneficial to your commercial landscaping businesses.

Additionally, you may better grasp your revenue streams, track them more precisely, and have a better idea of your company's gross margins. How? That's when you measure crew working hours, job tickets, opportunities, revenues, timesheets, and overhead costs with business management software.

Hence, a better understanding of your financial performance is essential for the growth and sustainability of your landscaping company. Without valuable insight into your profit and loss data offered by your accounting systems and reporting tools, it is hard to make decisions for continuous improvement.

Over to you

Gross margins provide insight into the true health of your business, so monitor your finances carefully and note any changes in your gross margin from month to month.

Therefore, by increasing your prices, reducing expenses where necessary, and streamlining your operations, you can maintain profitability and increase your margins.

At Attentive.ai, we know how crucial it is to have the appropriate tools while managing a landscaping business. Because of this, we created an intuitive, all-in-one, cloud-based solution with the features you require to keep your entire business operating smoothly—and successfully. Schedule a demo call or sign up right away if you're set to advance your business.

FAQs

What controls gross margin?
The gross margin of commercial landscaping businesses is controlled by several factors, including pricing strategy, labor productivity, material costs, job costing, renewals, unexpected costs, and overhead expenses among others.

What does gross margin tell you?
The gross margin of a commercial landscaping business is the percentage of revenue that remains after accounting for direct costs. It provides insight into the profitability of the business and its ability to generate revenue above its costs.

Can you have over 100% gross margin?
In commercial landscaping businesses, the gross margin percentage cannot exceed 100% as it is calculated as the revenue remaining after accounting for direct costs. However, markups, which are calculated as the percentage difference between the cost of goods sold and the selling price, can exceed 100% and vary depending on the price and total cost of the offer.