1. AM Professional Lawn Services
How much should I charge my customer’s for lawn services?

2. What do we know about our business?
Every lawn we service, we mow, edge, trim and clean up.
The average lawn takes about 45 minutes with 15 minutes of drive time and this is with two employees.
If we calculate how long it takes us to mow the lawn (45 minute average), then what would be our best strategy on pricing?
How could we maximize our profits and minimize our losses and still stay competitive?

3. What do we know about our market?
We are a perfectly competitive market
We are price takers
Our firm is so small in the marketplace that we cannot effect the price of the service

4. What do we know about a perfectly competitive market?
There are large numbers of buyers and sellers.
The services sold by the firms in the industry are perfect substitutes for the services sold by every other firm.
Both buyers and sellers have access to all relevant information
Any firm can enter or leave the industry without serious impediments

5. What information do we need to know?
What are my average total costs?
What are my average variable costs?
What are my average fixed costs?
What are the Marginal Costs for the service?

6. My Fixed Costs
My fixed costs include 2 credit cards, a truck payment and insurance as seen below.
Credit Card 1 $50/mo
Credit Card 2 $50/mo
Truck Payment $100/mo
Insurance Payment $150/mo

7. My Variable Costs
My variable costs include gas and oil for the mowers, edger, trimmer, and blower; gas for the truck, and hourly salary for 2 employees.
Gas for mowers 5 gal = $12.25/ We use about 2 gallons a day on mowers, edger, trimmer, and blower. In one 8 hour day that averages out to about $1.11/hour.
Oil for the machines cost $2.50 a bottle. We use about 1 bottle a day and in one 8 hour day that brings the cost to $0.31/hour.
We get 20 miles to the gallon in our work truck and go an average of 40 miles a day. Broken down into 2 gallons, that’s about $1.11/hour.
We pay 2 employees $10/hr which is a cost of $20/hour for employees.

8. My Average Total Costs
My average total costs include all of my fixed costs and all of my variable costs. We will break these costs down into one mow 3 mows, 5 mows, 7 mows and 9 mows.
1 mow $372.53
3 mows $184.26
5 mows $182.65
7 mows $207.71
9 mows $241.66

9. Marginal Cost We called 20 companies and they averaged $45 an hour
This averages about $0.80 a minute. We are averaging about 45 minutes for a lawn
1 mow at 45 minutes is $36
3 mows is $108
5 mows is $180
7 mows is $252
9 mows is $324

13. We can see here that the short term break even point is at 5 mows where the total revenues cross the marginal cost line.

14. What does the graph tell us?
We are Happy, Happy, Happy, Happy
We are profitable for the month after 5 mows.
If we do up to 8 lawns a day with an average 45 minute mow time and 15 minute drive time, then we can get up to 40 mows a week and that is 120 mows a month on average.
We will profit after 5 mows and will profit all the way up until 250 mows which is the maximum capacity we have in our schedule and manpower to do.
We wouldn’t go back into loss until we got another truck, trailer, mowers, edger, trimmer, blower and two more employees.

15. What does this tell us about our business?
It is super profitable and people will continue to join the market until it corrects itself.
We have no shutdown point because, what we would earn from mowing one lawn pays more than what are variable cost per lawn is.
There is no better business for us to be in right now for the money that we can earn.
With more people entering the market, you are constantly competing for business and many times must drop your prices to meet a competitors price.
You are going to have to constantly market to create new business you are losing to competition and to fill your calendar. So, we must remember to leave time for marketing, best way to market is door to door and costs nothing more than business cards.

16. What is our conclusion on pricing?
The market price averages out to about $.080 a minute. I am trying to meet this market price by pricing lawns on how long they will take.
The minimum price I will take is $15 for a job that will take 15 minutes. This would average out to $1.00 a minute, which would be on the high side.
A half hour job I would price at $25, which would be $084 a minute, also on the high side.
A 45 minute job I would price at $35, which would be $0.78 cents a minute, which is right on target.
An hour job I would price at $45, which is a little below average.
As you can see with all of these estimates, things average out to about $.080 a minute.

17. However…… Let’s not forget about the Principle of Reality!
This state’s, “what really matters to people is the real value of money or income – it’s purchasing power – not the face or nominal value of money or income.” – Textbook
What this means is now that the economy is doing well, people have more discretionary income to spend on things like lawn service.
If the economy was bad and people were struggling to pay their bill, this would be an extravagant service only left to people who had extra discretionary income.
This means that we may be doing well now, however if the economy goes downhill, our business may suffer because of that.

18. Why??
People will spend money they don’t have on something such as an automobile repair which is a necessity to go to work and keep income coming in.
If someone has to choose between going out to dinner with their family and getting their car fixed, then they will get their car fixed.
If someone has to choose between going out to dinner with their family and getting their lawn professionally mowed, then they may just choose to mow their lawn themselves and go out to dinner with their family.
However, if someone has the money to go out to dinner, get their car fixed and have their lawn professionally mowed, then they will probably do all three.

19. What has this taught us?
We can use the Principle of Marginal Cost to graph our Average Total Cost, our Average Variable Cost, our Fixed Cost and Marginal Cost, to calculate how much we should charge a customer for our services.
We have learned that the optimal pricing range $0.80 a minute average and that this is what the market price is at.
We have learned that we are profitable after 5 mows and up to 250 mows a month.
We are in a good economy, which helps a business like ours grow and flourish in good times. This is also a highly competitive business that will have more and more people coming into it.
We learned that people usually spend money on our services when they have extra discretionary income they can use to pay for our services. We learned this through the Principle of Reality.

20. Thank you!