Pondering Cost Control

[ROYCE]

It's an entertaining idea, but I don't see how it would work, if it is even reality, and there are a lot of variables:

Say you have five businesses all competing for available work. If each business owns a fleet, a crane, a log truck, a loader, a grinder, etc, then all the equipment costs are factored into each bid even when they aren't operating - while this might keep big jobs lower, it will inflate smaller jobs.

I think what the OP is saying the problem is, the more equipment he buys, the higher the cost of business increases.

I find, if the right equipment is purchased at the right price for the jobs at hand, equipment should lower your operating cost and increase efficiency - get work done more quickly and lower your labor costs, thus, increasing profitability and lowering cost.




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It's not about being cheaper; it's about being more efficient. The proceeds of efficiency can be put anywhere--towards lower bids, better salaries, better training, pro-bono work, or gold-plated Louis Vuitton chainsaw bars. Being a really expensive tree service is not a highly laudable achievement. That strike as where you just end up in this industry if you've got pretty good business skills and you've been around for awhile. I've not heard much about how this default trajectory of professionalization may be negatively affecting trees and communities.

Not too long ago I took an EHAP class from an instructor who helped manage a well-established tree service. He boasted of how his equipment trucks each carried red duffle bags with brand-new, complete sets of climbing gear ready to be broken out and used in the event of an aerial rescue emergency. He seemed to be emphasizing his no-cost-is-too-high approach to safety. Those climbing spikes had to be brand new! His high standards shamed and befuddled those of us from scrappy little tree crews. Later in that session, he mentioned in passing that his company only does commercial contracts--that he had been priced out of residential tree work.

With professionalization should come efficiency, and those gains should not be squandered. I did one removal job with a flatbed trailer before deciding that I needed a chipper. That little 6" chipper was a huge leap in efficiency. My 12" chipper was another huge leap in efficiency after that. If, with my 12" chipper, I'm still regularly being out-competed with the guy with only the flatbed trailer, something's amiss.

I really like this post. I agree with a lot of what your saying. I struggle with being the most expense tree service around or...the "best" priced tree service around.
I took over for a tree service that was in operation for 44 years. This company had a state of the art facility, all brand new equipment that was way over the top. They were considered the most expensive tree company around. Most used to hire them just to "see the show" They would arrive with a convoy of equipment all shiny and new. Since I purchased them 3 years ago not once have I heard about how nice of a job they did, how professional their crew was or how knowledgable they were in aspects of tree care and removals. All I hear is "they had beautiful equipment"....."boy were they expensive"
Imagine having half the overhead and charing slightly lower prices. You ask about efficiency and being able to use your money wisely to better your organization and employees. Here are a few of the things I do. I keep this little phrase in mine from time to time "watch the pennies and the dollars will take care of themselves"

-Efficiency comes when your organized. My highest cost is payroll and payroll expenses(taxes, W/C, etc) So, I don't like to see employees standing around...especially if its my fault. Meaning, you better have a place for them to go, a job for them to do first thing every morning. I have their whole week scheduled out in advance. They know they have to be rolling out of the shop at 7:15.....or I get cranky..Why? Because if you don't have a target time then the crew starts to slip. One day their leaving at 7 then 7:15..then its 8 then 8:15 etc.

- You control your business and people want your business. Your expenses are what I am talking about. Shop them out. Everything from insurance to fuel, to maintenance, shop supplies...etc. Get the absolute best price you can. And let your vendors know your shopping around and will continue to shop around. Once you start to make some good money people will want a portion of it. They will target you. I used to fuel up at a station and had an account with them. I wasn't paint attention because we were cranking with business. Now, I noticed he was charging me an extra 125 a week...this went on all summer. Now I am fitting it. You have to watch your vendors and keep tract of your accounts.

- The next thing I would suggest kinda goes with the first statement of efficiency through organization. Buy in bulk when you can. I now buy bulk fuel, Chains, even chainsaws. I'll buy two or three chainsaws at a time and get a saving for a large purchase like that from a local guy.

- Hire knowledgable employees who are hard working. Lead by example and set the standard. If their good workers their efficient. Efficiency saves you money. It going to cost you money to hire the good people, but its money well spent. You hire a cheap guy who is smashing your equipment, breaking clients property is costing you more than a good guy who is paid more that doesn't destroy things.

- Buy "good" used equipment. I have been back and forth with this and I still believe that certain things can be bought used at a considerable savings. Buy a good used truck and spend your money on a nice logo to put on the side of the truck. People will be looking at that professional presented logo before they look at the truck its on.

I am interested in hearing what others have to say about ways to watch what they spend.

 

[Leroy]

Kind of goes without saying but preventative maintenance is huge, even for little things. When I worked for other people, there were constantly broken spring rakes, like once a week it seemed. I couldn't believe when I started working for myself, I've had a couple of rakes for a year or more! I know rakes are cheap but it adds up I'd imagine, especially the time spent going to pick them up or order them.

 

[Leroy]

Here's a big efficiency/overhead question I ponder- brush grapple vs. truck and chipper.

 

[96coal449]

I guess this "co-op" thing is valuable to smaller services banding together. If two or three outfits joined ranks they have the advantage of pooled equipment. One guy might have a 80hp stumper, and another with an agile 35hp motor but can fit in tighter areas. Just an example. Same for large jobs. Banned together an enormous job can be tackled where solo it would be passed on. I'm not thinking that bids should be lowered ... at all.
For me .... I'm planning my new stint working for myself again. This time in the tree industry instead of construction. I had a dying 12'' chipper that got put to pasture way's back. Now I'm building a bigger truck and working on financing a 20'' chipper. Pretty much working solo and I'll do what I can on my own. I'll be working with my 'partner' on his jobs also, like I have for the last 10yrs. Only now I'll have more to bring to the table. He's a part timer who who is an iron worker most week days. I still get a roof job here and there. I don't care for that work any more but I can't frown on the coin when a good job presents itself. So our schedules work out for us. Anyway with a big chipper I can offer chipping service to others with smaller ones who rented a crane for a job, or a lot clearing, or the home owner who just needs brush removed. I also plan on signing up with a couple local municipalities. "I'm available for emergency storm work" ....
like helping open main roads. I should mention I'm looking at a 20'' with sit down grapple.
On saving coin ...... wise man once said "it's easier to save money than it is to make it.

 

[96coal449]

Levi that's a tuff one. Unless you have acreage or a lot to process brush, a grapple trash dump is lacking. You have brush to get rid of. Chip it in a lot or store it to rot or burn on acreage available. Chips .... easy to dispose. But with the trash dump the whole job can be cleaned up by one guy with one truck. Guess I'd want both ..... eventually.

 

[southsoundtree]

One more thing- there's always a way to bring down the cost for folks with low income. Leave debris, don't stump grind, etc etc.

I imagine there is some sort of tax write off for pro bono work.

Yes, you can write off the fuel, labor, anything that is a legal business expense... Same as if you charge $1 for $10,000 of work, but you'd add $1 to your revenue.

 

[ROYCE]

Kind of goes without saying but preventative maintenance is huge, even for little things. When I worked for other people, there were constantly broken spring rakes, like once a week it seemed. I couldn't believe when I started working for myself, I've had a couple of rakes for a year or more! I know rakes are cheap but it adds up I'd imagine, especially the time spent going to pick them up or order them.

We buy our rakes with a 5 year commercial warranty. I know...who would warranty a rake. I laminated the receipt and it hangs by the rakes. Once one or two are broken we go back to the store with the receipt and get two new ones. No questions asked.

 

[NorCalBrock]

My whole issue with the co-op thing is I don't trust other crews and how they use equipment - same with rental yards. Example, using a bucket or basket to rig off of. I don't know how many times I've gone to rent a tracked lift and it is down because someone has wrecked the basket and boom because they rigged weight off of it. That is very dangerous because the machine might not fail the first time but have one cycle of failure left in it when I'm in it



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[NorCalBrock]

I do the same with hand tools - I buy from dealers who replace no questions asked. I get mine from "Ace" - they take them back and we have an account so they can look up the purchase.

They also have a buy one get one free sale - two for the price of one - $6 each tool for decent quality.


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[Leroy]

Here's a tree worker's co-op success story. Some guys I know in the area share a truck and chipper, alternating weeks. They've done this for years and both have a thriving business. There is also a sub climber who goes back and forth between the outfits each week, he has his own biz too. Then there is a fourth guy who, from what I can gather, mostly owns a bunch of nice equipment and subs out to them on crane jobs and what not. They all draw from a pool of sub climbers and ground workers for bigger jobs or just regular old work. Not one of these 4 business' has an employee on the books as far as I know. It seems a successful model, I worked with one of the guys as a sub a few years ago and they all pay above average day rates. Cutting out WC seems like a smart idea for everyone involved to be well compensated. It was cool to work on a crew were each person was individually responsible, with their own GL insurance, LLC or the like, tools and equipment, etc etc.

 

[NorCalBrock]

Levi - bigger is always better - I prune fruit trees with this:

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[Leroy]

Ha!!

 

[Evan Sussman]

Here's a tree worker's co-op success story. Some guys I know in the area share a truck and chipper, alternating weeks. They've done this for years and both have a thriving business. There is also a sub climber who goes back and forth between the outfits each week, he has his own biz too. Then there is a fourth guy who, from what I can gather, mostly owns a bunch of nice equipment and subs out to them on crane jobs and what not. They all draw from a pool of sub climbers and ground workers for bigger jobs or just regular old work. Not one of these 4 business' has an employee on the books as far as I know. It seems a successful model, I worked with one of the guys as a sub a few years ago and they all pay above average day rates. Cutting out WC seems like a smart idea for everyone involved to be well compensated. It was cool to work on a crew were each person was individually responsible, with their own GL insurance, LLC or the like, tools and equipment, etc etc.

Great thread everyone! I've been reading it, without much to input so far.

The issue is run into with this model is that according to our state's rules, if you touch another company's tools you get into a grey area as far as whether or not you should be treated as an employee to that company from a WC / liability perspective. It's not really a grey area. I've spoken to multiple people with the state, and even practicing contract climbers who acknowledge it's not allowed but proceed anyway.

There's always going to be a time where two people are touching two ends of the same rope for example.

I know we all want to be independent, but I can actually see this mentality hurting the industry. When we pool our resources and time into local companies it gives us the ability to develop much better training programs, much better equipment maintenance programs, the ability to compete on a broader scale, etc.

These little companies championed by one excellent arborist are not sustainable businesses. What is the plan for when that one awesome arborist gets old and dies? Sell the equipment? Sell the clients? But why would they stay with the company, as there is no larger system to ensure they get the same quality of service.

I strongly feel that work as a "company of men/women" together under one company is one of the best, most sustainable ways to provide a living to the participants, and provide a high level of service to the clients. No doubt, collaborate with "competitors" especially when they have the equipment you can't afford yet. But overall one of the best ways to control cost is to do volume. But benefits in volume (group benefit packages).

I want to see the employees who work for the company I currently own compensated very well. I want them to know there is a path they can follow within our organization to get to x/year. If they want more, I will do my best to help them understand how to achieve that within our company.

I don't think many of the individual tree service owners out there really understand the massive undertaking building a "business" is. I mean some of us understand it means bidding, customer relations, admin, etc.

But what is the difference between a company that that does $300k gross and is worth some large portion of that on the market, and that same business that is worth barely more then the asset value?

To me the difference is the systems in place, and the team members who are committed to that organization that will ensure the quality of service remains similar regardless of ownership.

 

[Leroy]

Good points. In regards the the state regs on subs, yes we have them and one is as you described. All I know is that these guys have never been flagged or fined in the 10+ years they've done it this way. In regards to the issue of posterity, yes, that is a concern. The oldest of these guys I'm talking about is making moves towards hiring on employees and stepping back from the field work as he ages.

On the other side of the coin, there is another outfit in my area that runs subs only who are treated very much like employees. The owner does not work in the field and just sends out the crew of subs in company owned vehicles to use all equipment owned by the company. They are just exploiting a loophole. That I disagree with, I think they should be entitled to WC.

 

[Jasonk]

For what it's worth, our efficiency has stemmed from actually having more equipment of our own. I have always renting and subbing equipment and services. I started our biz with almost no equipment or money so rental at first was a must. As we grew we purchased the most important things used daily first then others as we can afford. Think of something as simple as subbing out your stump grinding. We would have someone come in after we were done with the removal (having them come while we were still on site was a nightmare schedule wise. ). So we clean up then they come. Then we send a crew back to clean up. Goodbye profits. Same with trucking logs. You leave, they come then most times you come back. Play your cards right, buy the equipment you can afford and it doesn't take much to make it earn a profit. Like Royce says, typically your labor is most costly so make sure their time is well spent. Paying 4 guys to show up and wait an hr for the crane to show didn't make sense to me......think about how much money that cost? For me the answer is to buy our own. If that crane works two days a month it pays for itself. Food for thought!

 

[Leroy]

Yep, returning to a site after the job was thought to be done is one of the worst practices (and feelings) in this biz. I'm sure it happens to everyone every once in awhile but man, that should absolutely be avoided at all costs, it is the opposite of efficiency!

 

[Evan Sussman]

Yep, returning to a site after the job was thought to be done is one of the worst practices (and feelings) in this biz. I'm sure it happens to everyone every once in awhile but man, that should absolutely be avoided at all costs, it is the opposite of efficiency!

For what it's worth, we do sub out our stump grinding at this point because it's such a small part of our volume that we haven't yet justified the cost of the equipment. However we probably will buy a stump grinder in the next couple years.

I will tell you that depending on the scope of work that I bid I do expect the stump grinding contractor to complete the job. I would not return for a job, that's part of his responsibility

 

[Jasonk]

For what it's worth, we do sub out our stump grinding at this point because it's such a small part of our volume that we haven't yet justified the cost of the equipment. However we probably will buy a stump grinder in the next couple years.

I will tell you that depending on the scope of work that I bid I do expect the stump grinding contractor to complete the job. I would not return for a job, that's part of his responsibility

What if you don't get that job because Mrs smith wants the job turn key loamed and seeded on completion. (And is willing to pay $) this is what was happening to us. Bought an egg 50 for $15k and made it back in the first year!

 

[Jasonk]

What if you don't get that job because Mrs smith wants the job turn key loamed and seeded on completion. (And is willing to pay $) this is what was happening to us. Bought an egg 50 for $15k and made it back in the first year!

That's RG 50.

 

[Leroy]

Evan, Definitely, that's the way I've seen it go down. Stump sub cleans up or doesn't depending on specs in bid.

We do all of our stumps, not many and usually pretty small (20'' or less) with an Alpine Magnum!