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Interiorscape Forum / Scaper Talk Discussion Forum / Plants / Recouping costs With plant leasing
Posted:  14 Oct 2014 05:33  
If my total costs including plants, watering, replacement, install is $5,000.00. What should the monthly fee to the client be?
Posted:  14 Oct 2014 18:55  
You should first separate out the goods from the services.  Goods have a different markup, and you want to recover those costs and start making a profit within a reasonable time frame (say, by the 12th month of a 2- or 3-year lease term).  Maintenance is calculated the same as if it were just a simple maintenance account, and replacements are factored into the monthly maintenance portion of the total lease/maintenance rate as a percentage of inventory value per year.  I anticipate doing a blog on the NewPro website in the near future covering bidding and estimating and knowing your True Costs, so keep an eye out for that here:

http://www.newprocontainers.com/blog/
Posted:  15 Oct 2014 23:40  
I understand that the initial install and materials should be paid for separately. I have heard you take the plant lets say it is $100 and divide that plant by 3 months and that is how much the lease of a plant is per month. Is this correct or incorrect? That is the question I am really getting at.
Posted:  16 Oct 2014 02:21  
First, let's be sure we're talking apples to apples.  If the plant COSTS you $100.00 installed (that means including the cost of the plant itself, plus its shipping and packing costs from the nursery or distributor), you would divide that figure by 12,  giving you $8.33 as the monthly amortized cost of that one plant over the first year of the lease if you agree to recoup your costs in 12 months; if you want to be paid back faster, say six months into a two-year lease, then divide costs by 6, or $16.67 per month.  After the costs are recouped, that monthly amount represents markup for the remainder of the lease.  You should always charge an up-front installation fee when you first install the leased items; you don't get to pay your employees in installments for their labor, so the client doesn't get to pay you for labor in installments either.  That installation fee should include prep of all plants and containers (including repotting materials and labor for things like subirrigation containers), your costs to load, drive, unload and place all leased items into their places on the account, cleanup and the return trip to your facility (fuel, tolls, labor, etc.).  These are all part of your true costs and are billed at installation on a separate invoice from your monthly lease and maintenance charges.  You also need to account for the cost of the money you have invested and/or borrowed to finance the costs of the plants and containers you will be letting the client enjoy for the next 24 months...money isn't generally given out to small businesses for free.  You either put in your own cash to buy this stuff, or you use your credit to borrow money to buy this stuff.  That goes into your monthly charges as well.
Posted:  16 Oct 2014 14:33  
some good information from clem, however, i would like to clarify that the price that should be amortized (over whatever period) should be the final sale price of the plant NOT the "COST" of it.........
Posted:  16 Oct 2014 23:27  
Not what I was taught.  For instance, if you want to recover your Cost of Goods (plants, pots, accessories, whatever you're leasing to the client) in 12 months on a 24-month lease, using C.O.G. = $1,000.00 as our theoretical amount, you would multiply that by your cost of money (interest rate you have to pay to borrow it, or ROI if you invested it elsewhere), say 6%, which gives us $1,060.00, then divide by 12 months = $88.33 per month as the lease component.  Say the maintenance portion of the contract is going to bill at $175.00 a month...your total monthly lease/maintenance charges to the client will be $258.33, plus tax.  You would bill this amount for the entire duration of the lease (in our example, 24 months, so 24 x 258.33 = $6,199.92).  Of that, 12 x $88.33 goes toward paying off the C.O.G, for a total layout of $999.96, and the next 12 months x $88.33 = $999.96 is your markup and hopefully your profit on the lease.  This does not include your up-front billing for installation materials and labor, which are invoiced separately at installation.

Note: the reason it's calculated that way is that we're not "selling" the goods, we're leasing them, so we're expecting that, at a minimum, we will be collecting 12 months' worth of profit from the lease over the 24 months of its minimum term once our C.O.G. is paid off after month #12.  Our replacement costs are covered in the maintenance portion of the charges, and with any luck and good client care, we will continue this lease ad infinitum (i.e., $999.96 per year profit on the goods alone).  This is what Barb Helfman taught me, and I'm standing by it, because it works.
Posted:  21 Oct 2014 18:41  
The flaw with this method is that it only generates a 2.0 mark up during your hypothetical 2 year lease. I know that most interiorscapers are charging more than that, especially in your area of the country where costs, such as rent, heating, parking, etc. are high. These are only a few of the overhead costs in addition to your profit that your second year income from the lease have to cover.
If you go longer than 2 years you would begin to make money but your example stated it was a 2 year lease so I'm responding to that example. Also, you'll never be "collecting 12 months worth of profit" during a 2 year lease.
Posted:  21 Oct 2014 20:20  
David, thanks for clarifying.  Granted, the TOPtactics seminar I attended was way back in 1999, so markups may be different now in some parts of the country and for some niches within the interiorscape market.  At that time, the markup on a one-time sale of live foliage was 2.0-2.5 times actual cost; the markup for containers was 1.5 (for low-end merchandise) to 2.0 (for high-end containers).  The profit margin for the interiorscape industry was said to be 8-12%.

While all of our leases are 24-month minimum term contracts, they invariably go on for years beyond that with only minimal upgrades in most cases, due to clients' budget restraints and so on.  In fact, by the end of the two-year initial term, most clients have no idea that they are leasing their plants (conversely, many clients who OWN their plants and containers outright are under the impression that they are only leasing them), and continue to renew their leases ad infinitum.  That's where the profits really accrue ("the Holy Grail of Interiorscaping", as Barb puts it) because the costs of maintenance and replacement plants are built into that portion of the lease rate and you're billing for the use of the existing plant and container inventory with no further outlays for those items.

So the plan is to make a profit on the maintenance from Day One, and start making money on the leased containers and plants after Month 12.  If the lease continues on after Month 24, most of that part of your monthly rate is profit.  Or am I missing something?
Posted:  21 Oct 2014 22:48  
No, you're correct that the money is really made from month 25 on. New interiorscapers just need to realize that leases require, as you said, investment capital. You can put yourself in a real cash flow crunch if you do to many leases while you are under capitalized. Also, we've seen 3-5 year leases requested and these, if you're  willing to do them, will take even longer to get your costs and profit back.
Posted:  23 Oct 2014 16:46  
For the sake of illustration for people considering leasing for the first time, let's compare a 2-year lease and a 3-year lease for the same $1,000.00 worth of merchandise (your cost) and leave out the maintenance, which will be the same for both anyway.

Both leases will assume payback of the cost in 12 months.  For the 24-month lease, at 6% simple interest, that translates to a payment of $83.33 per month for two years.  For the 36-month lease, at 6% simple interest, that also comes to $83.33 per month for three years.  Both leases pay back the cost of goods ($1K) after 12 months, but the 3-year version keeps income on the leased items coming in for an additional 12 months.  So the total net income after C.O.G. is returned is $1,000.00 on the 2-year lease and $2,000.00 on the 3-year lease.  Replacement costs are figured into the maintenance portion of both leases and won't affect the return on the goods portion.  And so on and so forth ad infinitum, we hope.

Some container companies now offer help with leasing costs by financing the lease of the containers so the interiorscaper doesn't have to bear that load.  Look into that when considering doing a lease, and it will help a great deal with the capital part on the containers at least.

I should add one comment about costs.  Obviously, the fewer middlemen in your supply chain, the lower your costs and the more competitive your bids will be, for both leasing and outright sales.  We deal directly with the nurseries because we're also a high-volume wholesaler to the trade, so our costs for plants especially are going to be lower than for many small interiorscape companies who are buying locally from distributors or brokers in Florida.  That means they have to be willing to accept a lower markup on their bids than a large competitor might for the same items in order to compete for those jobs.  Finding your niche, perhaps by avoiding those larger jobs and focusing on small office or residential accounts, is one way for newbies to get over that hurdle and grow your new business.

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