Irrigation Business Profit: Factors, Calculation & How to Boost It

What is The Profit Margin of Irrigation Companies?

Here are a few of the common types of profit margins you might calculate:

• Gross profit margin: Evaluates profit based on the cost of goods sold (COGS) related directly to irrigation projects, including labor and materials. This lets you know whether you’re charging enough to cover basic project costs.

• Operating profit margin: Evaluates profit based on COGS and operating expenses such as rent, office supplies, and marketing. This helps you determine whether your overhead expenses are too high.

• Pretax profit margin: Evaluates profit when all expenses except tax have been deducted, leaving earnings before tax (EBT). It’s useful for investors who want to compare your company to industry benchmarks since taxes vary widely by state.

The key factors affecting an irrigation business's profit margins are the following:

• Location

• Cost of living

• Competition

• Business size

• Job estimates

• Consumer confidence

We’ll dive a bit deeper into each of these factors below. But first, here’s how your profit margins should affect your pricing.

How do profit margins affect the pricing of irrigation services?

Your profit margins will either increase or decrease the overall cost of your services to customers.

Or at least, they should. A common mistake small business owners make is charging a flat rate for installation that doesn’t factor in all the labor and materials needed to finish the job.

Instead of starting with a fixed price for your services, your pricing should depend on the cost of your materials, labor, and overhead expenses. Then, you add a markup to achieve the profit margin you want.

But as you probably already know, it’s not always easy to create an accurate estimate of project costs. They vary depending on things like:

• The size of the lot

• The design of the irrigation system

• The price of materials needed

• Labor costs

• Environmental factors like soil and trees impacting the materials and labor hours needed

If you already have records of past jobs, review them and calculate your profit margins to determine how to improve your pricing.

How Can You Calculate The Profit of an Irrigation Business?

Entrepreneurs who start service businesses often take whatever jobs they can find. However, once you get going, you should start calculating profit margins regularly because this information is extremely valuable.

As Ellen Rohr of Zoom Drain points out, “Just keeping track of the money is really the foundation of everything that I’ve done since.” 

“It’s not very complicated. I am not the world’s greatest financial mind. I am vanilla ice cream across the board.”

Here’s how to calculate each type of profit margin:

Net profit

Net profit is your bottom line: how much the company makes in profit after everything is accounted for. Divide your net income by revenue to get net profit.

Net profit margin = (Net income / Revenue) x 100

• Net profit margin: Your profit margin after all expenses are accounted for.

• Net income: total income minus all expenses, including tax expenses, one-time costs like lawsuits, and one-time equipment purchases.

• Revenue: Your total earnings from sales.

Here’s an example. If an irrigation business makes $8,000 in net income and $100,000 in revenue, their calculation will look like this:

Net income = 8,000/100,000 = 0.08 x 100 = 8

The net profit margin is 8 percent.

Operating profit

Operating profit gives you insight into how overhead expenses like rent, office supplies, and marketing affect your profits. Divide earnings before interest and tax (EBIT) by revenue to get an operating profit margin.

Operating profit margin =EBIT / Revenue x 100

• Operating profit margin: Your profit margin after operational expenses are accounted for.

• EBIT: Also known as operating earnings, this is all of your earnings minus the cost of goods sold and the costs of business operations (such as marketing, sales, and rent). It doesn’t include interest or taxes.

• Revenue: Your total earnings from sales.

If an irrigation business made $30,000 in earnings before interest and tax and $100,000 in revenue, here’s what the calculation would look like:

Operating profit margin=30,000 / 100,000 x 100 =0.3 x 100 = 30

The operating profit margin is 30 percent.

Gross profit

Gross profit is the percentage you earn on each job after the costs of doing the job are accounted for. It’s calculated by dividing the cost of goods sold (COGS) by revenue.

Gross profit margin = ((Revenue - COGS)) / Revenue)) x 100

• Gross profit margin: Your profit margin after the direct work costs are accounted for.

• Revenue: Your total earnings from sales.

• COGS: Materials, labor, and other expenses directly related to irrigation jobs.

If an irrigation business made 100,000 in revenue but spent 50,000 in COGS, their calculation would look like this: 

Gross profit margin = ((100,000 - 50,000) / 100,000)) x 100 = (50,000 / 100,000) x 100 = 0.5 x 100 = 50

The gross profit margin is 50 percent.

Once you get used to calculating your margins, you’ll be better positioned to create target margins to shoot for. But first, it’s important to understand what factors influence these numbers.

What Factors Affect The Profitability of an Irrigation Business?

Your profit margins aren’t something you can set and forget. Plenty of factors will affect the profitability of your irrigation business, and they are likely to change over time.

These are things like:

• Location: Weather conditions in your location will affect demand, which can affect profit margins. Irrigation companies in areas that need regular services like winterization or emergency repairs can usually charge more based on higher demand.

• Cost of living: The general cost of labor, materials, rent, and living expenses in your area will play into your profit margins. You’ll need to charge more in areas with higher living costs to compensate for the increased COGS.

• Competition: Your business niche will also determine how many other irrigation companies compete against you. In highly competitive markets, you may need tighter profit margins to make a sale.

• Business size: Smaller irrigation companies might have fewer operating expenses, but they usually also deal with residential customers who have smaller budgets. Larger franchises have more operating expenses, but may also have access to larger commercial clients.

• Job estimates: Depending on the job, you might have unplanned material and labor costs that can eat into profit margins. The more carefully you estimate costs, the healthier your profit margins will be.

• Consumer confidence: Economic fluctuations can affect how willing customers are to part with their money, a phenomenon also known as consumer confidence. This can affect profit margins because your price point needs to be something customers are willing to pay for your services.

While you might not have much control over your location, consumer confidence, or the cost of living, you can change many other things to boost your profit margins.

How Can an Irrigation Business Increase its Profitability?

As Ellen Rohr at Zoom Drain notes, you don’t have to charge the going rate for your services: “The market bears all kinds of things. Know profits and principles can mix. Profits allow you to maintain your principles. If you have the money, you will make your payroll tax deposit. If you don’t have the money, you're going to do something weird.”

Fortunately, increasing your profit margin doesn’t always mean you have to increase prices for loyal customers either. Follow these tried-and-true strategies to increase your profit margin.

We’ll also show you how to use ServiceTitan’s irrigation business software to simplify each strategy.

Price your irrigation services the right way

Pricing correctly means starting with real project costs rather than pricing based on your competitors' charges.

Chris Hunter, founder of Hunter Super Techs, says an important part of this strategy is understanding the current price for materials and labor, which can fluctuate: “If you only update your pricing once a year, maybe twice a year, you're going to see your margins start whittling away.”

Instead, first, determine your ideal profit margin. Then, set prices for billable rates according to the number of hours you estimate the job will take. Finally, the cost of materials and overhead costs should be included.

Once all that is done, you add a markup for your profit margin.

ServiceTitan’s Pricebook can help contractors protect profit margins by providing accurate, real-time costs for all billable rates and materials.

You can set centralized billable rates, update material and equipment costs, and set your markup for effortless pricing, whether you’re putting together an estimate in the office or the field.

Invest in marketing

Investing in irrigation marketing can help you increase business profit by expanding your pool of leads. This will allow you to reach more potential customers and increase sales, which is key to increasing profitability.

ServiceTitan’s marketing software can help expand your customer base with data-driven tools. With Local Services Ads integrated into your business software, you can appear at the top of search results.

Your ad will display the Google Guarantee badge to build trust, and new customers can book your services directly from the ad. This reduces friction, making it more likely new customers will give you a call.

Once they do, you can track ad performance right from the platform. This includes real-time ROI from marketing campaigns, so you know exactly what’s working. 

You’ll also have heatmaps that show you the revenue generated by each location so you can focus marketing efforts on the areas that generate the most revenue.

Aim to generate recurring revenue

Irrigation businesses thrive when they can create recurring revenue. When you make a sale, try to boost maintenance agreements that include winterization and spring startup services.

Maintenance work tends to generate a higher profit margin. Drumming up new business costs more than working with current customers, and maintenance jobs consist mostly of labor rather than relying on product markups.

ServiceTitan’s service agreement software lets you create and monitor membership programs more easily. You’ll have an overview of all your agreements, with the ability to track visits, monitor billing, and book upcoming jobs. The software also gives you a real-time budget breakdown to ensure your service agreements stay profitable as labor and material costs change.

Trevor Lively of Blue Jay Irrigation says the app is easier for customers, too: “They just get renewed, and they get an invoice, and they can pay it. Or if they want to pay per visit, we just set them up with a renewal, and we move on.”

Reduce costs when needed

How much are you spending on vehicle maintenance? Rent? Utilities? If you haven’t revisited the price you’re paying on overhead in a while, it might be time. Operating expenses can be one of the biggest challenges to running an irrigation business, especially as you grow.

Here are a few examples of ways you can cut costs:

• Going paperless in your head office

• Finding new utility providers

• Negotiating lower prices on materials with trusted vendors

• Consolidating warehouses

• Finding cheaper vendors or subcontractors

To start, take a look at your operational and gross profit margins. If your gross margins are on target but your operational costs are running high, you may want to see where to cut spending.

Offer more services

The more services you offer, the better positioned you’ll be to increase sales. Once you have experience with a variety of jobs, revisit your business model and branch out into specialized services like:

• Green irrigation, such as sprinkler systems that reduce water use

• Emergency repairs for commercial and residential businesses

• Landscaping services such as lawn care and planting

• Specialty installations such as ponds, gravel, and weeping tiles

• Irrigation systems like smart irrigation and drip irrigation

If there’s no obvious choice, do a little market research. Go to trade shows to see what your competitors offer, or ask current customers what they need, to find out what services appeal to your target market.

Offer outstanding customer experience

Strong customer relationships can help you boost repeat visits and create more maintenance contracts. You’ll build a better brand reputation that earns more leads and referrals in the process.

But great customer service goes beyond just being friendly. It’s also about giving customers the right self-service options to reduce the time they’ll have to spend on the phone to arrange an appointment.

ServiceTitan’s Customer Experience Software helps you give your customers the seamless journey they expect when booking with you.

Customers will be able to book services via SMS and webchat. They will receive an instant overview of your calendar and be able to schedule in seconds.

Once your customer books an appointment, they can track techs on the road just like they would with their favorite delivery app.

Understand what can be improved

Your profit margins aren’t driven solely by cost—they’re also affected by the people who make great work happen and who they sell to.

Understanding what you can improve means staying aware of which contracts generate the most revenue and which service techs and CSRs improve your balance sheets.

ServiceTitan’s Field Reporting Software lets you monitor the KPIs that matter to your business, including revenue trends, transactions by business unit, technician scorecards, and CSR performance.

You’ll be able to see customer satisfaction scores for each tech and understand how your CSRs bring in revenue so you can keep your team focused, productive, and profitable. 

Manage your inventory more efficiently

Managing inventory is a balancing act: keep too little in stock, and you’ll delay jobs as you wait on orders. But keep too much, and you’ll risk markdowns on old stock undermining your COGS on future jobs.

ServiceTitan’s inventory software helps you track exactly what you have in each warehouse and vehicle and match that to what you need on the job. The app can automatically trigger replenishment based on what you have available, so you don’t have to spend time figuring out what you need to re-order.

You’ll also be able to track purchases, vendor returns, transfers, and adjustments. 

Serve more customers

Completing more daily jobs and serving customers efficiently can help keep revenue coming in.

ServiceTitan’s scheduling software lets your CSRs schedule jobs the moment they’re booked and pair them with the right techs. CSRs can also tag jobs to ensure techs arrive with all the materials they need to get started.

With ServiceTitan’s dispatch software, you can proactively reschedule jobs when unexpected issues arise. This helps you inform dispatchers and techs about schedule changes and assign the right techs to jobs.

You can also automate job confirmations, reducing customer no-shows to keep your techs available for the opportunities that drive revenue and profit.

Empower your customer-facing employees

CSRs are the front line of support that drives revenue and profit. Making strategic recommendations, booking the right service, and providing excellent support can all help you grow your bottom line.

However, to perform at their best, CSRs need tools that help them serve customers efficiently, identify sales opportunities, and develop their expertise.

ServiceTitan’s Call Booking Software helps CSRs get up and running fast. It lets them see customer information before they even pick up the phone. They can easily select job details and book customers faster for a more efficient service.

The app lets contractors review recorded calls so you can understand exactly how your team is performing.

Techs on job sites can use the Field Service App to close sales with checks, cash, or credit cards, giving customers instant, effortless payment options—and helping you stay cash flow positive.

For customers who are hesitant to spend, consider incorporating financing options rather than discounts.

As ServiceTitan’s senior director of product, Deanna Kawasaki, puts it, “[Customers] may not want to charge that last $2,000 on a credit card because they might need it for food or gas.”

Upsell to existing customers

Finally, upselling can be a great way to increase profit margins and customer lifetime value. Higher-value contracts reduce the overhead costs of each job as long as your CSRs can identify the right opportunities.

ServiceTitan’s Pricebook features Smart Recommendations, making it easy to spot potential upsells. The app can recommend related services that customers might need, with PDFs that help CSRs explain the value you can offer.

In addition to upselling your services, consider partnerships with landscaping companies that can direct business your way (and vice versa).

Each strategy that you incorporate into your daily operations is a step toward more efficiency, more revenue, and, most importantly, better profit margins.

Over to You

You might think revenue is your business's lifeblood, but it doesn’t mean much without strong profit margins.

With a solid understanding of how your profit margins work, what affects them, and how to boost them, you’ll be better positioned to be a leader in the irrigation industry.

Remember, knowledge is power: the more you track your numbers, the more you can change them. Your business bank account will thank you!

ServiceTitan is an all-in-one app that helps irrigation contractors optimize their entire operation, from booking techs to inventory management. Streamline operations, automate pricebooks, maximize profitability, and get more irrigation business customers with ServiceTitan.