When Greg Packard started Family Lawn & Landscape of Florida in Melbourne, Florida, 17 years ago, he priced his services at whatever landed him the job. He focused on getting as many customers as possible. But it wasn’t until Packard raised his prices to account for his full range of business expenses that his company began churning out the level of profit he felt his hard work merited. The realization that he had to understand and get a firm grip on his cost of doing business (true costs) eventually allowed him to begin budgeting and maintaining a 20 percent annual profit.
“We were doing all this work and losing money each time we serviced these properties,” he recalls of those frustrating early days of his company. “The most important thing to know is your numbers, and by that I mean not how many customers you have, but knowing exactly what your costs are to do the requested work. I learned that I’d rather make a profit on every customer and only have 100, than have 500 customers and break even.”
Judy Guido, an industry consultant based in Moorpark, California, agrees with Packard. Guido has been helping green industry professionals grow their people and profits for more than 20 years. “It’s the lack of business acumen and abundance of business inefficiencies that prevent lawn care service providers from accurately pricing their products and services,” she says. “This comes back to knowing your costs, knowing how your supply chain works, understanding your customers and how you use your equipment. If you have a command of this, you can bid lower at gross margin levels.”
According to the Small Business Administration, there are three primary cost factors that every small business needs to determine when charging for its goods or services: labor costs, material costs and overhead costs. But, Guido points out you can’t ignore what your competition is charging, either.
“Many landscapers don’t do a good job of knowing what their market will bear,” Guido says. “Some will completely overprice or underprice without due diligence. It takes an understanding of price sensitivities in their particular area. It’s taking the time to learn all about the competitive intelligence for what the market will bear.”
Add value to boost sales
The landscaping industry as a whole has created a “sea of sameness” in the hearts and minds of its customers, Guido maintains. So naturally, most buyers are thinking that every lawn care company is equal. For that reason they go with the lowest price.
“Lawn care providers need to know what their customers place value on, and then articulate with clarity and assurance how they differ from their competitors,” Guido says. “If you can articulate what your value is worth, you can command higher fees. You need to prove to your customers why you are worth that extra 20 percent. When my clients are doing a good job, they stick out like a sore thumb separating themselves from their competition.”
One of the best ways to command higher fees is to provide value-added services. This can include giving customers service options such as varying the number of visits per month depending on the weather and growing season, accommodating different payment options such as credit card or PayPal, and providing sustainable options, for example organic versus synthetic fertilizers.
Family Lawn & Landscape of Florida, which services communities along Florida’s Atlantic coast, makes every effort to clearly explain why it’s worth charging 20 percent or more than its competitors, knowing some factors may register with customers and others won’t. Packard isn’t bashful of sharing value-added features that his company has that his competitors can’t offer. Yet, he limits his list depending on what he learns about each prospect and what they would want to hear. Listening is incredibly important in the sales process, he realizes. How else are you going to discover each customer’s “hot buttons?” (See below “Family Lawn & Landscape of Florida’s Sales Menu“)
You’re worth the difference
Keith Kalfas, president of Kalfas Services, Sterling Heights, Michigan, learned that the key to getting the price you deserve boils down to self-confidence. When Kalfas started his landscaping business in the Detroit suburbs six years ago, he didn’t think he could muster up enough courage to make more than $10 to $15 per hour as he walked door-to-door.
After a time, he became conscious about his overhead costs, polished up his presentation and learned a lot from his competition. In the end, he started asking for considerably higher prices, particularly with tree trimming. Surprise, more often than not, he got them.
“It’s all about how you come across to the customer to command higher prices: appearing professional, showing up, listening carefully and, most importantly, believing in yourself,” says Kalfas. His journey is outlined in his popular YouTube series, “The Landscaping Employee Trap.”
Commanding current prices isn’t enough. The next step is to be able to raise your prices when necessary, and also to do it in such a way as to keep your clients smiling.
Small business owners, including lawn service companies, are often reluctant to raise prices once a good baseline price has been established. They worry that a price increase will alienate customers and drive them to the competition.
“Faced with resistance, a lot of businesspeople are tempted to forgo price increases altogether, or at least put them off for as long as possible. If you do either one, however, you’re making a big mistake,” Norm Brodsky wrote in a recent Inc. magazine. “Your profit margins will begin shrinking. And you’ll be gradually undermining the perceived value of your services or products.”
Brodsky notes that many small business costs, such as payroll, insurance and utilities, tend to rise every year, slowly cutting into profit margins. In addition, customers tend to associate price with quality. A business that does not increase prices to keep up with the competition risks being regarded as the cheap alternative in the market.
Why you must raise prices
“We are raising our prices just enough to keep up with inflation and the cost of doing business,” says Packard. Generally, he limits his price increases to new clients believing that raising current clients’ fees too often can cause them to go elsewhere. Yet, over the last two years he did raise prices across the board to meet desired profit margins, losing just 2 percent of his clients as a result.
“You just have to stick to your guns when pricing your services,” he says. “Sure you’re not going to get or keep them all, but at least the ones you do will be profitable clients.”
“Post recession, many DIY’ers are now back to do-it-for-me services,” says Guido. She sees lawn care price increases reflecting the rising cost of living in such areas as healthcare and employee wages, in particular. “It’s more than fair to pass these rising costs along to your customers. They expect rates to go up a little bit every year.”
Packard observes that some of his customers are used to “recession pricing” and, of course, want those prices to remain the same. They are the first to go when his prices increase. “We still need to meet our profit margins in order to stay competitive and stay in business,” says Packard. “I look at these customers as cheapskates that I don’t want anyways. Also you’ll notice the tighter they are, the more they’ll complain. I don’t know why it is, but it’s a fact.”
More and more, the prospects Packard meets and the customers he serves say they are getting fed up with poor service now that their post-recession financial situation is getting better. They are willing to spend a little more on high-quality service providers.
“If you look around and see what your competition is doing — like not mowing regularly or not showing up at all, or pulling up with rust-bucket trucks and mowers and not wearing uniforms or being clean-shaven when they do show up — it’s not difficult for us to justify higher pricing,” says Packard.
Customers want to be taught
When discussing pricing with her clients, Guido advises that it’s not all about selling, but mostly about teaching. “It’s up to you to educate your client,” she says. “And it can be done in many ways, including social media (i.e., blogging, tweeting, YouTube videos, webinars), in-person lunch-and-learns, smartphone apps, podcasts, phone messages for customers on hold, DVDs, branding and the traditional sales materials.”
Although sending out a company representative to meet and chat with each prospect is great, it’s not feasible. Offering an online estimate can be a good substitute strategy, as it is populated with the right detailed information from the customer and processed with accurate results.