One of the questions owners of green industry service companies ask themselves every year is: “Should I raise or lower my prices?”
Obviously, when the demand for services keeps rising along with the price of materials and equipment — as it has been these past few years — the answer for most owners would seem to be self-evident. Making it even more obvious is the difficulty many of you are having finding and keeping reliable employees in this time of low unemployment. (More about employee wages later.)
Given these realities some of you might reasonably be expected to say, “Yes, let’s increase the price of our services and products across the board.”
Whoa partners, not so fast.
Do you really understand your unique mix of customers — the profitable ones and the unprofitable ones? Do you have a written budget? Are you truly knowledgeable about your firm’s financial situation? Are you tuned into how your company fits into the competitive mix within your service market? Do you have a well thought plan of where you want your company to be next year? Five years from now? Ten years?
We’re just getting started with the questions here. In other words, there’s a lot you have to consider before making job-pricing decisions.
One Price Does Not Fit All
“Some of you need to lower your prices and some of you need to raise your prices,” says industry business consultant Tony Bass. “But here’s what none of you need to do. None of you need to say, well, we’re going to give our employees a 3.5 percent raise in 2018, so we are going to raise our prices across all of our customers by 3.5 percent. That would be a tragic mistake and here’s why; not all of your customers are created the same.”
Bass, who has examined the financial statements of more than 300 green lawn service and landscape companies over the past decade, says he’s learned that, in most companies, one out of every five jobs is a profit killer. Owners often ignore these jobs because their firms’ A-list customers are masking the financial damage caused by their losers.
So, what to do? Bass advises raising prices for the 20 percent of customers that are sucking money out of your company, but not raising prices to A-list customers. You definitely want to keep them.
Fewer Employees, Making More, Doing More
But where do employee wages fit into the pricing picture, especially now given that unemployment is at its lowest point in more than decade and wage demands are rising? The answer is actually simple. Says Bass, as you pay them more, they have to take a greater role in making your company more profitable.
“The only way you’re going to become wealthy in this business is to learn how to leverage your employee assets as well as you possibly can,” he adds.
Bass studies the data contained in the North American Industry Classification System compiled by U.S. Census every five years to gain clarity on the size and scope of the landscape industry. The numbers show how much the industry has grown since 2012, when the recovery from The Great Recession began gaining traction. His research also revealed some fascinating trends regarding employee numbers and their pay.
The Census Bureau recorded 93,058 landscape firms in 2012, generating slightly less than $52 billion in gross receipts and shelling out more than $17 billion in payroll dollars. By contrast, in 2015, just three years later, it had grown to a projected 98,741 companies, taking in more than $65 billion annually and paying almost $22 billion in payroll dollars. While company gross receipts grew by about 5.3 percent, employees’ wages increased by approximately 25 percent.
Again, using Census Bureau figures, in 2012, the average sales per firm was $557,806 compared to 2015’s average projected sales per firm $675,284. But look what happened to the average pay per employee; it rose at a faster percentage over the same three years, from $29,821 to $37,228.
“How much of an increase did you give your employees in 2016 and 2017?” Bass asks. “And how much will you give them this year? It’ll probably be more than you expect.” Indeed, if the trend continues on the same trajectory over the next several years, owners may be paying as much as $46,000 per employee.
Good Times Continue but Keep Improving
That projection is based on most economists’ prediction of continued economic expansion for the United States in 2018 and hopefully beyond. Bass credits the rosy expansion picture, in part, on the federal government’s new tax plan, which essentially hands every legitimate small business a nice pay raise.
Even so, Bass says there are no givens on how long or how strongly the economy will continue to grow. Rather than count too heavily on past conditions or rosy predictions of year-to-year growth, you must continue to educate yourself and your teams so that you can respond intelligently to evolving market conditions.
In the low-margin lawn service/landscape industry (so heavily dependent upon fickle weather, roughly used production equipment and semi- and unskilled labor) your company’s profitability and growth are dependent upon many factors, but at its heart is your pricing ability and the dedication and performance of your employees.
Editor’s note: This is just a small part of the information Tony Bass shared in his recent webinar “6 Money Secrets for Exceptional Profits.” Bass, who founded, grew and eventually sold a successful landscape company in Bonaire, Georgia, now concentrates his efforts on his Super Lawn Trucks manufacturing business and to helping other entrepreneurial green industry business owners become more successful.