One of the most common questions a 15-handicap golfer (like me) asks a scratch golfing partner when setting up a shot is, “Which club would you use?” Of course, this is a ridiculous question given that the scratch golfer hits the ball much farther and has a greater command of where he wants each shot to land. The high handicapper, by contrast, plays in the land of hit-and-hope.
That analogy pretty much describes how lawn service companies approach pricing for cutting and maintaining customers’ lawns. Here’s how.
Smart lawn service company owners know what they want in terms of profit from each customer. In pricing their services, they start from the profit end of the equation and work backward. They know the services they provide must consistently produce a profit if they want to grow their companies to a size that provides more than “just a living.” They want a company they can eventually sell for handsome cash down the road or, perhaps, hand over to the next generation of their family.
By contrast, other owners approach mowing with less developed plans and goals. Some are inexperienced while others are seemingly content to make just enough revenue to care for themselves and their families. They like the work, but they work mostly to work another day.
Returning to the golfing analogy, these operators just want to get pricing close to the green. If it bounces onto the green (i.e., returns a profit), that’s an unexpected bonus.
The pricing puzzle for profit
Every lawn care operator knows mowing is the largest revenue producer for the lawn services segment of the green industry, and that pricing is a big deal. After all, who can afford to give away their time, which is unrecoverable, without getting something of value (profit) in return?
The fundamental question then becomes—why is pricing such a puzzle for so many owners in the mower/maintenance business?
The answer is complicated but essentially comes down to how easy it is for anyone to begin offering mowing services, and the differences that separate companies in terms of business acumen, marketing/sales ability, systems versus no systems, more favorable location, etc.
But the one difference that almost always pops up is pricing. Most owner/operators do not price their mowing/maintenance services to make enough profit to grow beyond being small operations. They price arbitrarily. Perhaps their pricing strategy is a set amount ($25, for instance) per lawn, or $1 per minute on a property, or whatever the company on the other side of town is charging only 5 percent less. The price they charge is little more than a guess.
Competitors may view these operators as foolish. They may even refer to them as lowballers and claim these owners have a very poor understanding of their numbers. Numbers, you say? Yes, numbers. It would be incredibly difficult in the mowing business (indeed, any business) without thoroughly knowing and tracking numbers.
Numbers to know
Which numbers are we talking about? All of them. Let’s start with the most obvious.
Do you know all of your real labor costs, starting with salaries and all associated and variable production expenses? Don’t forget the cost of mowers, trimmers and blowers, as well as their maintenance and repair/replacement costs. If the owner is doing production, include that information, too. Total these numbers and divide them by the number of field employees. This is a good starting point for determining what to charge for labor, but it is just a starting point.
Now, add to this number a percentage to recover payroll matching taxes, overhead and employee benefits. Payroll taxes are the federal and state taxes an employer is required to withhold and/or hold on behalf of employees, such as a matching amount of social security and Medicare taxes for employees. Overhead refers to expenses that have to be paid even if a business doesn’t earn any revenue – rent, utilities, repairs and maintenance and insurance, to name some common ones. Most of these costs are fixed costs.
Popular industry consultant Charles Vander Kooi has described overhead as “the thief in the night,” meaning you better keep an eye on it and account for it, otherwise it will rob you. This suggests another important point.
If you have already done so, consider working with an experienced accountant or business consultant to get your chart of accounts in order and learn how to parse your numbers to come up with a pricing strategy that delivers an acceptable profit for your company given its circumstances. You must know the “true” costs of running your company and providing your services. Only after you know this can you develop a job estimating system that will cover these costs along with providing you a predetermined profit, as well.
Here are some things you have to know or account for in estimating mowing/maintenance jobs:
- Travel time, including how much you have to charge for unrecoverable production time.
- The difficulty of each job. Does the property have lots of trees and other obstacles? Is it sloped or wet?
- The hourly production of your operators given the equipment they are using. Generally, the bigger the mower you use on a property, the more efficiently you can mow it and move to the next property.
- Production broken down into mowing time, trimming time (22 percent of mowing time, for instance) and blowing time (5 percent of mowing time, for instance).
- Contingencies, such as unexpectedly heavy traffic, flat tires, etc.
- Keep in mind that 100 percent efficiency is unrealistic. Some of your people mow faster and better than others. That’s one of many reasons why you must train employees.
Finally, don’t let lower prices by competitors cause you to chase them to the bottom. Yes, some extremely efficient, systems-run companies can provide value-priced mowing and still be profitable. These companies are also very proficient in selling and delivering complimentary services, such as turf aeration, pruning and spring and fall cleanups, to name a few. Your goal should be to develop an efficient, systems-run company, as well.
But never forget that the most profitable customers in any market are customers who value prompt, accurate, personalized service over lowest price. These are the customers you want and will generally pay a bit more for your services. But, as we all know, they won’t pay too much more.
COVER PHOTO: ISTOCKPHOTO