Have you found yourself dealing with profitless prosperity where your sales and revenue are growing but your margins continue to shrink?
If so, you’re not alone. According to the 2026 Financial Benchmark Report, 52% of respondents listed maintaining profit levels as a major concern. Additionally, 56% of companies cited increased operating costs as their second-highest issue, after finding qualified employees.
When margins begin to shrink, it can be tempting to have the knee-jerk reaction to simply raise prices across the board, but this can backfire if your client base is dealing with price sensitivity. Instead, take a nuanced approach and first seek methods to control costs on your end before passing them on to the consumer.
“Do a spot check on some of your contract analytics,” says Chris Kujawa, president/CEO of Kujawa Enterprises, Inc., a Cultivar Group company, based in Oak Creek, Wisconsin. “See where your costs are actually rising and by how much. Ask yourself, how is that contract performing? Are there efficiencies to be had? If the reactionary raising of your prices across the board results in unnecessary churn and you find yourself uncompetitive in the marketplace, you may have committed an unforced error because you didn’t think it through.”
Labor
Direct labor remains the single largest cost component for landscape companies, averaging 32.7%, according to the Financial Benchmark. While labor is the biggest expense for any landscape company, this doesn’t mean its related costs should go unquestioned as ‘just part of the business.’
Make sure you budget hours for each job and hold crews accountable to those hours. Monitor your overtime spend, idle time and non-billable time. All of these are areas you can work to tighten up and reduce expenses. For instance, one easily overlooked area is how efficient the team is at morning rollout and afternoon shutdown.
Also, take advantage of your data to see which crews are the most productive and watch them to see what practices can be translated to others in the field.
Another way to increase productivity with your existing workforce is to invest in technologies that allow for automation and enable the team to do more without having to hire new employees.
Fuel
Another current expense compressing margins is the ever-fluctuating fuel costs. This can be a particular problem when dealing with multi-year contracts.
To a certain degree, this is something well beyond your control, but some of the options available include scaling back your service area so you aren’t driving so far to properties or modifying your work schedules. For some companies, switching to 4/10s can reduce the drive time to and from a route, offsetting some of the fuel increases. You can also seek out volume discounts and on-site fueling as an option.
Fuel surcharge clauses can be included in your contracts, but many owners are reluctant to utilize these as it can commoditize the client relationship.
Other possibilities include switching to alternative fuel sources like propane or battery-powered equipment. However, it’s important to not make these business decisions just due to gas being expensive at the time. Evaluate if this change makes sense for your business long term.
Materials
Inflation can also drive up the prices of your materials and shrink your bottom line. Avoid getting comfortable with your go-to vendor and not price checking on a regular basis. You should bid out major cost categories at least every two years, if not more frequently if prices are going up.
If your material prices have gone up by more than 5%, take the time to have a discussion with your vendors to see if there are any discounts or savings they can offer you. If they are unable to make any adjustments, seek alternative vendors, but keep in mind a different supplier may not be able to quickly deliver quality materials, so the lower price may not be worth it in the long run.
Bulk ordering in advance can offer some cost savings as well if you are able to plan ahead. For design/build projects, place expiration dates on how long an estimate is good for due to the volatility of prices so you don’t end up absorbing market increases.
Also, don’t overlook waste such as plant mortality, leftover products or damaged materials when calculating your material costs. If crews are consistently using more materials than an estimate calls for, review to see if this is an issue on the estimating side, production or a mix of both.
Insurance
Insurance rates are one aspect of overhead that can be glossed over, but as general liability, umbrella insurance and auto rates go up, they can also erode your margins.
Similar to your vendors, don’t get complacent with your current provider. Make sure you have a brokerage partner who is willing to ‘go to market’ for you on a regular basis and discuss pricing and structure with multiple carriers.
Some other methods to help control your insurance costs include ensuring your safety efforts are keeping your experience mod lower than the industry average and investing in telematics or dashcams. These forms of technology not only help you improve your driver safety program but can be critical in claims cases where the other driver tries to blame your employee, but you have proof of their innocence.
When Should You Pass Higher Costs to Customers
Once you’ve exhausted the other ways to improve your profitability, then you should consider passing some of that cost on to your clientele.
Rather than waiting for your margin to reach a danger zone, establish thresholds for when you need to take action. For example, set a minimum acceptable gross margin for each service line or decide how much actual job costs can exceed estimates before you need to review prices. This will prevent you from having to make more substantial increases later on that may drive customers away.
When communicating a price change to a client, be transparent but firm. Tailor the message to your customer type and highlight the value you bring to the property.
In some cases, if a client has financial constraints, you can collaborate with them to reduce the scope of the work, adjust service frequency or substitute materials. In other instances, it may be best to part ways with unprofitable customers.
While you can’t control every factor driving cost increases, being proactive can help you protect your margins without immediately resorting to reactive pricing.
