It is a simple fact that it costs significantly more to run your business than it did a few years ago. From fuel and material prices to increased labor rates, you won’t have a profit margin to speak of if you don’t adjust accordingly.
Despite this necessity, you might be reluctant to raise prices and drive away customers. Below are some strategies that different landscape companies have implemented when they have to broach the subject of price increases.
Raise Rates Regularly
If you adjust your rates annually, you will likely not have to raise prices by a significant percentage, making them more tolerable to clients. Communicating with clients why your prices have gone up yearly, whether due to inflation or increased wages, helps them understand your reasoning.
Companies like Senske Services and LandCare opt to raise their prices every year.
“All of our employees deserve to have a raise and make more money,” says Mike Bogan, CEO of LandCare. “In our business, our payroll costs are our largest single expense in the business and so those are going to go up every year and our prices need to go up every year.”
Include Escalator Clauses
For clients that have multiyear contracts, including escalator clauses can help prevent you from servicing a property that is losing you money for multiple years before it is up for renewal. These clauses can account for factors like inflation or increased subcontractor costs.
Many different companies opt to include a fuel surcharge in their contracts that helps protect them from unpredictable price spikes. Chris Kujawa, president of Kujawa Enterprises, Inc., suggests using above-contract extras to recoup your costs versus raising rates across the board for your clients.
“Since these ‘extras’ are not codified in an existing contract, you can figure them at newly-raised rates and add an extra ‘kicker’ into the total to help defray costs on the fixed contract,” Kujawa says. “This ‘surcharge’ doesn’t show up on the contract, so it can’t really be easily challenged. Your client can price-check you on that extra, but how often is that happening now. And if you do get checked, chances are your competition is dealing with the same issues you are and possibly worse. Raise rates but do it thoughtfully and carefully and think about how to best present those increases.”
If you decide to raise your rates more intermittently based on inflation or other factors, take the time to educate and communicate to clients what is driving the change. Greg Herring, owner of The Herring Group, advises crafting messaging relevant to your customer type and you should link the price increase to what they have experienced personally.
“There is a lot of coverage of inflation in the media,” Herring says. “People experience inflation when they go to the grocery store and gas station. Landscapers should tie their price increases to what their customers are likely experiencing.”
When Loriena Harrington, owner of Beautiful Blooms, LLC, had to raise her rates in the middle of the season, she sent out a letter to her clients explaining why, and she reminded them they chose her company for their great service and for not cutting corners.
Out of the 240 clients, only two canceled their contract, while around 15-20 individuals sent responses of understanding. Three clients even sent actually thanked Harrington for being responsible and doing what she felt was necessary to maintain a quality workforce and grow it.
You can also use before and after photos to illustrate just how much you’ve improved a property to drive home the value of your work to customers who need additional convincing.
Know Which Clients to Let Go
Price increases can also be a time to eliminate low-profit properties from your book of business. While there might be some clients it’s worth making an exception for due to the amount of revenue they bring in, there are others that are no longer worth servicing.
“This might be an opportunity to expose some customers that are not necessarily a good fit,” says Phil Harwood, managing partner for GrowTheBench.com. “If someone respects you as a businessperson, especially if it’s a renewal, and you’ve been providing service and you’ve established a relationship and you’ve done a good job, your customer should want you. Your customers should fight for you to be able to get through those price increases.”