While no one can know for sure what will happen with the economy over the next few years, landscape companies are not resting on their laurels. Despite having some of the best years of business recently, many are taking the necessary precautions to ensure their companies can weather the potential recession.
With inflation and supply chain issues driving up the costs of everything required to do business from fuel and materials to labor, one of the main steps lawn and landscape companies are taking is raising their prices.
J.T. Price, CEO of Landscape Workshop, based in Birmingham, Alabama, says they’ve had to raise their prices significantly in the past year.
“I can’t imagine how anybody who’s not raising their prices is functioning in the current labor market,” Price says. “I would say we, on average, raised our prices 8 to 12 percent over the last year, and that reflects inflation. If we weren’t doing that, our margins would be significantly worse.”
Price says while labor is their biggest cost increase, everything from seeds to chemicals and other supplies are going up as well. Krisjan Berzins, founder of Kingstowne Lawn & Landscape, based in Alexandria, Virginia, says they’ve had to raise their prices for a similar reason as they’ve seen price increases on materials go up anywhere from 25 to 100 percent.
“That’s something everybody needs to look at,” Price says. “We’re entitled to make a fair margin on the professional services that we as an industry provide.”
Price says while they have had some margin compression as they waited for annual renewals to raise their prices, their margins have stabilized as long as they are able to continue with their price increases. He says as a primarily commercial maintenance company, their commercial clients understand these changes, while their single-family residential customers have pushed back more.
“At the end of the day, somebody’s got to cut the grass at these commercial places of business,” Price says. “Whereas the single-family customer ultimately can cut their own grass if they want, and they can certainly reduce discretionary spending on beautification.”
Berzins advises other owners not to hesitate to raise their prices if their profit margins are being eroded by fuel and labor costs.
“On one hand, people might think, ‘Oh, gee, now’s not the time to raise prices because prices are going up everywhere else; if we raise prices now, we may lose customers,’” Berzins says. “Yeah, you could make that case. But on the other hand, our industry is seeing more demand for our services than we’ve ever seen before.”
Chris Joyce, president of The Joyce Companies, based in Marstons Mills, Massachusetts, says they also raised their prices this spring in response to the rising costs of everything. He says they’ve had very little pushback from their customers.
LandCare, based in Frederick, Maryland, has been raising 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.”
One risk with constantly raising prices to increase wages due to inflation is causing a wage-price spiral. This is where rising wages increase the demand for goods and the prices rise. Rising prices increase the demand for higher wages, leading to higher production costs and further pressure on prices.
However, Curtis Dubay, chief economist in the Economic Policy Division at the U.S. Chamber of Commerce, thinks we’re past the worst of it as wages are no longer spiraling upward. He says there is a limit to how much you can raise wages.
“The worker shortage is a problem and it’s been pretty clear for a while now that higher wages aren’t the only thing that works at getting workers back in,” Dubay says. “You’re seeing employers doing other things rather than waiting for raises to attract workers.”
He says more workers are looking for the right fit rather than just higher wages.
“It’s an unprecedented situation to be where you have excess demand and not enough workers to make your goods or provide your service,” Dubay says.
How to Prepare
Price says there’s no guarantee of what the future holds, but the industry doesn’t need to panic either. He says there are always good times and bad times and owners should be more conservative about taking on debt.
“Don’t think that the good times are going to go on forever,” Price says. “But even if there’s a recession, this too will pass. And the key is to come out of it and on the other side be ready to take advantage of opportunities.”
Dubay encourages business owners to prepare financially as interest rates will continue to climb. He says if you rely on frequent financing, the cost is going to go up. While it will be bumpy for the next couple of years, he believes things will be a lot brighter on the other side.
Joyce advises having cash saved away and even if a recession doesn’t happen, you’re ready to respond to a steady flow of business. Price agrees that you shouldn’t spend all the money you’ve made over the last two years.
Both Joyce and Berzins have been second-guessing purchasing new trucks and equipment. Berzins says he plans to let the dust settle before considering renovations or expansions of their facilities. He cautions investing in non-essential or peripheral service offerings, but rather focusing on your core strengths.
Price stresses you shouldn’t make business decisions based on a specific moment in time, like switching to electric equipment just because gas is expensive right now. Instead, determine if the changes make sense for your business and consider what will happen in the next three to five years.