Business Smarts: The Importance of Conducting Regular Price Reviews - The Edge from the National Association of Landscape Professionals

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Business Smarts: The Importance of Conducting Regular Price Reviews

The pricing of your services can be a tricky business as while you’d like to be able to set it and forget it and never have to approach your clients about your work costing more, doing so will only hurt your lawn or landscape business in the long run.

Jud Griggs, a landscape design/build sales and marketing consultant with The Harvest Group, says if you want to stay in business, you need to conduct price increases.

“Don’t hold off on increases,” says David Hanny, COO of Virginia Green, based in Richmond, Virginia. “Sometimes people are just so focused on trying to get the business that they hold off on taking increases and then they put themselves in a position where you risk losing either employees or you risk losing customers because your product doesn’t look as good if you’re cutting corners in terms of the products you putting on their lawn.”

What to Watch

There are many dynamic factors that can impact the cost of your services. Hanney says they look at the whole package, including inventory and wages, when deciding if a price increase is necessary.

When budgeting, Griggs agrees you should accumulate all your costs including wages, major equipment purchases and other types of overhead. This will tell you how much you need to increase your revenue and if you need to raise your pricing to cover these increases.

Whether you’re purchasing products like hardscape pavers and plant material or pesticides and fertilizers, you need to monitor their prices on a regular basis. Hanney says they keep an eye on all of their products’ pricing, not just the major ones.

If pricing has gone up by more than 5% percent, Griggs encourages taking action and finding alternatives. If you have a strong relationship with your current vendor, he advises giving them a chance to explain their price increases and use your purchasing power to negotiate.

When looking for alternative vendors, keep in mind a smaller supplier may not be able to quickly deliver large quantities of materials, so the better price may not mean much in the grand scheme of things.

Hanney says they will search for alternatives if prices significantly affect their bottom line or make them uncompetitive. He says sometimes they’ll look at different brands of similar products.

“We look at not only the primary product in the product we’re trying to buy but sometimes there are other inert ingredients that we want to make sure that they’re not going to have any negative effect on the lawn on the environment,” Hanney says.

Hanney says that if a vendor raises prices unexpectedly, they will hold them accountable or try to find a creative solution for this increase in material costs. He says they tend to push back more on quality issues, for instance, if a vendor gives them old fertilizer that has to be broken up.

“We’ll push back to them and say, ‘Hey, we need you to take care of us with some type of a credit or additional product or whatever it might be,’ because we’ve had to spend a significant amount of time and labor to be able to use what they sent us,” Hanney says.

Another element that can eat into your profit margin are your labor costs.

“Don’t lose a long-term solid person who is well-trained and experienced over $1 an hour,” Griggs says. “You want make sure that that you’re keeping your good people and if that means raising wages, so be it. But then you need to have that covered in some type of price increase by the end of the year.”

Griggs is a proponent for giving raises based on measurable factors like productivity.

“The people that are adding your bottom line, you want to reward them for that,” Griggs says. “I think the thing of just across the board inflation increases should be over.”

Hanney says there have been times they’ve given significant raises to their associates without raising their rates based on the competitive nature of the market at the time.

“It really comes down to what type of target margin we’re trying to protect,” Hanney says. “In different markets, we have to adjust differently sometimes. We’ve got some markets that are heavy with retirees versus other markets that are heavy with government-related employees. Someone’s on a fixed income and all of a sudden you’ve got this higher pricing that was unexpected to them, you’re probably going to take more cancels, which is what we want to avoid if at all possible.”

Failing to Monitor Costs

Hanney says not monitoring your costs will impact your bottom line significantly. Meeting or exceeding your revenue goals won’t matter if your profit isn’t where you want it to be.

“If the contractor wasn’t keeping an eye on the ball and material prices went sky high or in order to keep some key people, you did some increases in wages, you’ll end up with bad surprise at the end of the year,” Griggs says.

With the way things have been going, Griggs advises before you start pricing jobs in the second half of the year to make sure you’ve captured all the big price increases. If your gross margin is poor, he advises digging into your jobs to see where you may be missing material costs or not capturing the true labor costs to complete a certain task.

“The big thing is we need to be good business people,” Griggs says. “We need to have systems in place that can measure your gross margin, give you the alerts that you need if your prices are going up and keep good data on certain functions as well if you find that you’re not making your planned gross margin on.”

Jill Odom

Jill Odom is the senior content manager for NALP.