As if labor challenges and supply chain issues weren’t enough, the recent increase in gas prices is another topic keeping lawn and landscape company owners up at night as they try to adjust to this newest complication.
The highest recorded average price for regular unleaded gas was hit earlier this month at $4.33, according to AAA. Thanks to declining oil prices, the numbers at the pump has decreased slightly with today’s national average at $4.23.
While the gas prices vary across the country, it is definitely being felt by landscape companies large and small.
“If there was ever a time to review how you use fuel and why, that time is now,” says Chris Kujawa, president of Kujawa Enterprises, Inc., (KEI) based in Oak Creek, Wisconsin. “At KEI and throughout the broader family of Sperber Landscape Companies, we are critically reviewing all of the various implications of fuel supply, fuel pricing, and the volatility associated with each. We are reviewing routing procedures, operational efficiencies, the timing of services with relation to travel to and from jobs, filling procedures, burn efficiency, fleet maintenance protocols that affect mileage such as tire pressure, axle and bearing lube, aerodynamics, reduced idling, etc. Basically, anything that we think might improve gas mileage.”
One of the most obvious options on the table to alleviate this issue is raising your rates and passing the increased gas prices on to the consumer.
At American Turf and Tree Care, based in Greeley, Colorado, they raised their rates for their 2022 services and have implemented a second price increase for new sales.
“We cannot absorb that cost any more,” says Blair Matthews, head of sales and marketing at American Turf and Tree Care. “Other companies, they’re still scared to raise their prices. You’ve got to put food on your table. Don’t be ashamed of your prices and the fact that you have to raise your prices to cover costs that you cannot absorb and stay in business. The customer has to accept that. It’s not your job to make that decision for the customer. Your job is to make the decision to stay in business.”
Similarly, Zeppa’s, based in Louisville, Kentucky, knew back in November that they were going to raise their rates but underestimated the magnitude.
“We have quoted and contracted at our lower anticipated price to our customers but will probably have to go back around the first of July with another increase,” says Rich Young, a controller with Zeppa’s. “We hadn’t raised our pricing more than 3 percent for a few years and going up 10 percent has been understandable to them, going up another 10 percent may not be as easy.”
Tim Ehrhart, COO of Senske Services, based in Kennewick, Washington, says raising their rates is not a consideration for them at this point since they already raised their prices by 10 percent heading into the 2022 season.
Kujawa says the question of raising rates should take a couple of variables into account.
“While raising rates by a percentage across the board is an easy and simple function of arithmetic, it can be in some ways unnecessarily inflationary,” Kujawa says. “While clearly your two biggest cost drivers on contract pricing, labor and fuel, are rising, not everything is up or up equally. Do a spot check on some of your contract analytics. 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 un-competitive in the marketplace, you may have committed an unforced error because you didn’t think it through.”
He suggests considering using above-contract extras to recoup costs.
“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.”
Some companies like KEI have a line in their contracts that allows for a surcharge should the retail price of regular gasoline increase.
“It can be a tough decision to enforce it or not depending upon the relationship with your client and what the calculus suggests between recouping some additional direct costs vs possibly losing a significant source of greater revenue that supports the organization,” Kujawa says. “Have these conversations with your clients but conduct them thoughtfully.”
The Greenery, Inc., based on Hilton Head Island, South Carolina, also has verbiage in their contracts that allows for price adjustments when there are unexpected cost jumps, but they have not increased their rates as of yet. Jerry Ashmore, director of workforce development & safety for The Greenery, Inc., says they have reduced the days in their bid windows down to 45, 30 and even 15 days.
Adjusting Service Areas and Schedules
Another option companies are implementing is adjusting their service areas or work schedules. American Turf and Tree Care recently sold a service area that was less profitable and took them away from the bulk of their customers.
Young says they already have a tight geographic footprint, but they are looking at changing some behaviors and trying to figure out how to charge for windshield time.
“We are tracking our offroad usage through a service called Link2Pump and we are counting on being able to use a lot of that data to better capture revenue that we are either missing or giving away,” Young says.
Kujawa says shrinking their service area would be difficult, but they’re not looking to take on one-off jobs towards the outer edges of their territory.
“As so many of our clients have sites scattered throughout our area, it’s a matter of serving your client no matter where they need it,” Kujawa says. “That’s being in the relationship business. As a business goal for a service delivery organization, customer density should play an important part of your growth strategy with cost-control benefits to realize as well.”
He says they are looking to see if there are different ways they can service larger sites, such as direct reporting or doing more functions in fewer visits.
The Greenery and Senske Services have opted to modify their work schedules to 4/10s, instead of shrinking their service areas.
“This reduces the drive time to/from the route by 20 percent which will help offset some of the fuel price increases,” Ehrhart says.
Fuel Alternatives and Proactive Purchasing
An additional consideration to reduce the pinch at the pump is switching or adding other power options for equipment like propane or electricity. The Greenery is already using some electric equipment while Zeppa’s is outfitting an entire maintenance crew with electric equipment this year.
“Phasing into it by department has been our plan for the last two years, but this is pushing our schedule and we are evaluating equipment over all of our services right now,” Young says.
Kujawa acknowledges that while the switch to alternative fuels is coming, it shouldn’t be a reactive response to a short-term spike. A successful switch requires company infrastructure changes such as supply and storage, retrofitting equipment and commodity futures.
“Structuring your fleet energy strategy needs to be sustainable and developed with a long-view perspective and not as a solution to short-term discomfort,” Kujawa says.
Landscape companies can also take a more proactive approach to buying fuel by utilizing bulk rebate programs, volume discounts, on-site fuel dispensing and more.
“We have set up a new fuel contract with Exxon Mobil which affords us a discount when fueling at their stations, along with volume discounts if we reach a certain number of gallons,” Ehrhart says.
Kujawa anticipates that fuel vendors will develop new and attractive ways to deliver their fuel and services to customers.
“They will be looking to consolidate fuel customers, fuel delivery, pricing and financing to help attract customers by bringing some measure of stability and predictability to the party,” Kujawa says.
Landscape professionals are hopeful that the prices will come down eventually but expect them to stay for the foreseeable future as costs across the board are increasing. Young says everything is getting more expensive, fuel is just climbing at a steeper rate right now.
“Although the conflict in Ukraine will resolve itself in time, the long-term consequences of Russia’s actions will result in a world-view paradigm shift with both short- and long-term implications,” Kujawa says. “In the short-term, the physical flow of Russian oil compounded by an increased unwillingness from Western economies to purchase it is already tightening supply. If the conflict in Ukraine were to successfully resolve itself tomorrow, the broader question of how to deal with Russia, their oil, and Putin will remain.”