There are a couple of effective ways to price your work for profit—and we do not recommend bidding all jobs at the same hourly rate (figured on your overhead and desired profit). In a competitive market, you’ll need to go deeper with pricing.
Let’s illustrate how three different companies can price jobs three different ways. Which strategy looks most desirable in a competitive market if you’re bidding on a job?
Price Your Work: Company 1 – Same Rate Structure
This pricing strategy involves pricing all jobs at a straight hourly rate. This can be determined based on the going rate for the market, or figuring your overhead and profit. The point is, you’re assigning one rate for all job hours.
Example: Straight hourly rate of $27.50/hour, 12 hours of service = $333.
Price Your Work: Company 2 – Skill Set
Here, you price based on crew members’ skills and how each person is compensated to perform the work. So, a crew leader’s hourly rate is different than the technician’s. You’ll differentiate team members’ wages when figuring out costs for jobs.
Example: Crew leader for four hours ($32.50/hour); two gardeners, four hours, $24/hour each = $322.
Price Your Work: Company 3 – Mark Up on Actual Crew Cost
With the mark-up-on-actual-crew-cost method, you’ll figure in the cost of crew members’ wages as with the skill set method. However, the crew leader fee is figured at $12.40/hour, gardeners at $8.50/hour, and there is cost per service, labor burden and mark-up figured in.
Example: Crew leader, $12.50/hour, four hours; two gardeners, $8.50/hour, four hours; cost per service $118; labor burden (20%) $23.60; mark up (100%) $118 = $259.60.
Price Your Work: Determining Labor Burden
Figuring out labor burden is critical to implementing the mark-up-on-actual-crew-cost method. Labor burden covers payroll taxes—and you pay taxes on every dollar that employees earn from your business. It also figured in unemployment taxes and, in some states, disability taxes and workers’ compensation insurance (all figured as percentage of payroll).
The bottom line: These payroll expenses should be accounted for in the hourly “cost” of an employee when you bid jobs. You shoulder the cost of labor—that’s why this number is called labor burden.
Price Your Work: Materials Pricing
If you bill based on a flat hourly rate like Company 1, you’re probably building materials pricing into maintenance account pricing. Those materials usually include lawn care products, mulch and miscellaneous items. You can usually expect materials to be 3% to 8% of a monthly maintenance contract price. But, there are different strategies for materials pricing.
- Small jobs: We recommend building materials costs into the hourly rate for smaller jobs.
- Larger jobs: Break out actual materials estimated and mark them up based on your desired margin.
- Mark-ups: range from 20% to 100%.
>>TIP: Annual color is a bigger ticket item extra on a maintenance contract. Be sure to mark up live plants accordingly; they are perishable and could require replacing under warranty.
Price Your Work: Smart Pricing Strategies—A Cheat Sheet
Ultimately, the market sets the pricing. Some consultants will recommend overhead recovery pricing—but the reality is, when’s the last time a customer asked you if the price of services was covering the cost of your new building? (Exactly.) Your clients want to pay a competitive price for quality services. So, as a business owner, you must engineer your company to be profitable within market pricing.
We didn’t say be the low bidder. And, we certainly aren’t suggesting you sell services at a loss to gain business.
Consider adding these savvy pricing strategies to your playbook:
- Market awareness. Understand what customers are willing to pay in your market—and in various segments of your market (high-end residential vs. commercial, for example).
- Break-in pricing. There are pros and cons to this strategy. Say you have an opportunity to work with a property manager who oversees several HOAs. You could pitch a lower rate to get your foot in the door, establish creditability and gradually raise prices. But word of warning: The owner could dump you for the next-lowest competitor once you start elevating prices. Be clear that the client is getting an introductory price.
- Price sensitivity. Say a prospect is experiencing financial limitations, such as a high vacancy rate that impacts the budget for landscape services. If this is an attractive prospect, you could offer lower pricing that gradually increases when their financial condition improves. You’re being empathetic yet realistic about your cost of doing business.
- A density approach. You roll out aggressive pricing to establish density in a given market This will improve route efficiency and, eventually, margins.
- A dilution strategy. You price aggressively to dilute fixed overhead costs. Example: Adding a large book of business at a low margin could boost your bottom-line profit.
EDITOR’S NOTE: This story was an excerpt from one of NALP’s member resources, provided by well-known industry consultant Bruce Wilson. Want to learn more about bettering your business? Become a member to enjoy these resources and more.
Looking for more tips to improve your pricing? Attend LANDSCAPES!