Pricing is really difficult. When I got started in the business I didn’t have the faintest idea how to price commercial or residential. I was clueless. I remember the challenge and the difficulty. I remember struggling to figure it out.
Continue reading “How To Price Lawn Mowing Jobs When You Don’t Know How”
I get the question all the time: How much money should I be charging for my services? How should I price my services? I’m not going to directly answer that in this video but I do want to talk about a concept that I think is really important.
I have been studying marketing since around the end of 2005. When you start studying marketing, you get introduced to a lot of really interesting people and they obviously teach on subjects other than marketing.
I noticed that what a lot of the gurus in the marketing industry tend to teach is that you should price your services at the very very top of the market. You should be the highest priced provider in the market for whatever it is that you want to sell.
I don’t really agree with that for the service industry and for my service business. That’s the point I want to address. As you’re learning how to price your services and you are working your strategic plan to get to the price point that you want to be in the market and be able to sell a lot of work at that price point so that you can make a good amount of profit, what I believe you want to try to accomplish is you want to be in the top 20%.
If you were to look at the pricing in your marketplace, whatever the service is that you’re selling, look at 50 competitors and write down the cheapest price somebody in your market charges to provide that service, and then write down the highest price that someone in that market would charge to provide that service.
Let’s just use fertilization and weed control. If someone for a 5,000 square foot property would charge $25 to do fertilization and weed control at that property, and at top end of that market somebody would charge $75 to do that service. If you picture that on a whiteboard or on a chart, you want to be pricing in the top 20% of the market. If you were to plot all the lawn service prices for everybody in the market and you were to divide that into 20% chunks, you want to see what the pricing is at the top of that 20% chunk.
I don’t know what that would be in your market, but you want to slowly figure that out over time. You’re not going to figure it out when you first get in business. You’re not going to figure it out on day one. You figure it out over time and as you figure it out, you start to price at that price point.
Now obviously, your service quality, the quality of your people, your customer service, everything has to improve and grow and get better so that you can get those prices. But, I believe that the sweet spot is in that top 20%. Why is that? Because if you’re the highest priced provider in your business, you can’t really build a big business.
If you know me, then you know that my whole concept is to build a business big enough to have somebody that runs it for you. Then, you also have to have a couple of layers so that even if that main person leaves, it wouldn’t all end and you’d have to be the guy running it again.
You want to build a business big enough that you can afford to have people to run the company for you, and that takes a while to get to that point. To get there, if you are the highest priced provider in the market, it’s hard to get enough business, enough volume of business, to build a business big enough to do that.
If you’re too cheap in terms of pricing, you can never hire the right people, the best people. You always have equipment problems and truck problems and employee problems, and you can’t afford to market. You can’t afford to do anything, so then again, you can’t build that business.
That top 20% sweet spot to me is the point that gives you enough money to grow a great company that can run itself and that will allow you to take a lot of money out of the business, and it will allow you to build, again, a big enough business to accomplish everything that I just said.
If I’ve been guilty of anything in business, it’s been under-pricing, not asking for enough money, and questioning the prices that I’m asking for even after I think through how much I need to charge.
I’d recommend that you take a look at, or do a few Google searches, around the topics of if you can raise prices by X and lose X number of customers. For example, you might Google something like, raise prices 10% and lose customers. Just look around and do some reading.
Several years ago, I read some books on pricing and so I raised prices in my business. I had done some price increases before but generally I had been scared to do that. I’ll tell you right now, I’m still under-priced in everything we do.
A lot of times the reason we’re under-priced is because we don’t have the confidence to raise prices. Or, we are not communicating correctly to explain to our client exactly why the price that we’re charging is the price that we should be charging and why it delivers to them tremendous value. I think most of us make that mistake so you might check yourself and see if you have that same mindset as well.
Here’s the concept, and this number that I’m about to state will change so your profit margin will affect what I’m about to say.
If you raise lawn care prices 10%, you could theoretically lose 25% of all your customers and make the same amount of money at the end of the year in terms of take-home profits. Remember, take-home profits is all that matters. There’s been some studies in the service industry that say if you raise prices 10%, you can lose up to about 37% of your customers. That’s huge.
I am positive that if I raise my prices 10%, I would not lose 25% of my clients. If I lost 5%, think about how much additional profit that would make me in my business and think about how it would affect your business. If you could raise prices 10%, only lose 5% of your clients, how much more money would you make?
The point here isn’t to give you the exact answer. It’s to give you a concept that proves to be true every single time you dig into it. Do some Google searches to research this and it will give you additional confidence to price your services correctly.
The question is, “How much do I charge a lawn care client? I don’t want to overcharge or undercharge for landscape services.”
The main point I want to make about this topic is that you absolutely don’t want to be the low-priced company.
When you are the low-price solution provider, you can’t hire the best employees, have the best trucks and equipment, or spend the most money on marketing to out-market everybody else. You can’t afford to do all those things that ultimately make you a much better company at customer service. If you can’t afford the best employees because you don’t charge enough, then you don’t really have a good business. Great employees make your life easy.
Your strategy should be to be one of the higher-priced providers in your market. Not because you’re gouging your clients, but so that you can deliver incredible service to your clients. Most clients expect very little out of a lawn care business. If you can deliver anything better than the norm, you have the chance to wow them. You have the chance to get a lot of referrals and really grow your business.
Strategically, go in with the goal to be an average- to high-priced service provider. Start out average to learn the business. Get in the marketplace and study your competition. Use your competition as your guideline for quoting and for pricing. Use those same prices with your clients. Then study your own business. Learn your own business so you know how to price effectively.
If you have no knowledge whatsoever about pricing, there’s really no magic formula that says charge $55 per man-hour and this is what you do to figure out exactly how many hours there are going to be on the job. It’s all a learning experience. It’s about getting burned a couple of times and then never making those mistakes again. It’s about asking clients what they paid previously. It’s about price shopping your competition. It’s about having your friends ask the competition to come out and do an estimate at their home so that you can learn what they would charge. It’s about doing whatever you’ve got to do to figure out how to price.
Again, no magic solution, you just have to get out there and see what others are charging. Go on their websites and look around. You’ll start to build a feel. If you’re starting out first in residential, it’s really easy to figure out pricing.
Commercial, that’s a whole different deal and is a lot more difficult. That’s why I generally don’t recommend somebody that is just starting out in the lawn care industry to begin on the commercial side until you’ve got your feet wet. You have to understand the relationship of time to square footage, time to man production, time to equipment size, and then task the right equipment and the right size to the right property and the right area on the property. You also have to make sure you have the right guys working on the right task at each property. It’s a whole different game.
I recommend starting out in residential where it’s easy to figure out what your competition’s charging. Then go into the market and charge the average to get your feet wet. Learn the business for yourself. Then before you know it your pricing questions all go away.
If that doesn’t help, please ask another question and I’ll be happy to clarify again.
What is the best lawn care software design package to use? More specifically, what is the best design tool to use to create a landscape design?
I actually don’t know the answer to this. There are a lot of options out there. There are 300R solutions and there are solutions that cost thousands and thousands of dollars. I know that Dynascape makes a package. You might take a look at that.
Because I don’t know the answer, if you have a suggestion of a great landscape design package, please put that answer in the comments below. If you are on YouTube, put it below in the comment section. Let’s see what other people recommend and what they are using. Maybe we’ll find the answer. But, I personally, do not know what the very best landscape package is to use.
My starting point would be looking at Dynascape, doing some Google searches, and asking on Planet if you are part of that organization. If you would, then bring those comments back here so that we can figure out what the best solution is.
Learn the difference between variable costs (direct costs) and fixed costs in your lawn care & landscape business.
A lot of times if you do a Google search, or if you went to college and you studied accounting, a lot of the examples are based on manufacturing. They’re manufacturing examples or they’re the production of some product. It can become confusing.
There’s a lot of interchangeable terms.
Variable cost is a term that’s used frequently. More common, in the landscape industry, is the use of direct cost. I like to talk in terms of direct cost instead of variable cost. You will also hear, and you can watch my video on this, the term “fixed overhead”.
I’m going to go into a little bit of an explanation here. Let me first talk in terms of direct cost because we’re going to use that term instead of variable cost. Direct cost is a cost that varies based on production. As an example, if you win a design build job, you will incur some extra costs to complete that job. You may need to hire some contractors, rent a dumpster or a Ditch Witch, pay out a sales commission, or incur material costs such as plants. Those are direct costs.
Had you not won that design build job, you would never have incurred the material cost, the permits or the rentals. Therefore, it’s a cost that, again, is only incurred when you win the work and when you perform the work. If you’re looking at your profit and loss statement, these direct costs, are going to appear under your revenue at the top of your report in the cost of goods sold section.
What you do is, look at your revenue generated for whatever time period your P&L is looking at. You subtract out of that revenue, your sales revenue, your cost of goods sold. This is your direct cost. That leaves you with your gross profit margin. Your direct costs are going to be one of your biggest expenses inside your lawn care business because your business is so labor intensive. Or, if you’re in the design builder construction side of the industry, materials are going to be a huge cost to your business which falls under direct costs which is part of cost of goods sold.
Again, direct costs and variable costs are often used interchangeably when you’re reading accounting books or performing Google searches. Within the lawn care industry, the more common term is “direct cost”. Generally, what most people do is they take all of the other costs and they put them under “fixed overhead” or “indirect costs”.
There really are some other variable costs in the business that, oftentimes, will get lumped into fixed overhead or indirect costs, but are truly variable. You have to figure out what the standard is for your business, what the standard is for this industry. I would recommend following the standard for this industry.
Let me give you an example of what I’m referring to. You could have what might be considered a variable cost by some, for example, website hosting or maybe marketing. Some consider marketing a variable cost because if things aren’t going well, you could shut off all of your marketing. You could stop running pay-per-click ads or sending out direct mail pieces. Those costs are somewhat variable.
It’s far easier to stop those types of marketing costs than it is to exit out of a three-year lease or to stop paying for truck insurance. Those are fixed costs. Marketing is an example of a variable cost. However, what you’ll see oftentimes, is that a lot of companies will look at their marketing expenditure for a period of time. They will put it into the indirect cost section on their P&L.
What they do is, they take gross profit margin. Remember that’s your direct cost subtracted from your revenue. That gives you your gross profit margin. From that, they subtract their fixed overhead and indirect costs. Oftentimes, you’ll see marketing or advertising as one of those costs that get subtracted out. I wanted to make the point that as you’re reading and as you’re thinking through what is a fixed cost versus a direct cost versus a variable cost, marketing is a great example of a cost that will fluctuate. Therefore, it is somewhat of a variable cost.
For example, you might have website hosting, as I am showing here. That’s a marketing cost. You can’t really turn off your website and shut it all down. A lot of times, that’s obviously a fixed overhead or an indirect cost, whereas pay-per-click, where you’re paying for clicks in Google, you could shut that down by pausing your campaign in an instant. That is more of a variable cost.
The takeaway is that you need to sit down with your accountant and pay attention to what’s done in the industry to figure out if, even though there’s some variability in that cost, as in my example of pay-per-click, it might make sense to follow industry norms or the recommendation of your accountant. You might also hear the terms sometimes called “general and administrative costs.”
Those are some things to think about. Universally in our industry, you will hear “direct cost”. Direct costs are directly tied to the job. If you do not perform the job, the costs are not incurred. If you perform the job, the costs are incurred. That’s why they go into your cost of goods sold section on your profit and loss statement.
In your lawn care business you’ll have two types of overhead. You’ll have fixed overhead and variable overhead. I have a separate video that explains variable overhead.
Fixed costs make up fixed overhead. An example of fixed cost would be rent, insurance, admin salaries, office expense, depreciation, utilities, and the cost of your estimators.
The characteristic of a fixed cost is, it’s one that doesn’t change very much and it’s not affected by activity. Whether you perform a lot of work this week or you perform very little work this week, your fixed costs, or fixed overhead does not fluctuate. It remains fairly constant and it is fairly easy to predict.
You want to be very slow to add these fixed overhead costs because, if there’s a decline in your business, it’s hard to get rid of these costs. If you go out and you sign a three year lease on an office space, it’s a fixed cost. You know every month your office is going to cost you $1,000 a month. If your business takes a significant decline, it’s very difficult to get out of that three year lease and eliminate that $1,000 a month expense.
Insurance on your office building is an example of a fixed cost because the insurance cannot be eliminated without eliminating the lease. Therefore, that insurance cost doesn’t go away until the lease itself goes away.
Admin salaries are fixed. Yes, you could let those individuals go but, generally to keep your business operating and running, you have to keep your admin team. Therefore your admin salaries are considered to be typically allocated in your fixed overhead numbers.
Watch the video about variable overhead and also watch the video about an elementary way to calculate fixed overhead within your business.
If you are underpricing and undercharging for your lawn care work, you are doing your clients a huge disservice. Let me explain.
I get a lot of pricing questions. Companies aren’t sure how to price and new guys in the lawn care business have a tough time figuring out how to price. Estimating is also challenging. I get that.
This is a different take on it. It’s not the question I usually get asked, but I want to make a really important point. If you are undercharging your landscape clients, you are doing your clients a massive disservice.
The reason I have this opinion is because most of us, and I’ve said this before, started out as the “low-ballers,” which is a word we use in the industry. These guys are the ones underpricing and undercharging. They’re the low-cost provider that’s screwing up their whole business because every time they go out to compete for a bid, they’re giving the ridiculously low price that makes it impossible for them to make any money. That’s a “low-baller.”
If you’ve been in the business for any period of time, you’ve probably complained about this many times. You’re fed up with the guys that are underpricing work. They don’t know what they’re doing – blah, blah, blah. There’s a temptation to adjust your pricing to match their pricing. But, what happens if you do that? Then, you won’t make any money. This is the reason why it’s critical that you price right and do not undercharge your client. It’s a vicious cycle.
For example, if you do not price your services correctly, you cannot afford to hire the very best people. If you don’t hire the best people, then you don’t deliver excellent service to your clients. This is a huge disservice. If you don’t price your business correctly, then you can’t afford to train your people. Therefore, the work you give to your clients is sub par.
Worse, and an even a bigger sin, is the advice that you give your clients is wrong. If you tell your clients that they need something or you incorrectly diagnose a problem, you are wasting their money. If you are wrong, they could lose a plant, or a tree, or their turf could die. You have done them a huge disservice.
The way you give your clients great service is by charging them fairly and not trying to match your competitors that don’t know what they’re doing. It’s your job to price correctly so that you can hire the best people, train your people well, put them into safe trucks that are insured, and hire licensed drivers to insure everyone is safe on the road.
I am not preaching here. The point I am trying to make is that you need to have confidence in setting the right price. It’s absolutely the right thing to do…for your business, your employees, and your clients. Clients want great service. They want great quality.
Yes, you will lose some clients to the low cost provider. Eventually, they will get burned and they will be back willing to pay fair prices.
So many guys complain that they can’t get into their market because everyone is underpricing. Think about one of the biggest companies out there. It’s TruGreen. Their name and their marketing has supported higher prices than many companies actually charge. Oftentimes, TruGreen prices actually tend to be a little higher than the market.
There are plenty of examples of guys that are in the marketplace charging higher prices and succeeding in a massive way. Your client wants a great product. If you want your sales team to be highly effective, and you want your marketing to work, then invest in quality and service.
It’s kind of like a circle, it takes a little time for your sales and marketing to get going. It takes a little time to reap the rewards of investing in great customer service. But, as the business gets a little bit bigger and there’s more word of mouth, and you get a little more marketing out there, it will all start to pay off. If you combine great service and fantastic quality, more people will see it and it will all start to come together.
Sales, marketing, customer service, pricing, quality, employees, your trucks, your reputation, how you dress…it is all connected. The core of it all is pricing. Don’t be concerned with what everybody else is charging. You’re doing your clients a huge disservice if you can’t be the great service provider.
Low pricing in the short-term might give your business a boost, but in the long-term you will absolutely pay for it. Have confidence to price work correctly. Figure out how it needs to be priced. Go out there and do it. Improve your marketing, your sales, and your customer support so that you can get the higher prices.
This is a trick to get lawn care estimates done faster. If you find yourself sitting in the truck, or if you are at the office late writing up estimates, remember that you’re really a fairly expensive person in the company to be doing that. You need to be as efficient as possible. You should have somebody else, in some cases, put your estimates together for you. This is a trick on how to do that.
Often times what happens is, you take a look at a property and make some notes. A day or two later, when you have time to put together the lawn care estimate, you have forgotten some of what needs to be done or said inside the estimate.
I highly recommend using one of these three options to voice record your estimate notes. First, get a call-in line. There are a lot of options for this where you can call in to a phone number and record a message. Second, is to create a voice memo in your phone. Third, you can get a little mp3 recorder that costs about 60 bucks. I prefer the first two options because you can share your notes with your office team immediately after your notes are recorded.
Even if there’s something you haven’t quite worked out yet, you still talk about the parts. What did the client ask for? What were their selling points? What were their hot buttons? What did you say you would do? What are the services and products that need to go onto that estimate? What are the prices? Just talk it out as you look at your notes. Then you can email it, or if you do the call-in line concept, someone on your office team can pick that up. They can prepare the whole estimate for you.
This, a lot of times, is faster than using an iPad or laptop. You don’t have to worry about getting the wording perfect and if you are in a hurry to get to the next job, you are able to record your notes so that someone else can take care of the estimate for you.
Another person in the office that makes less money than you, can put all the details into the system and get it all prepped for you. That will free you up to move onto the next job. This really speeds up getting estimates out. I’m not saying you don’t do your own estimates ever. But, sometimes it might make sense to do this. It’s a powerful trick to get more production out in the field.
For example, if you can only knock out five estimates a day because of all the prep work, maybe using this approach, you can now do eight. Then, when you get to the office, or at night from you house, you log in and just review it. If it looks good, you can send it. Or, if there were a few things you were still thinking through, you can make those edits then, and send it out to the client.
This will save you some time. Everything in the business needs to be thought of from the standpoint of how you can maximize your time. How can you spend your time on the highest value activities…the things you are best at? If you’re great at selling, spend your time selling…don’t spend your time on typing. Have somebody that’s great at typing and writing and wording spend their time on that for you. That way you can be more productive and move faster.
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The question is, how do I tell a client that I need to raise the price? How do I tell them that I need to charge more for the spring clean-up or for the initial mowing? How do I explain it to them without them getting mad?
I’m going to give you the four things to consider.
Remember how much or how little you knew when you got started. You think about this business every single day. When you wake up, you’re thinking about it. When you go to sleep, you’re thinking about it. You live it seven days a week. You think about it constantly. But, when you first got started, remember how little you knew about the business, how little you knew about the industry. Now think about how little your clients know. It’s so easy to assume that they understand. They don’t think about any of this stuff that you deal with.
Now, why did I say all of that? That’s the key to everything when it comes to explaining to a client why you need to charge more. They don’t know your business. They don’t understand it. They don’t know the challenges and the cost involved. As far as they’re concerned, if you’re in the lawn-mowing business, anybody can get a mower out and mow a lawn. If it’s tree-trimming, all he’s got to do is get up there and cut that limb off.
Basically, that’s how a lot of people think. They have no comprehension of what goes into this. They don’t understand all the costs behind the scenes. They don’t realize how much it costs just to get the truck to their house. So, when you say, “I need to charge this,” that means nothing to them. They don’t know why you arrived at that number.
Here’s how you’ve have to think about raising prices and explaining it to a client.
First, you have to educate your clients. You have to tell them some of this stuff. If you want to sell something, it’s about education. If you want to raise a price, you’ve got to educate them on why. Why is to their advantage? Why does it matter? Why are you doing this? You need to tell them that. Education is key. They know very little. You know a lot.
You need to teach them a little bit about what you know so that when you ask for something, it’s meaningful. They understand why you have to raise the prices or why it takes extra time to complete a job. A lot of times when you explain to them, you’ll find out people aren’t upset. They get it. They work, they have jobs, they do things, they understand when things take a lot of time. So, education is key.
Second, you’ve just got to be honest. I think that’s the absolute best approach in business in general. Lay out your case. Be honest. If you screw it up, come clean and just tell them. If you’re running behind, tell them why. Be honest. If you try to cover it, or if you try to make stuff up, your team sees you doing that. Then they do it. If you are dishonest with your clients, your people will be dishonest, and then you will be a dishonest company. Your company and your people mimic you. You need to be honest. Your need to be forthright. Tell people the truth.
When I say to be honest, it’s not always being honest about a screw-up or mistake. Sometimes it’s just being honest and saying, “Look, the reason we’ve got to raise the price is we thought it was going to take three hours but it takes five. For the last four times we’ve been eating the extra cost, but I’ve got to tell you we’re losing money every time we’re out here. We really love working with you. I really want to keep you as a client, but is there any way you can help me work this out? We need to make a price adjustment for this to make sense.” I’m not saying to say it that way, but it’s that kind of an attitude of just tell them the truth. Tell them exactly what’s going on. Explain your case. Educate them. Be honest about the situation and then propose a solution. You’ll be surprised how often that it will work out for you.
Third, explain it. That’s part of being honest. Just lay out your case. Tell them what’s up. Tell them why. Explain exactly why you’re asking for more money. It’s not because, “My wife and I decided we want to buy a Ferrari, and we figured out that if we charge every customer two extra dollars, we could do it.” You tell them the truth. “Look, we’re not making a ton of profit here. The reason we’re doing this is gas prices have gone up. The reason we’re doing this is because now that you’re having us mow the backyard, it costs us more time and money. The reason is because we originally came out and looked at your irrigation system and there was only one zone, but that was broken. Now when we come back, you have a second zone that’s no longer working. We didn’t anticipate this. We need to charge extra.” It’s all about explanation, education, and honestly explaining what’s up.
Finally, when you’re doing a massive price increase across a lot of clients, test it. Let’s say you have three hundred clients you want to raise the price on. You don’t just go out and raise the price on three hundred clients. You call up a couple of clients and you explain your case. Education, honesty, and explanation. If all three clients decide to cancel, you’ve got a problem. You don’t want to go to four hundred clients. If all three clients say, “Cool, I get it. No problem.” Go to all four hundred clients. If a couple of clients say, “Wait a second. Why now are you raising my price, because you just raised prices last year, and I can go down the street and get somebody else?” You listen to their concerns. You take those concerns, and then you go approach three more clients and tell them that you need to raise prices. But, now you know how to answer the concerns when you’re talking about why you’re raising the price. If you’re writing a letter, you can address the concerns you heard in the letter telling your clients why you’re raising the price.
These are your four tips when you consider adjusting prices or making changes. When you do this, especially when you test it and try it, it’s not so intimidating. Your clients will be far more understanding than you think they’ll be. Just remember, it all starts with explaining to them and educating them on your reasoning.
Good luck.