A Question of Loyalty

Todd McCabe held back mailing his annual letter to clients this year until January. Each year, before the holidays, he sends clients written communication explaining any rate increases and discussing other news and add-ons available from Landscapes Unlimited, Wilmington, N.C.

“I didn’t know what to expect this year, and we put off pricing to feel things out at first,” McCabe says, admitting he didn’t see the “signs” he was hoping for to help guide his pricing strategy.

His business was eerily quiet after Christmas. “We weren’t getting any calls,” he says. By January, customer inquires were coming in by the handful. “We thought, ‘O.K., there are some people out there who are ready to spend some money,’” he quips.

McCabe decided to raise prices by 10 percent across the board this year at first, and remain flexible if clients are not receptive to the change. For the most part, his client base is sympathetic toward rising costs and accepting of additional fees. Last year, McCabe enacted an optional fuel surcharge of 2.5 percent, raising it to 3 percent of the cost of services toward the end of summer 2008 when gas prices skyrocketed.

Ninety percent of customers paid the fee, which was explained in a client newsletter. “I noted costs were going up and the fuel surcharge was voluntary,” McCabe says. “If the customer felt they should pay the extra fee, great. If not, they could ignore it.”

The tremendous response speaks volumes about the importance of maintaining strong customer relationships. “A lot of them knew costs were going up and came to us to say, ‘We know fuel has to be killing you now – what are you doing about it?’” McCabe says, noting that he decided to make the charge voluntary because one of his office administrators warned that her previous employer enacted a mandatory fee and, as a result, upset many clients.

McCabe saw price increases in other areas, too. Fertilizer increased by 30 percent, so he subsequently raised lawn care service prices by 10 percent last year. “This year, fertilizer prices are supposed to go down,” he says.

Gas prices have already decreased, so in November 2008 McCabe wiped the optional fuel surcharges off of client invoices. “At that time, we were getting calls and people were backing off of services,” he says. When one of his workers questioned the move, he explained, “this is us showing customers we are working with them, and we don’t want them to think we are collecting extra money off of the deal.”

Competing companies in McCabe’s market have taken more drastic pricing measures, he notes. McCabe has spent the last few months watching landscape companies grossly underbid projects. While negotiating with a homeowners’ association for a maintenance contract, he progressed to a point where the association president unveiled competing bids, inquiring why McCabe’s was higher.

“No one’s pricing made any sense,” he says. “It was apparent that the other companies didn’t measure the property and they were just shooting from the hip with their pricing.”

McCabe won a bid for a public project – same desperate bidding story. McCabe isn’t going there.

McCabe’s strategy for raising prices this year: “It’s all in the presentation,” he says simply. And that begins with sales and emphasizing the value of services. “Customers need more education,” he says. “New customers won’t realize there was a price increase, but we have to help existing customers understand why we have to raise prices.”
Letters are important, as is personal contact. McCabe is encouraging even more face-to-face interaction between staff and customers this year. And if his client base hesitates to sign contracts, he will revisit his pricing plan. “I’m not planning on dropping prices by any means,” he says. “But if we are not selling any work, then we’ll have to do something different.”

For now, McCabe increased the hourly rate by $1. “I think a lot of companies will try to lower prices to be competitive, and that’s not going to help anyone,” he says. “We need to keep pushing for what we should get paid.”

McCabe is tightening internal operations so every dollar he collects from customers will count this year. “We are forcing ourselves to be super-efficient,” he says. For instance, McCabe purchased used trucks instead of new vehicles last year. “We can’t afford to be wasteful,” he says.

McCabe will run leaner, running two maintenance crews rather than three, if necessary. He had hoped to ramp up his operation to include four crews. “We’re just going to push harder in maintenance,” he says. “The problem is we are in a really small market and there are a lot of landscaping companies – a lot of aggressive ones. We’ll all be fighting for work.”

McCabe won’t balk on pricing for now. “We are all neck-and-neck,” he says of his rates compared to others in the area. Of course, that’s withstanding the commercial bidding wars he has experienced. Still, McCabe sees a bright side: “Commercial customers are still spending money.”

The author is a freelance writer based in Bay Village, Ohio.