BEST PRACTICES: Pricing Primer

Software. Spreadsheets. Experience. The list goes on. Landscape contractors in the business of commercial maintenance use a variety of methods to arrive at their pricing schemes. But whatever ways contractors choose to bid commercial properties, one thing is consistent across the country: Commercial maintenance is a competitive service offering.
   
“Bidding on commercial properties is very price-driven,” says Steve Rak, vice president of Southwest Landscape Management in Columbia Station, Ohio. “I know people don’t like to hear that, but that’s the fact. And it’s gotten worse in the last couple of years.” Consolidation and the increasing strength of national firms are the reasons competition had increased, Rak says.
 
One particular challenge Rak and other contractors cite is communicating to clients that there’s no real “apples-to-apples” comparison out there. Although the same spec sheet may go to all contractors bidding on an account, each contractor is returning a price based on different scope of knowledge, skills and service. For example, “pruning” may mean the technical craft of hand trimming trees and shrubs to one firm, and may mean shearing branches randomly to another. Labor plays into this as well, with some firms employing American citizens, others using the H-2B program and some still hiring undocumented workers, points out John Harich, business development manager for Ruppert Nurseries, based in Laytonsville, Md.
 
Carefully communicating these differences, accurately assessing costs and learning from others’ mistakes will help contractors secure more contracts and keep profitability in place.

CRAZY ABOUT NUMBERS. Almost every business owner will say knowing your costs is the first step to profitability. How do you achieve this in the landscape industry? “Track everything,” says D.J. Vander Slik, president of D.J.’s Lawn Service, Grand Rapids, Mich. Vander Slik began “tracking everything” at age 14 when he purchased a green industry software program for $1,400. “I put in the square footages for all of the lawn I was doing, I measured all the edging, found out how long it took me to edge and what that translates to in linear feet,” Vander Slik says. “I just got really crazy about numbers.”
 
That rings true in his business today. When D.J.’s Lawn Service receives specifications for a commercial property, he or another qualified estimator will visit the property, measure the turf, parking lots, beds, amount of hard-line edging and other factors. A custom software system allows him to apply those measurements to job costing data he collects, which helps him determine how long it will take a crew to perform a service, and in turn generate a price.
 
Vander Slik monitors crews’ job costing data weekly to keep budgeted hours in check. At the end of the year he averages crews’ actual times and uses that number for the following year’s pricing formula. “We want to know what our ability is,” he says.
 
Ruppert Nurseries uses a similar system to price properties. “Traditionally, if we get a call or we have a prospect, we’ll get a spec sheet, and then we measure the property,” Harich says. In addition to measuring turf, beds, etc., Ruppert inventories plant material and makes notes for “subjective” services, like tree pruning, which can vary widely depending on tree type, condition, age and health. Next, this information is entered into Ruppert’s estimating system, which produces the number of expected job hours (based on years of the company’s historical data) and generates a price accordingly.
 
Some companies, however, still put pen to paper. Southwest Landscape Management is one of them. “I’ve done this for so long that I can look at a property and be pretty darn close,” says Rak, who uses a home-grown method that includes taking measurements, walking the property and dividing up large properties into smaller sections to make estimating easier. Rak also uses a checklist that includes each service (mowing, trimming, edging, etc.) to make sure he includes everything before calculating a price that takes into account the amount of time to perform the service and what type of equipment will be used.
 
Although it may be tempting to fire off a bid after just receiving the specs, visiting every property is of the utmost importance, contractors agree. “There’s a lot of variables,” Rak says. “What if they have a fence around the back of the property and you can only get a 36-inch mower in? Well that changes your pricing.”
 
Accounting for travel time is crucial, too. Contractors include it in a variety of ways. At D.J.’s Lawn Service, it’s billed to each job from the previous one. “From the shop to job A is billed to job A, from job A to job B is billed to job B and so on,” Vander Slik says. Southwest builds travel time into overhead along with other “non-production hours” like equipment servicing, and Ruppert bills a certain percentage per job depending on how far away it is in terms of time (whether it’s 15 minutes to a half hour, a half hour to 45 minutes or 45 minutes to an hour away).

PRESENTATION. Because of the competitive, price-driven nature of commercial maintenance, it’s important to present a well-put-together proposal in person.
 “It has to be in person,” Rak says. “If they just say, ‘Hey, fax or mail us the bid,’ they’re just looking at numbers on a piece of paper.”
 
Vander Slik agrees. “If a customer calls and asks us to fax over a quote, there’s very little opportunity to sell myself,” he says. “I always try to present it in person.” His proposals are bound into a packet that includes a cover page, schedule sheet, references, a color brochure and, lastly, the proposal page. Vander Slik also includes a loose-leaf copy of the proposal that the client can sign and send in if they choose his firm.
 
Presenting a proposal in person allows contractors to explain to customers that all quotes won’t be apples-to-apples comparisons due to varying levels of training, experience and service. “The biggest challenge is explaining quality vs. price,” Harich says. “In that face-to-face time we talk about quality and try to educate about things like the way we prune shrubs. We’re hand pruning everything and another company could just be shearing everything.”
 
This in-person presentation also allows you to inquire about unusual specifications if you haven’t yet had the opportunity, Rak says. He’s found that sometimes clients don’t realize that the services they’re asking for are out of the ordinary or that other solutions exist. Clearing up gray areas like these can often save clients money, show you’re looking out for their best interest and save your firm time and headaches. Rak cites a homeowners’ association that requested grass clippings be picked up for the entire property – front yards, back yards and all green spaces. “We’re talking acres and acres of property,” Rak says.
 
Getting to the bottom of the client’s request is key. In this case, the residents didn’t want “clumps.” “Ninety percent of the residents were 60 and older and don’t spend time in their backyards anyway,” Rak explains. “So I said, can’t we mulch the clippings or double cut in the back yards? Is this request really that important? Because we can save you a ton of money.”
 
If the presentation doesn’t go as planned, or if the client was seeking the lowest bidder and you weren’t it, your job shouldn’t end there. Follow up with decision makers to discern why they awarded the contract to another firm. It can be helpful when, or if, you re-bid the following season. “Simply call and say where were we, or why didn’t we get the job?” Rak says. “A lot of them will tell you. They might say your mulch was really expensive or we’re sticking with the company we have because we’re comfortable with them. Sometimes they’ll say it was $1,000 less to go with the other guy.” Rak files those comments for the following year to evaluate if he’ll be close to being competitive and whether he should re-bid or just pass.

LEARN FROM MISTAKES. When offering pricing for any service, whether it’s commercial maintenance or retaining wall construction, contractors should avoid “shooting from the hip.” Sometimes business owners are overconfident in their estimating abilities, Vander Slik says. “It’s important to follow the steps I’ve put in place to be successful,” he says, noting he learned this lesson the hard way. In the early days, he was sometimes quick to agree to prices on the spot, before returning to the office, crunching numbers and realizing he spoke too soon. “Now, I’m not embarrassed to say, I can’t tell you that right now, but please let me work on it and I’ll make it my priority to get back with you in a timely fashion,” he says, noting within 24 hours is a reasonable time period. 
 
Being eager to place a bid has gotten Southwest Landscape Management in trouble in the past, too. “A lot of times, people want bids in the wintertime and we’ve gone out, looked at the property when it was snow covered and blew the bid,” Rak says. “We learned from that mistake; don’t bid the property unless you can really see it. It sounds obvious, but when you’re trying to pick up accounts, it’s a nice job and you want to get your bid in on time, it’s tempting.” Instead of rushing to meet a bid deadline in bad weather, just be honest with the client and ask for more time. Nine times out of 10, Rak says, they’ll give you another week until you can see the property in better conditions.