Getting renewals right in today’s reality

Everywhere we go, we hear a similar refrain: What’s up in today’s business climate? Does this sound familiar? And the answers are even more familiar — workforce base pay rates are at an all-time high and growing, pay rates for overhead positions are up, insurance rates are up, gas prices are up, materials costs are up and so on. Seems like everything is UP! Right? Right!

Knowing your options for renewals or increases in pricing.

Options for renewals.

You can do nothing and hope for the best and feel the effect on gross margins plus indirect and general and administrative costs and net profit. Not a good feeling folks. Or,

• You can add more workload to your teams and potentially burn them out —especially if they are already overloaded.
• You can get more productive/efficient which is a good idea, but will this cover the increases in cost? Maybe this will cover some but not all cost increases.
• Sell more enhancements or additional services at higher margins. This should always be considered.
• Get the right renewal at the right price that will enable you to make a fair net profit.

So why are we afraid of or don’t go after renewals? We hear these reasons often:

• “If we ask, they will go out to bid and we risk losing the job.”
• “What if we lose the job? We don’t know if we’re really making any money or not, so maybe some gross margin is better than no gross margin?”
• “We don’t have the time; we’re too darn busy focusing on other challenges.”
• “Actually, we’re not sure how to go about it.”

Here are 7 tips on how to get the right renewals at the right price.

Tip 1: Establish a job renewal process. Don’t let this be a last-minute random act and miss an opportunity for a positive effect on your business. Build a renewal process and practice it consistently.

Tip 2: Assign champions to head up the process. This process requires a team effort headed by designated champions.

Tip 3: Know thy customer.

• Know your customer’s budget timing and processes — timing is critical.
• Know the status of their business. Is it thriving or surviving?
• Know the key influencers and the naysayers. Learn how to engage them and get them involved.
• Know their level of satisfaction and appreciation of your services. Ask them, survey them and get their feedback.

Note: It’s hard to get an increase on a job if they are not happy with your services and the relationship is strained. The “pay us more and we will make you happy” is not a good strategy for an increase. Rather, it’s a poor strategy and needs to be stopped.

The best way to get a fair increase is to create a solid, positive, trusting relationship with the customer, as well as meeting and exceeding their expectations and solving their points of pain.

Tip 4: Review the jobsite. What condition was the job in when you took it over? Review with your crew new job start-up conditions and areas defined by the customer as pain points. Know what condition the job was in when you started. Before and after photos are most effective. Document, document, document!

Tip 5: Review the financials costs. What are the direct costs over the past year including workforce cost with wages, payroll taxes and workers comp insurance? What increases have there been recently or anticipated in the next contract period? What materials were used on this job and what was the total cost?

Take a good look at your overhead costs including salaries, gas, vehicles, rent-leases, insurance, etc. The key is to know your costs to perform the level of service that is expected by your customer.

Tip 6: Establish a new price if needed. Make certain your price for your services will make enough gross margin that will cover your overhead expenses and make a fair net profit. This will vary by revenue streams and range from 45-65% gross margin.

Tip 7: Build your strategy and delivery.

• Establish the justification for an increase that is specific to their site and have specific examples. Maybe there was a change in scope and/or expectation and we need added funds to cover these changes.
• Practice your delivery for a personal face-to-face wherever possible. If not possible, build a persuasive presentation in writing for their review and consideration.
• Have some options to change the scope of work.
• Next, get a verbal understanding and then send written agreement.
• Know your walk away point.
• If it’s a no go, leave the job professionally and in a positive manner. You never know when they just might want you back.

Cream of the Crop features a rotating panel from the Harvest Group, a landscape business consulting company. Bill Arman is a landscape business consultant who spent nearly 30 years at one of the industry’s biggest companies. He can be reached at bill@harvestlandscapeconsulting.com