Income Over Increase

People in Lake Bluff, Ill., know the Kinnucan name. “The key factors to our success are recognition and reputation in our market,” notes Bob Kinnucan, president, Kinnucan Co. He has run into customers on the golf course or during travels who ask him, “Is this a family business?”

“People think we’ve been here since the beginning of time,” Kinnucan says, remarking that the 38-year old firm relies on customer referrals and word-of-mouth advertising, mostly. “We have consistently found that our business comes from market presence – our equipment on the street and customer referrals,” Kinnucan says.

Service diversity helps the company penetrate its existing customer base more deeply and maintain steady business. Kinnucan Co. provides the full spectrum of landscape offerings, so when one service takes a hit, another can pick up the slack. This year, Kinnucan says design/build is “dropping off,” but numbers are solid thanks to consistent maintenance, snow, holiday and lawn care services.  

Meanwhile, Kinnucan Co. has maintained “adequate” profit margins, which translates to about 15 percent net profit in 2008. This year, Kinnucan expects that number to slump to 9 percent – still strong, given the economic climate. He won’t raise prices this year, he decided.

“Over the years, we have lost some clients due to the annual increases, but those losses have not been significant,” Kinnucan says. Healthy attrition makes room for new, quality customers, after all. “We have always been concerned about profitability rather than volume,” he says.

To be sure every job falls within the company’s “target numbers,” Kinnucan Co. employs an internal cost accounting method that involves each manager analyzing daily reports that detail every job completed and billed. The target Kinnucan refers to is profit margin. At year-end, managers study each customer account and adjust fees if they are below the target.

“Some people opt to not renew, but again, our philosophy is to only do work that is profitable as opposed to buying work or going out and bidding work to fill volume,” Kinnucan says.

Sometimes, other landscape companies’ bids are one-half or one-third what Kinnucan Co. estimates for a large job. Kinnucan blames vast cost discrepancies on desperation, not necessarily the economy, though he admits companies are more prone to bid low when their schedules are empty.

“Over the years, more companies have entered the industry, and it has grown exponentially,” Kinnucan relates, noting 2009 is a judgment year for unstable firms that compromise profit and have ignored the importance of maintaining a healthy profit margin. Kinnucan doesn’t understand how companies bid multi-year contracts with prices that decrease in succeeding years – $100,000 for the job in 2006, $90,000 in 2007, $80,000 in 2008 and so on. “That is foolish,” he says. “Why give your profit away?”

Kinnucan’s quality-not-quantity philosophy allows him more control over pricing, and the ability to increase fees to cover the rising cost of materials, he says. Quality customers don’t mind paying for premium service. “Our clients appreciate our level of service and they understand that to maintain that, we have to increase our prices,” Kinnucan says.

When his sales team questions annual price increases, Kinnucan reminds them the company must feed knowledge to price-shopping customers. “Instead of mailing out a bid, we’ll present it in person,” Kinnucan says, enforcing an education mission this year, in particular. “The key is to sell your work before, during and after the sale,” he reminds. “We must impress upon clients the value of doing business with us, our longevity in the marketplace, quality of what we do, and our ability to back up guarantees.”

Kinnucan will adhere to his 2008 pricing structure this season, but he is tightening the reins in-house, and for the first time will not offer salary increases to employees. He also will not put his services “on sale” or compromise his company’s golden reputation by caving at the bid negotiation table. He’ll continue to cover his costs and then some.
“Labor is any service business’ primary cost component, and I don’t see what we pay our employees ever going down, barring a major depression,” says Kinnucan, who has an economics degree and anticipated that fuel would increase to at least $100 a barrel two years ago. He was right, and wrong. Fuel did increase – to $140 per barrel. Rather than tagging fuel surcharges on to invoices, Kinnucan adjusted his pricing. “With the type of client we have, we just don’t like to nickel and dime them,” he remarks.

Kinnucan doesn’t like the desperation he sees one bit – or across-the-market price drops, which he says indicate the onset of a full-blown depression. “Deflation is worse than inflation,” he explains simply, sidetracking into an economics lesson on how economies respond after deflation. The picture isn’t pretty.

As for the landscape industry, companies that compromise pricing completely are essentially putting their businesses up for sale. They won’t last. “Our industry is so over-capacitated,” Kinnucan predicts, “that I believe we’ll see about 30 percent of the companies gone in the next 18 to 24 months.”

The author is a freelancer based in Bay Village, Ohio.