For what it's worth

© Alexkalina | Dreamstime.comDon’t expect any great shakes in 2010 – more of the same is what most landscape contractors are planning for as they set pricing for the season. Most say they’ll hold prices steady, but certainly there is pressure to mark down costs. Pressure from residential customers, commercial clients, anyone wanting a bid – they want it lower, or they want to pay less even if that means downsizing services.

But what happens when bidding gets tough and the bills keep piling up?

“People panic,” says Jim Huston, president of J.R. Huston Enterprises and author of a book out this month, A Critical Analysis of the MORS Estimating System, a scientific, step-by-step, comparative analysis of the Multiple Overhead Recovery System (MORS) estimating methodology and all six pricing methods commonly used in the green industry. “Some numbers we are seeing in the marketplace are ludicrous because people don’t know what their costs are. So then they’re bidding for cash flow and not profitability.” 

You must understand your costs before negotiating the prices for your services. Otherwise, when a customer asks your company to match a competitor’s bid, how will you know whether this is profitable for your business?

“If you know what your break-even point is and you know what your direct costs are, then you have a clearer picture of where your prices should stand,” Huston says.

Because many business owners dedicated 2009 to teasing out unnecessary costs, leaning their operations and improving the efficiency of processes across the board, they’re starting 2010 in a better position than the year prior. So the more-of-the-same pricing strategy will at least keep a business steady.

Freezing prices is advisable in most situations, though Huston notes an inevitable dilemma.

“If you don’t lower your price, you may not get the work you want,” he says. But if you start lowering prices then you set a trend as a price leader, and that sends a signal to everyone else to lower their prices.”

And if those prices go too low, as Huston notes, you’ll be bidding for cash flow and not profitability. While cash may pay the bills tomorrow, profit is what keeps a business going year to year.

Huston’s advice: “Hold your prices as best you can, and add value – bring in the intangibles,” he says. Use a solid Web site as an example of showing customers your company is worth paying for. “Add value, and show value.” 

This month, Lawn & Landscape spoke with three landscape firms to learn how they are pricing services for 2010 and what factors are driving those fee structures.

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