Low bid to win? Think again

Jim Huston

The commercial landscape and irrigation installation market in Salt Lake City is isolated and somewhat insulated from the influence of other markets surrounding it.

I’ve followed this market for a quarter century and have observed it become increasingly competitive – first, due to the influx of outside contractors attempting to cash in on the 2002 Winter Olympic Games and second, due to the recession.

Due to the success of college-level landscape and turf management programs throughout Utah, and a robust series of classes, seminars and trade shows offered by the Utah Landscape and Nursery Association, the landscape and irrigation trades have flourished in the state of Utah.

As a result, the number of landscape and irrigation contractors has increased dramatically in the last twenty years. This is great when there is plenty of work to go around. However, it produces a feeding frenzy of sorts when the market pie shrinks and companies have to fight to maintain market share just to keep their doors open.

Today it is not uncommon to see ten to fifteen, and sometimes more, bidders show up at a commercial bid opening. Backlogs for the upcoming year for many contractors are markedly down compared to those seen a few years ago.

As contractors become desperate for work, margins drop. Currently, margins have dropped so much that “break-even” seems to be the new pricing mantra. Low-ballers permeate the market. It seems as soon as one goes out of business, two more show up. It’s like killing flies at a picnic – you kill one and fifty come to the funeral.

I’ve closely monitored one commercial landscape and irrigation installation company in this market for 25 years. Erickson Landscaping provides us with a fascinating study in survivability, consistency and how to do it right.

How it works. Ron Tatton is the president of Erickson Landscaping and has been for 27 years. Andy Erickson runs one of four crews and is also the VP of operations.

At its peak, prior to the current recession, revenues were in the $2.5-3 million range. Net profit margins were often more than twenty percent. Revenues have fallen in the current market as have margins.

Erickson Landscaping exhibits a number of unique traits that have helped it maintain market share, comfortable backlogs and reasonable margins. In a nutshell, here are a few of the reasons for its enduring success.

Production: Four three-man crews, each with a “super” crew-leader, install all of the work. I say super crew-leader because each crew operates with virtually no supervision.

Ron rarely steps foot onto a job site. Some jobs he never sees. Clients have come to expect that projects will be completed on time and on budget.

Erickson Landscaping was one of the first companies in Utah to employ mini-excavators. In today’s market, each crew produces more than $400,000 of work annually.

More importantly, things get done right at Erickson Landscaping, and they get done right the first time.

Estimating: Ron is the chief estimator. Because he does not have to spend time supervising his four crews, like most other companies, he runs the office with a part-time office assistant, Sheri Tomlinson.

Sheri has been with the company for twenty-five years and she also does the bookkeeping. Ron knows his numbers: production rates, equipment costs, industry and company benchmarks, margins, etc. He’s as good as anyone when it comes to calculating his costs and pricing his work. Erickson Landscaping has become a price-leader in its market. Others look to them to set the standard for pricing.

Marketing: Word-of-mouth marketing has worked very well for Erickson Landscaping.

Its earned reputation for high quality standards for its work and consistent pricing, has set it apart in a hyper-competitive market.

In a market where more than a dozen contractors can show up clutching bids in their hands, much of Erickson’s work is bid by invitation only, meaning a pre-selected set of just three or four contractors are invited to bid the project. In addition, many developers and general contractors want Erickson Landscaping to do their work. This leads to repeat business and negotiated contracts.

Negotiated work is important because it usually has a five to ten percent higher margin than competitively bid projects. Even though Erickson Landscaping has minimal landscape maintenance work, by Jan. 1, it normally has a 50-65 percent backlog for the upcoming year. While competitors struggle to find work, Erickson has already sold more than half of its budget for the year.

A well-established reputation for consistent pricing and high standards of performance have earned this company its viability and survivability in the market place.

Conclusion. In the highly competitive automobile market, there are many levels of cars to choose from.

When Toyota entered the luxury car market, it invented an entirely new brand – Lexus. There is Toyota and there is Lexus.

Toyota is a great automobile. However, the Lexus has an entirely different set of standards. Some buyers desire a Toyota. Others want a Lexus.

Erickson Landscaping has been able to differentiate itself from the competition.

It has done so primarily by means of its word-of-mouth reputation for a high level of quality and consistency in all areas of its operation.

It has created and branded itself as a Lexus landscape company in a market full of Yugos and clunkers.