Price it right

In December, we hosted our annual State of the Industry panel where panelists examined the challenges and successes during the past 12 months, and what to expect next year. The panelists were Jim Huston, founder of JR Huston Consulting; Ed Laflamme, partner with the Harvest Group; Robyn Schmitz, owner/founder/CEO of High Prairie Outdoors; Justin White; CEO of K&D Landscaping; and Bruce Wilson, founder of Wilson 360. Here is a portion of the webinar where the panel discussed price increases. You can watch the full webinar here: bit.ly/2023soi.

Laflamme: I have worked with some clients lately that did not raise their price properly in the last two, three years, and they're suffering greatly from it. And as a result, now they're trying to make the correction and they are getting serious pushback. Not only pushback, they're getting dropped. So now it's about starting over again in their market and educating the clients they're working with.

My counsel to them was, before you increase the price, substantiate it. Prove it. Show them the labor increases over the last few years, show them the material increases so they can see it, then they'll be more likely to believe it. And just tell them the truth: “I didn't raise the price like I should have. It was a big mistake, but I have to now and here's why.” The companies that in the past that raised the prices,systematically, I think they're, they're winning.

Schmitz: It's all about communicating the value. When you are communicating parallel costs and increases on things like labor, materials, even fuel and those types of things, consumers can combine that with, inflation too — but is it really a surprise to anyone if you have to make minor adjustments and you set those expectations and justify them with concrete facts? As long as you're providing real value and you are, you're checking in, you need to be worth what you charge. If you do a good job providing value year-round and communicating, then when it comes time for price increases, you've got a comfortable platform for doing so.

White: We've actually moved away from the CPI (Consumer Price Index) programming into our contract language and say, “Hey, we're going to have a meeting every year in September or October, or whenever you like, and talk about the increases we've experienced in our industry and figure out where that's going to be for them next year.” Because, this year, we're actually averaging closer to 5-6% increase with all of our maintenance clients due to the cost increase within our company. Most everyone has been good with that. I think we've gotten, as a percentage, 2-3% kickback on that, and most have been O.K. once we have that further conversation. But … when we talk price increases, we all think maintenance, but we have to go back and think construction, and enhancements and water management and those kind of prices.

For us, we review it quarterly, and maybe that's a little bit too often, but at least twice a year you need to be looking at what is your overhead, what are your direct costs and also what are the other, unforeseen costs that you're going to encounter. We're talking a lot about new equipment going way up, interest rates being a lot higher for equipment purchasing and financing. I think we just need to really look at our pricing closer, not just maintenance, but also construction. Chances are you're probably underpricing your jobs as of today. Once you look at that, you'll realize that you probably need to bump them up a little bit.

Huston: You’ve got to know your numbers and you’ve got to study them. You’ve got to study your business. Most people are very, very reluctant to raise prices, and when they do, they get virtually no pushback. I did an article about a year ago in Lawn & Landscape about a (company) in Idaho. They had about 20,000 labor hours he was selling a year. He had these guys sitting on big dozers, big scrapers and so forth, and they were probably charging close to $180 an hour for most of this equipment. We ended up raising prices about $30 an hour. $30 times 20,000... you do the math.

I asked him about a year later, I said, “Did you get any pushback?” He said that nobody even mentioned it. The thing is that you’ve got to really study your numbers, know your overhead, know how to cost out equipment, labor burden, all those things. If you're providing good service, you're going to get minimal pushback. If you do, you probably want to lose those clients anyway.

The big problem I see with the maintenance side is that a lot of people are charging the same labor rate for construction as they are for maintenance, and that's a big mistake. It should probably be another $15, $20 higher for construction labor than for maintenance labor.

Wilson: What I've seen that's worked the most successfully is some of the owners regularly communicate with their clients. They send them either newsletters or individual letters or emails telling them what's going on and what they can expect. The other thing is, in June, you start giving clients a heads up that the way the year is laying out, our labor costs are up significantly, etc. You can prepare them for what the conversation's going to be when you get around to renewing the contract.

The other thing is that a lot of clients are very effective with maintenance clients in particular, giving them budgets. All the property managers have a budget process they go through at a certain time of the year. If you find out when that is and give them information for budgeting for the price increase, you might need the amount of enhancements you're projecting you might do or could do, and you can even give them individual enhancement recommendations, then they become kind of pre-sold because they're built into the budget.

Enhancement sales are, I believe, budget-driven. If they have the money in their budget, they do it. They're not price-driven. It's just a matter of, do they have the money in the budget or not? So getting into that budget process is a little bit of extra work, but it pays off handsomely.

And I agree with the comments about not using consumer price index. Most of the time, it underestimates what our costs went up, especially in the states where they're raising the minimum wage a dollar an hour a year over a period of years. That translates immediately into more than 3%.

You've got to look at what your individual costs are, and, if you break down those individual costs to the client, they're, they're much less resistant to it. If you just go and say, “I need a 5% increase, (they say) well, why? “Well, because costs went up.” That's not really a convincing argument because their costs go up too and they know more about it. Some companies have policies where if you go over 3%, they're going out to bid. You can challenge that stuff if you get ahead of it.

The author is editor of Lawn & Landscape magazine.