Pricing Pointers: Pricing Irrigation

“You have to look inside your own organization and determine the price you need to charge to get a fair rate and return on your investment,” pointed out Scott Fay, president, Treasure Coast Irrigation & Landscape, Hobe Sound, Fla. “You have to set your sights on a number. It sounds idealistic, but if you provide the service and don’t deliver excuses, then you’re setting your own market niche and customers will pay you for it.”

Most landscape contractors who aren’t charging enough for irrigation installation don’t know their costs, including installation, parts, labor, overhead and, most importantly, profit. “If you can’t at least sell your job for what it cost you then what is the point?” noted Takeshi Yamamoto, irrigation division manager, Aquatech Computerized Irrigation Control, Fremont, Calif. “Don’t be afraid of profit - it is why we are in the business and is absolutely essential.”

PROFIT NEVER HURTS. Andy Coleman, a 25-year industry veteran and owner of EcoSystems, Ridgefield, Conn., said contractors are suffering from low pricing.

And low pricing stems from inaccurate cost tracking, pointed out Russ Fragala, president, Fragala Landscape Co., Medford, N.Y. Landscape contractors need to know their costs before pricing their services, regardless of the specific type of work being performed or whether they are using unit or quoted prices.

“Not knowing your overhead costs can make or break your profit on every job,” Fragala said. “I see competitors out there throwing in a rain sensor or a digital clock just to win the work. There are many times that we are not able to throw in these extras because of how close we are working to our cost basis. So, is this competitor including all of his costs and overhead with a fair profit to win the job, or is he just pulling prices out of the air?”

Yamamoto referred to pricing as a “vicious circle of defeat,” adding that, “pricing services too low only leads to not being able to deliver the desired service at the client’s level of expectation. Maintaining healthy profits, in the meantime, leads to unsatisfied clients, which then often leads to further price reductions in a desperate attempt to retain clients, which then leads to further reduced service and profit … and the cycle continues.”

To manage pricing and profit, Fay does job costing to ensure profit and closes his books monthly to evaluate his earnings. During the months where he didn’t hit his target, he rarely blames this on inefficient pricing. “If you factor in your costs and profit and you’re not making money, then you aren’t consistently performing like you should be,” Fay said. “If this happens to us, we know it’s because we made poor decisions, whether we sent crews out with misinformation - not enough or wrong information - overstocked inventory or spent too much on uniforms or phone communications. Everyone has an off-day, but pricing shouldn’t be the reason for lack of profit.”

Contractors who don’t already have a handle on the production times required for various common tasks performed during an irrigation installation job should head out to the jobsite with a stopwatch and clipboard to find out, Yamamoto remarked. This will help contractors determine unit- and cost-based prices.

“Once you know how long it takes to perform each task, the rest is simply a matter of performing an accurate take-off and crunching the numbers to make sure you price the job not to lose money,” Yamamoto said. “The competitive marketplace will keep your prices in check, so your job obviously is to charge as much as you possibly can without being under bid by a competitor. Remember, your cost was determined using real world production rates from your company so if you can’t even get a job at your cost then it is time to re-evaluate a few things. Are there efficiency/deficiency issues with your production methods? Are your competitors ‘buying jobs?’ Is your take-off accurate? The list goes on.”

HOW THEY DO IT. Landscape contractors who are successful at irrigation installation pricing, identify their clients and client expectations first, Yamamoto said. Then they determine the price ceiling that the newly identified market will tolerate.

After determining the price you can obtain for your services, the trick to continue making top dollar is to deliver services in a high-quality fashion. “Now that you are charging as much as you possibly can, you must deliver the service that your client expects or a little bit more,” Yamamoto pointed out. “With healthy pricing and profits, you can invest in personnel and equipment to further raise service levels to the highest point that your client is able to appreciate, which then enables further price increases. However, don’t get carried away. You can only increase prices as far as you are able to help your client see the value that you are delivering. It is better to have to justify your ‘high’ prices to a client who is happy with your service than to be forced to slash your already low prices to retain an unhappy client.”

Yamamoto’s installation/retrofit service involves new installation or major modification to an existing system for which the client will authorize a fixed price for a pre-negotiated scope of work. For this type of work, Yamamoto uses a cost basis formula.

“We first determine our total material and labor cost to do the job - what it cost us,” he explained. “Then we add mark-up (i.e. profit) based on a minimum dollar amount per man-hour guideline and/or percent gross profit desired. Although the dollar amount per man-hour and percent gross profit guidelines remain relatively consistent, there is always some margin for variability as influenced by the current booking levels.”

To determine how to price his irrigation installation jobs, Fragala first figures out if the job will be difficult or easy. This depends on the type of ground (hard or soft), amount of roots in the soil, whether or not hand digging will be a major factor, sleaving under patios and walks, and whether or not there are hills involved that a pipe puller would not be able to climb, which adds more hand work. “After we estimate all of these factors, we price the job at a set rate per zone, plus any extras, i.e. rain sensors, upgraded clocks, drip system for planters, etc.,” he pointed out.

Fay doesn’t price by zone like Fragala, he prices by unit cost because this helps him estimate properties quickly based on the number of different units needed for the various sizes of systems he installs. “So that means that I can walk a residential property and know that if a job needs a certain number of heads or valves, it will cost me X dollars per head or valve, including labor and installation costs,” Fay said. “I add up all the equipment costs for the job and determine my pricing that way.”

Over time, Fay has collected enough data to know how much time it takes to dig a trench, install the piping, fittings and flex pipe, and the labor costs for these tasks. Based on this experience, he figures total labor and installation costs into his unit costs.

Tom Laur Jr. also prices irrigation installation by unit cost because it’s the quickest means of estimating, but the president of Acme Systems, Glendale, Wis., said it’s not as accurate as the other method he uses.

In this second method, Laur adds the total materials, labor and equipment costs for the job and then adds in overhead, taxes and profit. “I sometimes use both methods for the same job and compare numbers," Laur said. “Separating lawn areas from shrub areas or special gardens helps because small, curved areas cost more than larger, rectangular open spaces. Circular driveways and walkways add to the job because you have to keep water off of them.”

WATCH OUT. While these contractors are secure in their pricing methods, they agree that jobs should be evaluated carefully to avoid hidden factors that drive up costs, such as tricky job specifications or unusual site conditions.

For instance, a residential home in a rural setting might require more mainline if the water supply is far away, so the price of the job increases, Fay said. The same is true for an irrigation system that uses a well as its water source. “If you took for granted that the well produced 20 or 30 gallons of water per minute, but in reality it only produced five or six gallons per minute of water, then you won’t have enough valves on the system,” he explained. “When there are more valves, the number of zones increases, and then the controller needs to be upgraded. One slight change and the cost of the job increases proportionately and exponentially.”

Pricing irrigation installation services for residential jobs is fairly simple and can be accomplished using any of these contractors’ methods. But Fay said commercial jobs are much larger and trickier, so he uses three different systems to determine whether he’s pricing the job correctly: unit pricing, square foot pricing (square foot of lot, minus square foot of the hardscapes, which usually results in 15 to 21 cents per square foot based on the site) and the long method of pricing (materials, estimate for labor and then add profit).

“When we estimate using unit cost and square foot cost, we have two indicators that we can measure against the long method,” Fay said. “We look for those numbers to be close in price. If they aren’t, we try to figure out why to make sure we haven’t missed anything. The square foot price will be higher than the long form price if there is a huge house on a lot, for instance.”

Installing a system promptly and resourcefully also can help when pricing services. “My theory is that the end user has to buy the product from someone, and if everyone kept up their prices, there wouldn’t be a problem,” Coleman said. “Material costs are the same no matter who buys them. There’s not a big cost differential between manufacturer’s equipment - maybe 10 to 15 percent tops. So the only thing that affects you is how quickly and efficiently you do the job.”