Pricing Up When Things Are Down

By now, the phones are usually ringing. Homeowners are anxious for the spring thaw and patio BBQ days – they dream of better backyards, and they start talking installation. Residential regulars re-commit to seasonal maintenance and lawn care contracts, and commercial clients request bids. Landscape companies answer calls prepared with pricing menus, usually adjusted to cover rising costs.

This year, people are hibernating longer than usual.

“Normally, the sun comes up, spring arrives and people start spending money,” says Jim Huston, a management consultant to the green industry and president of Englewood, Colo.-based J.R. Huston Enterprises. “Right now, everyone is holding back. Customers are very slow to pull the trigger on anything new.”

In particular, “new” is residential installation, a tough sell for landscape contractors as customers examine their household budgets and trim expenses. Commercial maintenance behemoths are shopping. “Everyone is shopping,” Huston says, telling of a large corporate client that told its long-time landscape firm, “You need to lower your price, and I’m putting you out to bid.”

While Huston expects maintenance, lawn care and irrigation services to remain “somewhat resilient,” no one is on a spending spree, regardless of stimulus packages and other carrots to stoke the economy. In fact, Huston estimates landscape installation sales will decrease by one-third this year.

“The big question is whether we are going to have any work to price,” he says, flatly.

Another question: will the industry be “back to normal” by April 1 –  the official gun-start for landscape season for many operations? “Be prepared,” Huston says, responding no. 

This month’s briefcase: In light of the economy, how should landscape contractors handle the delicate process of pricing this year?

Fuel surcharges won’t fly after prices dropped at the pumps, and customers won’t tolerate this add-on fee even if they do gradually hike to the $3 range by mid-2009, Huston says. “If someone was billing a gas surcharge now, I’d expect a rebate,” he remarks.

Cost-of-living increases may not sit well with customers either. Consider corporations, such as Wal-Mart, that thrive in times of recession. Low, low prices appeal to the masses who clutch their purse strings. “With interest rates going down and most prices going hard, it would be really hard to justify an across-the-board price increase,” Huston notes.

That said, landscape contractors should identify specific cost increases – insurance, fertilizer, salt – and adjust their pricing based on these price hikes, Huston advises. This means scrutinizing the budget, analyzing every line item and striking a balance between being fair to customers and one’s business.

Lawn & Landscape talked pricing strategy with three landscape contractors who operate companies in different revenue categories. Here is how industry peers will handle the pricing game this year.