Landscape contractors are being squeezed of their extra pennies – from rising fuel and health insurance costs to surcharges covering these same items appearing on supplier bills.
And, on top of that, “when the economy is down, customers think they can get a deal,” says David Bennett, cofounder and principal of Atlanta-based Bennett Design & Landscape.
As a result, in today’s economy, landscape contractors spend a lot more time crunching numbers so they don’t bid too low and lose money on jobs. “We have turned down jobs because the client has a proposal from another company and we know we can’t match it,” Bennett and Price say. “Arrogance in the marketplace could cost you your company.”
While many customers are pressuring contractors to lower service fees, in reality the majority have succeeded in raising prices this year. In fact, prices increased on average across the board from nearly 11 percent for residential chemical lawn care to 19 percent for commercial design/build work. Residential and commercial mowing prices that increased 11.6 and 10.1 percent, respectively, last year jumped to 12.2 and 14.3 percent this year.
HAD TO DO IT. One of the main reasons for price increases this year was basic economics. “We raised prices in construction work to match the increased prices we’re seeing for materials,” says Todd Williams, vice president and regional director of Denver-based American Civil Constructors.
“We felt that to remain financially viable we did not have another alternative,” agrees Bob Keyes, president of The Keyes Group in Langhorne, Pa.
And many companies “will continue to raise prices to meet our goals and margins,” explains Todd Reinhart, Reinhart Grounds Maintenance in Bloomington, Ill. “If a company is not maintaining a decent return on investment, it makes no sense to be in business.”
PRICE WARS. What happens when you need to raise prices, but the competition makes it impossible to do so? In maintenance, for instance, “so many are bidding that work cheap,” Williams says. Consequently, contractors are either turning down less profitable work or manipulating their pricing to keep key clients. But as Mike Biskup, president of Greenkeepers Lawn Service & Landscaping in Medina, Ohio, warns: “This business is relatively easy to get into but hard to stay in if you’re not pricing right.”
The one category where Lawn & Landscape research revealed large pricing discrepancies was in design/build work. While average fees increased on par with other services, when we split the research in half at the median revenue of $200,000 – with half of survey respondents generating revenue above this figure and half below – average fees changed substantially. Average residential design/build work went for $2,782.80 for companies with revenue less than $200,000 and $7,695.60 for companies with revenue above the median.
Commercial figures were $4,812.60 and $13,430.40, respectively, revealing that smaller companies probably aren’t charging enough for this work to ensure they cover their costs.
CUSTOMERS UNDERSTAND. Luckily, considering price increases across the board even on everyday items, many customers “understand the increases because they feel it themselves at the pump” and in other places, points out Grant Sorterup, owner of Heritage Landscaping in Waldoboro, Maine.
Some customers do feel like it’s a little bit of “double jeopardy, but they understand our position,” Keyes adds.
Many contractors think while continuing price increases will likely be necessary in 2009, customers may become less understanding. But, as Maurice Dowell, owner of Dowco Enterprises in St. Louis, Mo., says, to maintain a profitable business today, “we have to do what we have to do.” SOI
