Dear Lawn or Landscape Business Owner, These two conversations were 180 degrees apart. We think there’s a valuable lesson in each. Read these two short case studies and then hit reply and let us know what you think.
Case Study #1 – Results from the 3% increase…
In this case, our client is providing services to commercial properties. He works for management companies supporting multi-family and home owners associations. He generates a steady 7-figure recurring revenue stream.
He reports that he issued a 3% price increase in October of 2022 for the upcoming season. The price increase had to be submitted in the fall to accommodate fiscal year budgeting for his clients.
Our client reports that he has lost a number of accounts after issuing the increases.
Unfortunately, his operating cost now exceeds his monthly contracted income. Although he has been providing services for a couple of decades, he is wondering if he should continue operations.
At this time he knows he will have to inject cash into the business each month…unless he can find a solution pretty fast..
His average billable rate is currently forty nine dollars per man hour.
Case Study #2 – Results from the 23% increase…
In this case, our client serves high-end residential accounts. He works directly with homeowners who appreciate his dependability and his creativity. Many of his lawn service accounts began as landscape design/build installation customers. Over the years, he has developed 7-figures a year in recurring revenue from these residential accounts.
After a careful study of the labor used to service his accounts this off-season, he had clear evidence that his crew was not nearly as efficient as he once believed. Facing these facts, he has adjusted his prices with an average increase of 23% for the year 2023.
My client called to report (with great enthusiasm), that he had three cancellations and 85% of his contracts had renewed within the first two weeks after the increase notices had been sent out.
Of course, this business owner is excited for the upcoming season.
His average billable rate for 2023 will be eighty dollars per man hour.
3 Lessons About Price Increases
1) The better you understand your costs, the more confident you will be about price increases. When you know, beyond a shadow of a doubt, what it costs YOUR COMPANY to operate, the more likely you will be able to price your work with confidence.
2) Seldom – and we mean VERY seldom – do we recommend that you increase prices on all customers at one time. WE strongly recommend that you issue price increases on the bottom 20% of accounts. That is, which 20% of your customers generate the lowest dollars per man hour?
Raise those accounts first. If you get cancellations, then you know it’s time to accelerate your marketing efforts so you can replace the lost accounts.
3) Timing price increases is very important. There are two times when landscapers should implement price increases to get the best results. Give out price increases in the BUSY SPRING SEASON. The busy season is your friend. The urgency of growing grass, shrubs that need pruning and weeds that need killing is a sure-fire friend of the landscaper.
The second time to raise prices is the day you figure out an account is costing you money! Accounts that cost you money are parasites that burden your business. For those businesses who knowingly price work below their cost, their days are numbered.
We expect 2023 to be a year that “thins the herd”. Companies who fail to raise prices will not survive. The government handouts of free cash will end. And when they end…only solvent companies will remain.
Think about the facts of today.
The federal government gave out an 8.7% pay increase for everyone receiving social security benefits effective January of 2023. Why? That’s the official inflation rate for 2022.
A 3% price increase is less than half the inflation rate. Ugh…likely not near enough to keep the bills paid.
Frankly, many of us fear raising prices on loyal, long-term customers. We hate to create friction. But listen up. The friction of inflation is real. Inflation can destroy your business if you ignore it.
We can say with confidence that our client in case study number one (above) has relationships with customers that are based (mostly) on price and less on a relationship based on mutual trust and respect. There are customers in every geographical market that hire based on price. Someone has to do the work. There’s going to be a new start-up out there somewhere who is willing to get their foot in the door and work super cheap. Ignore them. Go find some new customers. They are out there!
We can say with confidence that our client in case study number two (above) has CLIENT relationships based on mutual respect and trust. Price increases are expected (and tolerated) during an inflationary economy.
We expect both of our clients to adjust their game plan for 2023. As long as each of our clients understands their costs, they will adjust prices accordingly. They will retain clients. They will lose a few clients. Then…they will find new clients to replace the old ones…as long as they accelerate their marketing and sales activities.
Spring is coming fast.
In fact, here in the deep south, the flowers from peach trees, cherry trees, bradford pear, Japanese magnolia and red buds are busting out everywhere.
Get ready…let’s make the world a cleaner and greener place.
Tis the season for being a landscaper! God bless you and yours.
Tony Bass, founder
PS – Just in case you missed our Pricing Landscape Work in 2023 webinar, you can watch the recording right here: 2023 Lawn and Landscape Pricing Guide Webinar
Access to the webinar is FREE…but registration is required to gain immediate access. More to come in 2023!