The conversation with the landscaping business owners began like this…
“Tony, we have just completed our budget process and it looks like we are going to have to increase prices 12.5% in 2022. But that feels really high. And…after last year’s price increase, we had a lot of our customers complaining about that price increase…and it was (lower) just over 5%. We’ve had two key field guys come in and tell us they must get $25/hr to come back for next season. And, we know our equipment costs are going up. What do you think we should do to keep our customers from being upset this year?”
First… Every business that plans on surviving this period of rapid inflation is going to raise prices…or the company will die. So, if you are interested in keeping your company open…if you want to keep your best employees…you MUST raise your prices.
Second… Inflation is real and it is accelerating. The Consumer Price Index (CPI) data is very clear. According to the Bureau of Labor Statistics (BLS) November of 2021 report, the CPI shows an increase of 6.8% from one year ago. However, the monthly rate of price increases is accelerating. October was .9% and November was .8% . If you average these months you get .85% per month. If you multiply this time twelve months in the year, you get inflation trending at 10.2%.
Third… You know first hand that gasoline has increased 30% in 2021. If you look at your grocery bill, you already know the prices for meat have increased 15% in the last 12 months. And just in case you haven’t tried to purchase a new truck in 2021, you’re going to find out that you’ll be paying 10-20% MORE than you paid in the last year. (Access the 2022 truck price guide here.) When you look at these price increase rates, your 12.5% seems reasonable.
Fourth… You have a choice on how you present price increases. You can explain the reasons why you must increase prices. You can apologize for the price increase. You can be direct and to the point. But here is what I teach my clients to do. When you give your repeat customers a price increase, also give them the opportunity to get a small discount if they pay for the services in a lump sum upfront. This strategy could make a massive impact on your company cash balance while demonstrating to your clients you are giving them an opportunity to pay less if they want.
Here’s the final thought for your 12.5% price increase.
You can call your management team into the office and say this:
“Guys, I’m afraid to raise prices 12.5% in 2022. So I’m going to ask everybody on our management team to accept a 50% pay cut. This way we can lower our overhead costs and skip the price increase for 2022. How do YOU feel about this idea?”
Just so you know…that idea was met with lots of laughter…but it makes a good point.
If YOU hesitate to raise prices, be prepared to take a pay cut in 2022. Because I assure you, YOU will be paying MORE for just about everything.
Tony Bass, founder
PS – We will be holding the highly rated Profit Builder Training event in January and February. You’ll learn a step-by-step process to create a well-organized business budget and use this to create an accurate estimating system. I hope you will join us. Wealthy Landscapers MUST Price Right or suffer with shrinking cash flow. Details here.