It is no secret to anyone that the cost of goods and labor is high. Persistent inflation in our economy has made it more difficult for landscapers to run their businesses. The current market is putting landscaping professionals in a precarious situation. Many company owners are posting record revenues, but aren’t seeing a profit because their costs are at record highs. Inflation makes it harder to run your business; however, inflation is something a smart business owner can overcome. Making a few smart moves can help your landscaping company manage increased costs. Here are a few tips to help you manage in a tough market.
Create a process to track and respond to price hikes
A big difference between large companies and your local landscaping company is that the large company has a process for regular cost analysis. A large company is a well-oiled machine that knows the cost of every good they are producing or service they are providing. Large companies do extensive cost analysis and small landscaping companies must do the same to properly manage inflation. This is important because while the prices for your services are static, meaning constant from day to day, your costs are variable. Gas, the price of materials, and the cost of shipping can increase very quickly. Small landscaping company owners are very good at knowing how much revenue they bring in daily, but many don’t accurately track how much their costs change on a daily, weekly, or monthly basis. The reality is you need to track the costs of doing business as well as keeping track of how much it costs to do it in the past. Oftentimes, materials just cost more and you have to deal with it, but vendors are often tacking on extra fees to your cost of goods. The material itself may be the same price, but suddenly your vendor is charging you more on shipping or adding a processing fee. Your cost analysis should account for these new costs so you can either find a new vendor or negotiate a better price. Even if these new fees are the norm, knowing they are part of your overhead will help you better manage your landscaping business. You can’t effectively manage increased costs if you don’t know where those increases are coming from. Conduct a regular cost analysis and you will be better equipped to meaningfully deal with increased costs from inflation.
Price shop and negotiate
When prices are high, you have to make more of an effort to find the best price for goods. You may have a great relationship with your vendor, but it is your job as a business owner to price shop and find the best deal. If your long-time vendor raises prices and you can find a better deal, then you need to do so. You can also try and negotiate a better deal for both of you. I recommend saving bills from your vendors and looking through every bill to figure out where you are paying too much. Your ability to find and negotiate better deals with vendors will be a defining factor in your landscaping company’s revival.
Don’t be afraid of price hikes
The reality is if the cost of goods and labor are increased then the price of your services is most likely going to have to go up. There are only two options to breakeven or make a profit during a high inflationary period. You can either cut costs or raise prices.
Price hikes are a terrifying prospect for landscaping company owners. Clients don’t want to pay more and business owners don’t want to ask their clients for more money. However, it doesn’t help you or your clients if you underprice yourself out of business viability. Some landscaping companies have clients on their books who are actively costing the company money because the company will not raise prices despite their costs rising exponentially. There are landscaping companies that would make more money by dropping some clients.
You need to figure out what a reasonable price increase is for your work. One of the best ways to figure out if you price your services well is to look at your bid-to-win ratio. Your BTW should not be skewed to one side. If you are winning every bid you make, you are probably pricing yourself too low. If you aren’t winning any at all, your services probably cost too much. You still want to win more bids than you lose, but the balance should be closer to parity. There are ways to increase prices without simply telling your clients you are going to raise their prices.
You can bundle your services. Let’s say you do mulching in the spring and plant and shrub winterization in the fall. You can offer both these services in a bundle to increase your price while providing customers with an additional service. You can also provide additional services or have customers pay extra for the best landscaping hours. You can offer to do hedge trimming or dead branch removal along with your regular services. Adding time slots can allow clients to pay extra to avoid having your crew show up at 7 a.m. on a Saturday. Additional services give your clients more options that they might be thrilled to pay extra for.
Don’t be afraid of price hikes. They are often necessary and the best step to keep your business afloat.
Inflation is a reality and a challenge for landscaping professionals. The cost of everything from labor to materials is up, and landscaping companies have to make adjustments if they want to survive and thrive in the current market. Conduct a robust cost analysis, price shop, and be willing to increase your prices. Doing these things will help your landscaping company manage inflation.
Adam Spooner is a co-founder of Pareto Impact Consulting, a business consulting firm helping small to medium-size business owners grow by delivering customized solutions that drive growth, increase profitability, and create a lasting impact. Contact Pareto Impact for more information.