With an international warlike crisis and skyrocketing gas prices, we are in a very volatile marketplace right now. How are you going to maintain your landscaping profits in the face of rising industry costs?
An accomplished business owner will always tell you that knowing your numbers is critical to any business. From increasing your prices, and maximizing labor productivity to multiplying your revenue with automated property measurements, we cover it all today in this article.
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Do I increase my prices to maintain landscaping profits?
Let’s tackle the obvious first. Inflation is at a 31-year high, the supply chain is in crisis and material availability remains uncertain. Such a situation calls for a new approach. Most lawn care and landscaping companies say that they usually add a 2% to 5% increase every alternate year or so. Well, this is not enough, and this year, you need more.
Price increases are going to be a necessity in 2022. Proactive companies who take action now will fare best.
Suppliers have already warned that they expect their prices to increase. There are many reasons behind the same: COVID issues, labor shortages, huge consumer demand for outdoor products, raw material shortages, freight challenges, and weather, etc. The supply chain problem is real, and it’s going to affect our industry into 2022 and beyond. Talk to your suppliers about what they anticipate their prices and availability will be like. Keep a track of your inventory and monitor the numbers.
How do I increase my prices?
The price increase is not just a math problem and one should go about it sophisticatedly. See how your closest competitors have tackled the problem of rising costs. Remember that a momentary hit in the probable form of loss of a few customers is expected at the start, and that’s okay.
There are some ways to raise prices without completely alarming customers. The best strategies include budget billing and bundling services. If you are increasing prices for the first time or want to understand the best approach to break it to your customers, this article will make it easier for you.
Countering higher labor wages
Managing and maximizing labor productivity will have the single biggest impact on your landscaping profit margins. Yet, many company owners struggle to keep, find, manage and motivate this crucial asset. Finding and retaining good labor remains the biggest challenge for the industry. Today, the wage rates have been higher than ever, and a robust economy has only increased competition for the same labor pool.
Employee expenses don’t just involve salaries. You need to pay more attention to improving efficiency in onboarding, training, and recruiting.
Focus on improving your field labor ratio, a key performance metric, which is calculated by dividing the cost of wages for field staff by your sales revenue. The smaller the number, the better it is, which means you are spending less on labor for each dollar of sales earned.
Here is how you can improve your field labor ratio:
- Sell jobs that maximize revenue per hour. Create unique revenue per hour goals for individual divisions of your company and calculate the company’s benchmark revenue per hour.
- Invest in better and bigger equipment, and leverage them to speed up jobs, lower manual needs, and save more time.
Your field labor ratio is a key to maximizing labor productivity and can help you potentially double up your landscaping profits. To understand this in more detail, here’s a good read.
Control material expenses
There are many indirect ways to reduce the negative effects of increasing materials expenses. Start with getting better terms with your material’s vendors if you aren’t already. If not, it might be time to search for a vendor with better pricing. Better terms can certainly help cash flow and can outweigh some of the rising materials’ expenses.
Here are some important points to remember when negotiating better terms with your vendor:
- Approach the conversation as a win-win relationship by understanding what the vendor wants and explaining your needs
- Start by having a consistent vetting process in place and refine it with time. Rationally compare providers by asking them similar questions and applying the same initiatives to evaluate each candidate. This will help level the playing field and help you find the right vendor
- Always aim high, and you can settle for lower. It never hurts to ask for better rates. And not asking only means you’ll be paying full price
- Always ensure that payments are on time, you can leverage this for future negotiations
- Communication is key to ironing out small misunderstandings. However, if there is a pattern of setbacks, it’s time to move on and find a better arrangement elsewhere
Switch to Automated Takeoffs instead of Manual Measurements
Accurate landscaping estimates are critical to landscaping profit margins and property measurements play a huge role in your estimations. With manual property measurements, you are probably losing thousands of dollars and eroding your margins substantially.
Margins don’t exist in just finances, but in time as well. Manual estimations have a huge hidden cost. What you are doing with manual property measurements is losing out on crucial time that you can instead invest in capturing more leads, winning more bids, and customer satisfaction.
So what can you do to remedy that?
Switching to automated property measurements with Attentive.ai will not only land you accurate takeoffs but also help you bid faster. We help you reclaim this time, and it is evident by our customers’ increased profits just by switching to automated takeoffs.
Our client, Ben Carruthers of Carruthers Landscape Management’s testimonial, is a proof of that:
We can help you get started. To know more about the benefits of switching to fully automated takeoffs, talk to us.
Using a Business Management Software
Running a landscaping company, it’s crucial to have all the right tools handy and leverage technology in the best way for your business. An end-to-end business software ensures your business runs smoothly and profitably.
Apart from taking care of all your business needs – estimating, scheduling, invoicing, job costing, accounting integration, etc, landscaping business software also has real-time visibility of every area of your company and its profit margins. This will help you make better decisions and ensure you price jobs accurately.
If you are already using business management software, it’s crucial that you update all the cataloged rates there. Often, many landscaping software companies have been found to make the mistake of using outdated labor rates or bidding rates. As these get compounded in multi-year contracts and do not reflect the real rates, your landscaping profit margins take a severe hit.
The way to tackle that is by practicing catalog maintenance. Establish a monthly process to review actual average payroll data to “update” the hourly labor bid rate in your item catalog and ensure that future proposals are priced at the most recent labor costs.
These are some ways you can maintain margins. What did you think? Have any of these strategies worked for you? Let us know in the comments below.