How to price out Fertilizer apps

[Elwood]

Sorry Phil, I will never and no one should, price work at no profit level, just to keep the doors open.

To say that you are "out of business" at the end of a season is rediculous, unless you provide poor quality service or don't live up to what was expected or promised. To keep cheap work on line just for cashflow purposes is not good. Always get your renewals signed before the season ends. This way you can look at what you have lined up, crunch your numbers in the "off season" if you have one and see what you need to do.

What if you are swamped with work? Do you keep low or no profit work around just to keep things rolling? NO! Things are rolling just fine, so dump the low paying work and get more higher profit work. You are selling time, whether it be you all by yourself or a fleet of employees. Get as much per hour, per man as possible. Maximize your profits when you can.

If times get tough, i.e. poor economy, flooded market, etc., then you need to re-evaluate your profit levels to be competitive and still gain bids or at least maintain the clients that you already have.

On the other hand, if next spring rolls around and you have your renewals signed and you are looking for new work, if the market is tough, to gain the extra work needed you may have to trim your profit level a bit to get the growth you want.

Every job stands on its own, but to price a certain number of jobs at a cost only bid just to keep the wheels rolling is not good. If you were pricing your jobs properly to begin with, you would have a fat bank account with very low debt load, if any and you could afford to price low enough to keep existing clients if needed or to gain new ones AND still keep key employees while making a profit.

[Phil Nilsson]

Matthew I'm glad that we finally agree when you say ...

"If times get tough, i.e. poor economy, flooded market, etc., then you need to re-evaluate your profit levels to be competitive and still gain bids or at least maintain the clients that you already have."

Green industry markets have been flooded with competition for a long tme. Does this mean you price yourself out of bizz? Of course not ... but pricing strategy is more important now than ever before.

Just about every company whether it realizes it or not is not always pricing at the top of its game. One time discounts, free this and free that, introductory prices, a one time free giveaway and other sales enticers are used when needed. Are they a permanent "fixture" in a company? Sometimes yes and sometimes no but they do have a tendency when used to reduce profits and at other times enhance profits.

Phil

[Lawngodfather]

I guess since you don't have an LCO anymore you are kind of out of the loop, the post way above are totally different sceneros than the one right above.

Giving a discount and introductery pricing, is not the same as pricing at no profit.

Lets face it the prices from the '70s and '80s are still around.

I know of people paying less now than they did 15-20 years ago due to people doing the practices like you explained way above.

Lets not make it worse for ourselves and others.

[Elwood]

Well Phil, if you want to call it agreeing, so be it, but LGF is right. Evaluating your profit levels and making adjustments to them are totally different than pricing work at no profit levels to keep the wheels turning.

As far as promotions, like a free broadleaf application or a free fertilizing when a full season contract is signed goes, if they are a short term or one time deal, that is fine. If you penalize yourself with a long term discount or freebie to gain a client, you are cutting yourself short. Bad business to say the least.

"Just about every company whether it realizes it or not is not always pricing at the top of its game."

I have to agree with this statement and things like this fall under the column of "Only the strong will survive." catagory. I will eat these companies for breakfast and pass them for lunch.

Maximize your net dollars as much as possible.

While some may disagree, a high volume/high profit margin company is possible and is very successful.

[Phil Nilsson]

"I guess since you don't have an LCO anymore you are kind of out of the loop, the post way above are totally different sceneros than the one right above."

Reply ...
Actually with over 10,000 landscape customers and contacts across the country, close to 15,000 now, involvement with PLCAA ... some days I wish I could be out of the loop because of the calls I have to return. The kind of work I do with this industry is non-stop 7 days a week so I'm in touch with a lot of people. Some do under $100,000 in sales others do millions in sales so I deal with all levels. I get to see the picture from a broad nationwide perspective whereas owners are isolated in their local market and often don't see the big picture - can't see the forest for the trees kind of thing.

Most companies out their are using a "static price strategy" and if they aren't are giving up sales to their competition. Whatever floats your boat. If you're happy with high profit but low sales volumes and it works for you .... great! But the real money is being made by high volume and implementing static pricing. At these higher sales levels - profits, salaries to owners can often be $150,000 to $200,000 ... $300,000 and even $500,000 which is impossible take home pays for small outfits. That's what I'm talking about.


Phil

[Lawngodfather]

Brickman Group

Valley Crest

TGCL

Scotts

And more

5000 someodd employess each, millions in sales, HUGE management force to control it, HUGE over head.

All low profit margin.

Out of those listed above, only 2 have any quality what so ever.

The problem is, not many browse the forums that are of any real volume in sales that could even benifit from that type of pricing, so why even suggest it?

I also know the power of volume too......It's all in the numbers.

[Phil Nilsson]

Static Pricing Policy can also be used in the small companies. All depends on what you have for pricing (advantages) over the next guy. A pricing advantage can be an element of COST where you have a cost advantage that tranlates into a price advantage. Most common example low wages paid to workers means goods manufactured in let's say Taiwan can be sold cheaper than goods made in the U.S. There are plenty of cost advantages "hanging around" where a company can price lower but NOT suffer a negative impact on competitively priced services.

Some examples:

. You buy materials in larger volumes
. Your wages paid are lower than the comps
. Your overhead cost schedule is lower
. You can live on less profit percentage than the comp
. You do a large volume of bizz and don't need "gut" profits
. You give away certain loss leaders to get at other offerings
. You have little or no advertising expense because referral bizz is strong whereas the comp is just starting out.

Lots of cost advantages means you can price lower than the comp and not suffer a direct hit to profits that has an overall negative impact, command a larger market share if that's what you're after ... reduce your material and operating costs as a result of high volume. Management costs might go up, but other costs can come down.

Lower your price (temporarily ?) example - my Tree Guy was in between work of land clearing - has 5 on the payroll to cover - is in between jobs - does he lower his price to guarantee work for a couple of weeks - take less profit - OR sustain a complete loss paying his people for two weeks with no incoming sales? He would have made nothing and suffered a loss had he not used "static pricing" (demand right now versus price right now) so he "greased the skids" got booked up with work (fast) and made out better. Instead of taking a loss on wages and certain OH expenses he had a profit gain - lower than normal but in the "black" - not in the red.

Phil

[Elwood]

So explain why a high volume/high margin business can not work??

You seem to be stuck on low price to gain a larger market share to end up with a larger owner salary, but I can see it working my way as well. Yes, the market share will not be as large, but the owners salary is just as large. I know a guy who is doing $500k in maint and he pays himself $100k + perks like truck, insurance for his family, paid by the company, etc. He also keeps his company pretty fat on cash, so I see it as a win/win situation for everyone involved.

Yes, his growth is slower if you count the number of accounts signed, but his net profit growth and $$$ in his pocket are the same as your high volume/low margin company owner.

Just another angle to consider. Obviously, this may not work in all markets, but the high volume/low margin way does not work in all markets either.

[Phil Nilsson]

Think outside the box ... pricing is not a rigid thing it's fluid. There will be a range of prices used and implemented depending on circumstances. Charge what the traffic will bear then sometimes lower the price when there is resistance.

Real case example - a company does 3.2 million in sales, the average price per hour is rather low at 32.00 and 100,000 labor hours are sold this makes up the 3.2 million. Costs of running the outfit come to 2.6 million .... owner takes out $500,000 plus in salary and benefits. How many do you know that can draw over a half million a year in salary? I thought so. Okay as the prices rise, costs to work the upper end rises - advertising - management oversight because more quality is expected. At the 32.00 per hour the jobs renew almost automatically because this price is not "greedy" it's reasonable.

The higher the price, (the less market share) until eventually you can price yourself right out of a market. If you're only looking to do a few hundred thousand in sales no problem ... looking to make $100,000 a year again no problem ... but if you want to multiply that $100,000 times (5) then it's another ball game.


What would you rather make? $500,000 or the $100,000? I thought so. As business volume rises things change. Within that $32.00 average there are prices higher and prices lower ... to get at that average.

I deal with companies that make big money and small, price high and price low, well managed, badly managed and I come to the conclusion that overall ... the larger sales volumes are better off because the dollars are BIG enough to overcome a lot of problems. If you do 3 million in sales you can make mistakes and still come out smelling like a rose and why? Because you have a lot of room to work within the numbers. The owner has around $300,000 in salary "flex money" and can easily live off $200,000 so you see now that excesses are "cool" there is room for errors that don't attempt to throw out the baby with the bath water. Big dollars cover up a host of errors whereas small dollars point them out and cause people to fret over nickle dime items.

Generally, when sales volumes are large the "nickle dime" pricing attitude changes because a company may already be "fat" and so how fat does one want to be? These concerns vanish and nobody worries about a $10,000 difference here and there ...

Phil

[Lawngodfather]

You aint making JACK if you don't have the work, much less priced at a profit.

There is nothing as simple at that.

You aren't going to get enough of that market share if you can't afford to buy the equipment.

[Elwood]

" You have little or no advertising expense because referral bizz is strong whereas the comp is just starting out."

So Tru-Green calling my house twice per week and then stopping buy un announced for a "free evaluation" is all free, right?

I can agree with some of your points, but not all.

[Phil Nilsson]

I have access to hundreds of financial statements from my clients (confidential) and the concept that high volume companies all do low profits is totally untrue. Remember too that many of them are corporations looking for tax writeoffs where legal and so are not interested in big numbers on the bottom line but reinvestment and tax shelters.

Phil