March 1, 2012
Five ways to outwit and out-price your competition in 2012BY MARK BRADLEY
Many of us witnessed a shift in customer spending last year. Customers were more price-sensitive, got more quotes, shaved their budgets, delayed their projects and pitted contractors against each other more often when quoting their projects.
It’s likely that this is the new norm. The recent boom in real estate and home upgrades was fuelled by several factors, but that level of spending was not sustainable and we’re probably facing a return to a new normal, where there are more contractors than customers ready to spend money. So…
Get the right equipment for the job
Despite the stereotype that landscape contractors are equipment junkies, I’ve met far too many that are under-equipped. The idea of fixed monthly payments scares many owners off, especially those who are struggling to maintain a healthy bottom line.
The right equipment and work tools allow your crews to do more work in less time. This has two very positive effects on your business. First, you can do the job in less time, enabling you to reduce your costs of production. Now you’re in the driver’s seat; you can choose to improve your profit or reduce your price. And second, by reducing time on jobs, you can do more jobs in a season. This is an effective way to grow your business and, in many cases, grow it without increasing your overhead expenses. When you reduce your overhead as a percentage of your sales, you also have the ability to lower your prices.
Consider the following strategies to use equipment more effectively:
- Don’t be cheap on equipment. Focus on the productivity gains you will get. Savings on labour can easily outweigh a few hundred dollars in equipment payments.
- Standardize your equipment — equip your crews with standard models and work tools. Equipment standardization makes it easy to stock spare parts, filters, etc., and it’s easier to train employees on the use and care of your equipment and tools.
- Choose equipment dealers who offer excellent support. Parts availability and quick repair turnaround times have a big impact on your crews’ productivity. You may find cheaper sticker prices at “lesser” dealers, but you’ll regret the small savings when you’re waiting a week or more to get your equipment back.
I can’t overstate how critical it is to know, with confidence, exactly where your prices need to be. You need to understand your costs of production (crew costs per hour, equipment costs per hour, material costs), your overhead costs (company operating expenses) and the profit margin you have in each job.
If you’re using a best-guess pricing system, or using numbers that are several years old, then you’re certainly under-pricing and over-pricing work. An operating budget and an overhead recovery system will ensure you know where you stand on each job, and how much room, if any, you have to move on price.
There are also situations where you can afford to lower your price and make even bigger profit margins! I’m talking about the ‘super-profit’ you can make by having an overhead recovery system and beating your sales goals. Your overhead recovery system is based on a specific sales goal — if you hit that sales goal, price your work with your overhead recovery system, and manage your spending. Then any work over and above your sales goal doesn’t need to recover any overhead. Knowing exactly when we can get either very aggressive pricing or very profitable work has allowed me to bid jobs lower than I would normally price them, but at a higher-than-normal profit margin, since my overhead was paid down on other work. It’s also allowed me to get extra-aggressive on pricing when I felt the need.
Train and motivate employees
The easiest way to reduce your costs and prices is to reduce the time it takes to do the job. If you are only reducing your prices to get work, you are cutting into your profit margins — and as we all know, profit is already scarce in the landscape industry.
If you want to get more productivity from your crews, they need:
- Systems and training to help them get the work done efficiently
- Incentive and motivation; a system that rewards employees who drive up productivity and, in turn, make the company more profitable.
Improving productivity and company profit are noble goals — but not if they only benefit the owner. Most employees are paid hourly. This means the longer they take, the more they stand to earn. The less time they take, the less they stand to earn. Your calls for greater productivity and efficiency are going to fall on deaf ears unless you demonstrate how your crews will share in the rewards. You can see an example of a system using your field labour ratio on YouTube, here: http://bit.ly/employeeincentive.
A process for eliminating waste
We all have problems and we always will… but have you resigned yourself to accepting the same problems over and over again, or is your entire company committed to finding and solving problems so that we can prevent the same problems happening again?
I read a quote a long time ago that has stuck with me, “Amateurs work until they get it right. Professionals work until they can’t get it wrong.” Average companies work and work hard, and they’re happy when things go right and frustrated when things go wrong. Great companies recognize that many of those problems can be fixed — permanently — by coming up with systems that prevent each problem from ever happening again.
When you build a company where all employees are actively engaged in identifying, fixing, and committing to systems that eliminate these mistakes and waste, everyone benefits. Less waste means more money available for rewards, but it also means there are fewer day-to-day problems, making for a more enjoyable, less stressful work environment. Fewer problems mean happier employees, happier owners, and happier customers who are paying less for service that exceeds their expectations.
You can disregard technology as a bunch of (expensive) fancy toys, or you see technology for what it can really do for your business. With tools such as smart phones, GPS systems, tablets, electronic time keeping, customer relationship management programs, websites and even social media, we are able to do so much more, with so much less.
The bottom line is that a landscape company that puts technology to work, can do more work with less overhead staff to manage it. Smart phones make communication in the field instantaneous, reducing the valuable time it takes to move information back and forth. Electronic time-keeping applications now give us the ability to take time records right from the field and drop them directly into accounting without the need for tedious data entry. And the emerging technologies of today, specifically tablets, offer our companies an enormous opportunity to put information directly in the hands of the people doing the work, who can then send it back to the office, eliminating cumbersome paperwork.
Imagine an era where designs, project goals, material lists, time tracking, route lists, maps, site maps, repair orders, attendance tracking, health and safety information and training videos are all available at the touch of a finger on a 8- by 10-in. screen, in the hands of every foreman. Expensive? Sure, but it’s a fraction of the cost of the overhead salaries these technologies can eliminate. With less overhead and greater productivity, you’ve found one more way to out-price and out-think your competition.
Mark Bradley is the president of TBG Landscape (The Beach Gardener) and the Landscape Management Network (LMN), based in Ontario.