Pricing for Profit
Like many service businesses, price adjustments and price increases are often a necessary evil. However, and this is especially true in the lawn care world, raising prices to your lawn care customers on an annual basis is not necessarily good for your business. Read that again. Raising your prices annually across the board can actually be harmful to your lawn care business! We were shocked to learn this as well. But it makes sense when you think about it… Anytime you ask a customer to pay more, you inadvertently risk losing a customer. As a consumer yourself, you know that you do not want to pay more for a service or product. Hearing the news, even if short lived, instantly gives you a conflicted “icky” feeling. Which, if your wanting to cause a client to fire you, then a price increase is a great method to use! But what about loyal customers? Thing is, you risk rocking the boat with good clients by causing them to shop around, especially if they know you are making good money on their account. You risk losing good and profitable customers when you do price increases across the board. We all have been told that it’s important to increase our prices every year, but is that really the best way to optimize profit? The answer is a resounding “no”.
The better option is to analyze the data and decipher what customers are costing you money and what customers are making you money. Once you identify these customers, you can make a more educated decision on who you need to give a price increase or an adjustment (there’s a difference) and who to leave as they are.
For example if you have a customer that has a relatively small yard, doesn’t take much time or man-power, but is also in a service area with several other money making customers, and they are not costing you money, then it’s better to keep that customer happy and not raise their rates. However if you have a customer with a large yard, in an area with them as the only customer, it takes an increasing number of dollars and man-power to get the job done, and you are losing money when you go to their home due to windshield time, those rates need to be increased.
In this way, you can weed out customers that are not making you any money. If they agree to the new prices, then by all means continue providing your service at the new rate and build that profit. But as the old saying goes, “Quality or Quantity”. You want to have the best customers, with the most profit margin, not the most customers with the least profit margin. Losing customers always sounds scary. However, if you lose a handful of clients, but they were costing you money, your business will be better for it in the long run, opening up time and space for more profitable customers. Good customers that consistently make you money are the ones to keep. It’s ok to let the “other guy” have the customers that were not as profitable or desirable.
Again, doing across the board price increases may cause already profitable customers to begin shopping around. And that is when you have the potential to lose important and profitable customers. Lawn care companies generally worry that they are pricing too low. But that’s simply not always the case. Your company is probably not pricing everyone too low, but there are probably a select few customers that are priced too low. And those are the customers you need to address.
When you are looking to do price increases on an annual basis, always try and pinpoint where you can optimize profit. Instead of doing a percentage price increase across the board, look for those opportunities to create more, keep current profitable customers happy, and send customers to the next guy if they’re costing you money. You’ll be glad you did!