BUSINESS MATTERS
Are you billing what you’re worth? by Rick Cleghorn
T
he landscaping trades are becoming more and more valuable every year to the homeowner and commercial business owner alike. People want to have more complete use of home spaces, including outdoor areas. Businesses want to ensure that it is not only their entrance areas and boardrooms that impress visitors and clients, but also the landscape surrounding their buildings and facilities. In many cases however, landscape contractors are still earning much less than other trades like carpenters, plumbers or electricians. This is partly due to the guilds, associations and unions used by other trades to push up prices. It is also partly due to the public views with respect to these other services. Services rendered by a carpenter or an electrician are seen as those that absolutely need to be done properly and safely. If not, they could result in costly and life-threatening results. Landscapers also earn less in part due to a lack of government regulations and certifications associated with some trades. Increased regulation and certification prevent non-qualified labourers and contractors from doing business, which effectively limits the number of businesses cutting into a fixed pie.
• Get a good bookkeeper, and employ them monthly – not yearly. • Break down everything into hourly costs. If you know exactly how much a type of paver stone costs to lay, per square foot, and you know exactly how much a retaining wall costs, per lineal foot and per level, and you know your exact, complete cost per hour for using a given machine, etc., then it will be easy to create a costto-sell plan from those building blocks. It will also be easier to adapt and react if a customer questions your price. • Check regularly to make sure the material cost figures you are using are current. If you don’t account for every little cost, you’re “giving it away”. • Work with suppliers. When faced with pressure to drop your price, don’t just comply. Work with suppliers to see if they would be willing to work with you – to assist you in being more competitive. Suppliers should recognize that if your competition is also not their customer, and you lose a bid, they lose too in the short and long term. • Charge enough for machinery. When figuring out an hourly rate to charge out for machinery, base the labour factor on your highest-paid operator. And include repairs, trucking, maintenance, insurance, fuel, etc in the hourly rate. This will mean
the customer, then you are in effect the only contractor that has any chance of being the only one they talk to. • Others may not measure up. Everyone the customer speaks to after you will theoretically be measured against the high standard you have set. If your competitor is cheaper than you, the customer may well assume (if you have educated them well) that they are getting less. If your competition is more expensive than you, the customer may think they are over-priced. • Educate clients. Educate clients so they understand your level of professionalism. Explain your credentials, your licenses and insurance coverage. Explain what being a member of landscape association (or other associations you may be involved in) means in terms of your business stability and legitimacy, and commitment to ethics and standards. If your association has produced an educational checklist for hiring a professional, then supply it to customers as early in their process as possible (with your credentials already checked off) and encourage them to use it when interviewing other candidates. Leave a portfolio of your work with them, or email them a link to your very professional and up-to-date web site.
There will always be competitors that reside in the lower cost portion of the market. What contractors need to do is have a strategy to compete with them and stay as profitable as possible. So how can you, as a landscape business owner, maximize profitability and the growth of your company? For starters, you could join an association like the Canadian Nursery and Landscape Association (CNLA - www. canadanursery.com). You could also work to educate potential customers on the benefits of getting work done properly, and on how good work can be safer, longer lasting and can prevent unexpected spending later. You could lobby local governments to require permits, certifications and inspections of landscape work. But none of these strategies will absolutely ensure the profitable growth of your business on their own. There are basically only a few ways to increase the profit of a business. You can charge more for the same service or you can lower your costs. And then there are competitors. There will always be competitors that reside in the lower cost portion of the market, and what contractors need to do is have a strategy to compete with them and stay as profitable as possible. This is not always done solely by price matching. Successful landscape businesses need to be smarter, because they can rarely be cheaper. Know your numbers Knowing what you are worth must be based on facts. If you don’t know the real cost of the services you provide, you will not be in business for long.
that your hourly rate will cover all costs, and that your selling price will amount to profit on all costs. • Keep good daily work records for all sites. This makes monthly invoicing a breeze, and allows you to effectively answer questions from clients about performance. • Consider real labour costs. A full time employee that you pay for 2,080 hours/ year only delivers approximately 1,636 billable hours/year. You need to consider this difference in your charge out rate. After basic deductions (EI, CPP and WCB) a $15/hr employee actually costs over $20/ hr. Once you factor in overtime and any other perks or benefits you provide, and profit, your hourly rate to maintain this employee increases dramatically. Is your charge out rate realistic? Take it to the customer Everything about marketing your business should work towards providing you a chance to be the first person or business the customer encounters, when he/she is considering hiring a contractor. Sure, there are lofty goals about branding, positioning, long-term relationships, advertising etc. These are just categories ensconced in a marketing plan. A marketing plan itself is there entirely to deliver customers, and assist in retaining them. • Be first. If you are first to speak to
• It is not just enough to get to the customer first. If you do not stay in touch with, follow up with, and meet deadlines for the customer, then you are destined to lose that customer to a competitor. • Offer guarantees. In situations like this past winter when there were considerable plant losses, did you replace your client’s plants? No doubt that would be exceptional service, but have you built in a fee structure that allows you to do so? Mark up all plants with a contingency for at least partial replacement. It will all even out over time. When another company has significantly underbid you • Do not take it personally. Try to remember the time when you personally went and purchased something and got a great deal. We have all succumbed to the lower price at some point, so this customer in front of you is not an enemy. Not even the competitor is the enemy. • Start asking questions. Ensure that the customer’s original requests and requirements are the same and have not changed, because if they have, perhaps you have a chance to amend the proposal and re-institute yourself into the lead position. • Just say no. Every job must make a profit for your business to thrive. If you take one job at a 10 percent loss, just to “buy the job” and keep cash flow, then what would be the reality if you
took five jobs that way? What about 20? Where do you draw the line? Saying “no” to a low-paying job allows you to be available for the job that will pay you what you are worth. • Follow up. When a client chooses the low bid, this does not make them the enemy. In fact, make a point of following up with them in a month or two to see how the job is going. Most contractors never do this – and they should. Chances are great that the client may be regretting choosing the low bidder, and the door will open for you to come in and ‘save the day.’ Making it as a new entrepreneur When starting out, it’s just not good business to charge what an established company might be charging. Not if you intend to grow a business, or take a holiday, or the winter off, or protect yourself from financial disaster in case of sickness or injury. If your goal is to grow your company, it is likely that you will slowly have to start handing over some operations to employees. That means that you will have to have the billing to pay employees what they are worth while still having the revenue for growth, and enough to pay out ownership dividends. Many a young entrepreneur has probably thought to themselves, “Wow, I used to do this work for $17/hr for Joe’s Landscaping, but now that I am on my own, I am getting $25/hr. I’m gonna be rich!” This thinking does not take into account the fact that “Joe” had to pay taxes and worker’s compensation fees, employment insurance contributions, overhead such as machines, trucks, cell phones, and advertising. And “Joe” may very well have had to pay himself back for the loan he gave the business when he started it up. In addition, as a new business, you will likely be paying more for materials than a bigger company that has established long-term relationships with suppliers. Negotiate with whichever suppliers you can to keep costs down. One final point to take into account is this: for new and established businesses, get to know your competitors. And try to take every opportunity you can to help educate your competition as well as yourself. The more we educate, the more we elevate industry standards. The higher the standards, the more profitability there will be for everyone. This article was adapted from a presentation facilitated by Rick Cleghorn at the June BC Landscape & Nursery Association meeting. Cleghorn is a marketing and business development consultant with more than 20 years experience in landscaping and various other industries. He has worked in marketing and machine sales for companies such as Brandt Tractor and SMS Equipment. BC Landscape & Nursery Association Reader Reply Card: 1198 Web link: baumpub.com/LAND1198
10 Landscaping & Groundskeeping — July/August 2009
Land JulyAug 09.indd 10
9/2/2009 2:02:06 PM