Pricing right is the fastest and most effective way for contractors to increase profits.
For the typical landscape contractor a price increase of 1 percent would generate nearly an 8 percent increase in operating profits, assuming stable volume. (And we would guess no customers would leave for a 1% increase!) Whether your company is facing increased material costs, increased wage growth pressures or a flood of new demand, you need to adjust your pricing strategy.
Here are some signs your pricing is too low or all wrong:
You haven’t adjusted your pricing structure in 10 years. You’ve absorbed increased costs in labor and materials. The market has changed. Stop anchoring to old pricing out of fear.
Your team says they can’t close sales at higher prices. Often your team would benefit from more training on managing price objections. They need help on what to say when the customer flinches. (and training costs much less than a price adjustment!)
You aim for zero customer complaints about pricing. Don’t invest too much emotion into the one or two customers who screech at a price increase. (The screamers often stay anyway.) Let a couple of your price shoppers become your competitor’s accounts!
You’re tempted to match the prices of the dumbest guy. Every market has poorly-run firms who offer substandard results. Resist the temptation to sell your high quality product or service at their price. Instead study where the high performing firms are pricing and benchmark your efforts to theirs.
Your “best customer” is your least profitable account. Isn’t it funny how the so-called “best” client gets the lowest price and drives you nuts with overtime, special requests and un-recovered costs?
Your base package is too rich. Over time, firms come up with sweeteners that they throw in to make the sale. Less skillful sellers start conceding these up front and then have nothing else to offer at the close. Example: the irrigation contractor that includes a “free full year service plan with purchase of every system”. That’s an optional adder, not something to be given automatically!
Your internal data shows pricing issues. When examining your own data, you notice you have zero customer loss due to price, above 80% close rate on quoted projects, and/or volume growth outpacing company’s ability to serve customers. These are all “caution flags” indicating a strong need to adjust pricing soon.