How to Own Your Price Increases
November 10, 2021
We all know that supply chain issues impact the Green Industry’s ability to get materials and the price we’re paying for them. This means that lawn care, tree care, and landscape companies across the country are going to have to increase their pricing aggressively to stay profitable.
But how to do that without losing a ton of clients? Read on and see how to own your price increases for the coming year.
What to do about it?
Before we get into the “how,” let’s quickly discuss your options. The costs of materials and labor continue to rise, and legislation like the California ban on small engines increases capital expenditures. So what can you do about it?
First, you can take a hit on your profit margin and hope the market corrects. If you’ve been running with good profit margins for a long time, you might have a reserve fund that lets you operate with much smaller margins for a year. If you go this route, you’re likely banking on a market correction with the supply chain. You’re betting with your business that fuel and materials come back down in price, and by mid-2022 or early 2023 that things are kind of “back to normal.”
Second, you can sell the business. There’s no shortage of investment companies looking to buy lawn care and landscape businesses. This trend has been happening for years; you can see here there’s a list of companies that have been buying into landscaping and lawn care companies for years.
Find someone willing to buy your business before the 2022 season rolls around. If you can make the deal fairly quickly, you can probably make a nice profit on your business. If so, you won’t need to deal with these pricing headaches. However, often times these transactions take much longer than you’ve got before next season rolls around.
The Price Increase
If neither of these is a feasible option for you, you’re left with the price increase.
Now, many tree care, lawn care, and landscaping companies increase their prices annually anyway. That’s the expected “cost of doing business” increase, and most consumers are used to doing that. That type of increase isn’t what we’re talking about. We’re talking about 10%, 15%, or even 20% increases in a single year. That type of increase is sure to raise eyebrows (or blood pressures) among your customer base.
Without those increases, you might be operating with really slim profit margins, or worse – losing money.
With those increases, you’ll lose a portion of your customer base.
Damned if you do, damned if you don’t, right?
But it doesn’t have to be that way. You will undoubtedly lose customers, and probably more of them than an average year. That’s going to happen, so your best bet is to forecast your 2022 accordingly.
What if you could pull off the increase in a way that didn’t anger your customer base, though? What if you could raise prices dramatically and possibly still lose customers, but without making them feel like you stiffed them?
Read on. I’ll show you how to do it.
How to Own Your Price Increase
Here are some concrete steps you can take to try and manage, and own, a steep price increase.
Secure materials now at current prices
I’ve heard from some business owners that they’re having trouble getting early-order pricing from their distributors and suppliers right now. Push for that. Do try to get your orders in now, so the prices don’t continue to rise.
Don’t hold your supplier’s feet to the fire if they get hit with an increase from the manufacturer. I talked to a supplier who said they no sooner put in orders than the manufacturer raised the prices. They are also in business and also have profit margins to maintain. This industry is too small for you to burn bridges with a supplier completely. Don’t be a jerk to them because they’re in the same boat, just on the other side of it.
Having said that, stockpile what you can. If you have the luxury of a large warehouse, fill it. If not, see if your distributor will let you rent space (I’ve heard this in the last few days). Or, look into buying a shipping container or two to store surplus product on your existing property.
If you have growth goals for 2022, you need to factor those in as well. Don’t just buy enough product for the customer count with which you closed 2021. Buy enough to cover all the growth you’d like to have in 2022 as well.
Establish your pricing increase rate ASAP
You’re still winding down your season. I know you’re still pressed for time. I do get it.
For many businesses, how you handle this increase could literally be the difference between making it through 2022 and unemployment. You need to give attention to this issue now so you can make this transition smoothly.
Establishing your pricing increase rate now is a vital part of making this shift successfully. First, it’s going to tell you what your profitability will be for 2022. Knowing your margins will help you make other vital decisions about your company’s finances heading into the next season.
It also allows you to build in a bit of buffer. You may not be able to store enough fert, weed control, soil amendments, and insecticide to get you through 2022. Or, for that matter, wheelbarrows, saddles, shovels, chain saws, and rakes. Planning now for the increased cost of acquiring your needed supplies mid-season will help keep you profitable.
There are several different ways you can do this.
- You can make a single, aggressive increase across the board (12%, for example) to all your services impacted by these increased costs.
- You can marginally increase your rates and only slightly eat into your profit margin. For example, if your regular increase is 3%, you could plan on only increasing your rates by 6% for the year and living with the decreased profits.
- You might consider revising your rates quarterly for 2022 rather than annually before the season starts. That way, you don’t continue to lose money throughout the year. For example, you might sell a PHC program for $100 per visit in March. But as material costs increase, that might become $110 per visit when you sell a program in June and $121 per visit when you sell it in September.
I’ve talked to some businesses that are taking an approach where they’re accepting prepays for 2022 but are telling clients that they may have to call them back and ask for additional money. I even spoke to one business that said they’re telling clients it will be “market rate” for their services.
I think both of these approaches create ambiguity and uncertainty. When a customer doesn’t know what to expect from you, that will only cause problems. Missed expectations happen when all parties aren’t clear. You might think you’re communicating clearly with them, but what the customer hears is different. Avoid this pitfall and put some hard work into getting them a firm number before your trucks roll out of the yard in Spring.
Communicate, Communicate, Communicate
Communication is the most critical part of doing the price increase in a manner that does not alienate your customers. I’ll say that again – this is the essential step in the process of increasing your prices aggressively without alienating your customers. In the absence of communication, people will draw their own conclusions. But communicating effectively and often, you’ll control the narrative around this change. While people may still cancel their services with you, they won’t be able to say it’s because you were doing something shady or it was a money-grab.
Most people are going to notice the cost of other things getting more expensive, too. Most noticeable to many people is probably gasoline. Everything has gone up in price. A trip to the grocery store can show you that.
Your job in this part of the strategy is to explain a) the challenges you’re facing in terms of material, fuel, and labor costs and b) to tell them these challenges will impact the cost of their services in the future.
It would be best if you tried to do this using any and all channels available to you. Here are some examples:
- If you have a blog, write a blog post about it.
- If you don’t have a blog on your website, have your web developer create a page about the price increase for 2022.
- Send a physical letter explaining the cost increases you’re facing and what that will mean for the price of their service in the coming year.
- Post about this to your social media channels.
- Physically call all your customers and have your office staff explain the reason behind the increase.
- If you’re the owner, President, or CEO, record a short video explaining this. It doesn’t have to be high-end; you can do this on your cell phone or use software like Zoom or Loom to do it. Write out what you want to say in advance and practice it a few times, but it doesn’t have to be stiff and formal. It does have to be clear on what’s happening, why it is happening, and how it will impact your customer.
- Email your customer base. Provide a short explanation of the situation, and then add a link to the blog article, web page, or video you recorded as a way to give them a more detailed understanding of what’s happening.
- Try doing any/all of the above multiple times. Well, maybe just one phone call, but you get the idea.
The point here is that you absolutely cannot OVER communicate this to your customers. No matter how many ways and times you try, you’ll get some people that don’t get the memo. Do everything you can to eliminate that response from your customers.
You also want to consider spreading these messages out. Don’t hit them with 17 types of communication in a week. That’ll still irritate your customers, and you’ll lose them anyway. Consider doing this over the next three to four months, and get a “touch” (something from the list above) at least once every two weeks.
Another principle to consider is the language you use in these messages. Using “we language” rather than “I language” can make a difference. When you frame the conversation like “Hey Mr. Customer, you and I are in this together,” you’ll build more traction than if you say, “I’m losing a ton of money because of these material costs!” The language you use matters a lot, so make it as inclusive of your customers as possible.
Price Increases – Problem or Opportunity?
Once they “get” the message, the ball is in their court.
You’re absolutely going to lose some customers. Some people are going to be ticked off that you raised your rates no matter what you do or say to convince them otherwise.
You know what? You were probably going to lose those people anyway. Don’t lose sleep over very many of them. You’ll occasionally have someone that’s been a great client that might not be able to afford your new rates and legitimately has to look elsewhere. Consider eating loss for a year on someone you’ve already made your money back on the cost of acquiring (and then some). This practice will build loyalty with those long-time customers.
Additionally, consider this – your competitors are also going to be losing customers. Especially if they offer subpar service, they will have as much, or more, churn than you do.
This situation we find ourselves in with materials costs is an incredible opportunity. Savvy business owners will pick up the customers who have been frustrated with another service but unwilling to change because of familiarity, price, or the hassle of shopping for a new service. These consumers will be on the market as well, so you’ve got a tremendous amount of upside here.
That is if you get the communication part right.