How to Price Tree Care Services for Profitability
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Too many tree care companies aren’t pricing their services for profitability. The result? Companies are incredibly busy while seeing little return for their hard work. This blog will share the steps you can take to develop a strategic pricing strategy that will increase your tree care service’s profitability.
Begin with Profit Margin
When determining pricing, you need to start with gross profit margin and work backward. Target profit margin should be broken down by department and service type. Smaller jobs should yield a higher profit margin than more intricate tree care jobs.
For instance, one-off tree removal or tree trimming that takes only an hour and has low expenses should yield a profit margin of 60%-80%. These jobs are fast, use few resources, but also produce little revenue overall.
Gross profit margin for high revenue jobs should be lower, around 15%-20%. While you won’t always hit your profit margin goals, you should aim high to hedge your margins against underestimating costs.
Create an Accurate Estimate
The next step after determining your target profit margin is to create an accurate estimate. It’s critical that you know the cost of inputs for each job because the more precise the estimate, the more often you’ll meet your profitability targets. Each cost factor needs to be quantified into a dollar amount that you can put on an estimate. It should be calculated from a standard rate.
Criteria you need to consider when creating an estimate are:
- Labor Costs
- Material Costs
- Equipment Costs
- Tree Size
- Tree Health
- Tree Type
- Location
- Accessibility
Once you’ve accurately calculated the cost of the job, you can then determine pricing by multiplying the cost of the job by 1 + (profit margin).
Example: A job was estimated to cost $700, plus a target profit margin of 40%. Multiply $700 x (1 + .4), making the price you should charge $980.
It seems simple enough, but many tree care companies still undercharge for their services.
Additional Factors to Consider
Besides margin, other external factors play a role in what you should charge a customer.
- Competitor Pricing
- You need to be aware of competitor pricing. If you price too high, you risk losing bids to competitors. If you bid too low, then potential customers will devalue your work and possibly consider a tree care service they perceive as higher quality.
- Reputation
- Brand recognition and history can play a role in your pricing strategy. Well-established tree care companies that are perceived as having higher quality can charge a premium for their work.
- Economic Circumstances
- Price from an economic perspective is based on demand and willingness to pay. In the event of a recession, your prices will naturally have to fall to meet the demand of your customers, and vice versa for a stable or booming economy.
Tools to track profitability
Now that you’ve aligned your pricing strategy with profitability, you have to be able to track revenue and expenses. You could do this in excel, but it’s incredibly tedious and prone to errors. It’s much easier and more efficient to use inexpensive software made to help tree care businesses.
Popular software to track tree care service profitability
Popular software to track tree care profitability
SingleOps
Tree Care and Arborist business management software that helps you grow revenue, increase profitability, and improve customer satisfaction. Learn more.
ArborGold
Arborist CRM that helps you schedule work and manage projects. Learn more.
Jobber
Home service software catering to a wide variety of home services, including HVAC, Tree Care, and Landscaping. Learn more.
RealGreen
Real Green’s integrated business solutions help you manage customers and accomplish your day-to-day tasks. Learn more.