Author: Chris Heiler
If you scour the interwebs searching for information on how best to raise your prices you'll find plenty already written. I thought I'd share my insight and hopefully add to what you've already learned about raising prices.
As usual, my take isn't always in lockstep with other experts and commentators in the lawn and landscape industry so hopefully I'll open your mind to some other ways to think about your pricing.
Fears and misperceptions related to pricing
Whether or not to raise prices can be an agonizing decision. What will your customers think? Well, I'm here to tell you... THEY WON'T THINK MUCH OF IT. That is, if you handle it properly. More on that shortly.
Price is more important in the mind of the seller than it is in the mind of the buyer.1 I recall once getting an indifferent "whatever" look from clients when I mentioned our hourly rates would increase by 20%. I cared much more about the price increase and spent much more time thinking about it than our clients did.
You need to put this in perspective. Consider the fact your customers – just like you – are making buying decisions every single day. Whether that's buying a cup of coffee or lawn fertilization. Most consumers are not price shoppers who will agonize over a price increase.
Price is almost never the primary reason why anybody buys anything.2 Or, the primary reason why your customers will leave you. A delivery problem (i.e.- bad service) is virtually always the trigger event that causes loss of a sale to an existing customer.3 Not price.
Why (and when) to raise prices, pragmatically speaking
Winning at business is a game of margins, never a game of volume. The fastest way to increase your profit margins is to raise your prices.
Are you currently losing money? Raise your prices in order to break even.
Are you only breaking even? Raise your prices to become profitable.
Are you marginally profitable, like most lawn and landscape companies? Then raise your prices and achieve the profits only seen by a very small minority of companies in our industry.
You should be raising your prices consistently year over year, or at least every couple of years. Otherwise, your customers get comfortable and feel entitled to the rates they've been paying for the past several years. This is when you get blow back: "After five years you just now realized you haven't been making any money on us so you need to raise your prices?!?!"
You don't want to deal with that. Be pragmatic and purposeful when it comes to raising your prices.
There are other ideal times you may consider raising your prices, such as...
1. When there is an increase in demand for your services and production can't keep up.
I've seen too many companies in our industry who – as they reach their production capacity and fill their calendar – race to hire, hire, and hire more people to meet the demand (while, of course, complaining that they can't find good people).
Instead of hiring as your default you should be raising your prices until you hit resistance and demand for your services peaks. It's depressing for me to see company owners who are busy as hell working 60 hour weeks yet haven't raised their prices in a decade.
2. When you have higher than average closing rates.
If you're closing 80% of your lawn fertilization proposals don't slap yourself on the back thinking you're the greatest lawn care salesperson on the planet. Instead, raise your damn prices. Remember, again, it's all about margins, not volume.
3. When you need to thin the herd.
Hey, let's be honest, there are some customers you do not enjoy working with anymore. Many times this is because you're not making a profit on them. So raise your prices. This will either be the push they need to leave or you'll finally start making a little money on them (and probably be happier).
4. To reflect your perceived expertise and create exclusivity
Experts and specialists are expected to charge a premium. I see many companies who claim to be experts of some sort or claim to have specialization in some service, yet their pricing mirrors that of their competitors. If you want to be perceived as the expert then you must charge a premium fee. Otherwise, it's just talk and you discredit yourself.
When raising prices may not work
I'm not looking to rain on anyone's parade but raising prices will be more difficult for some of you compared to others.
If your customers see you as undifferentiated and interchangeable (i.e.- Just Another Landscaper) it will be a struggle to raise prices on a regular basis. It's too easy for the customer to justify shopping around for a better price when they view you in this light.
The more you are viewed as a commodity (ex- mowing lawns) the greater resistance you will face as you raise prices. In contrast, the more you are viewed as an expert (ex.- registered landscape architect) the less resistance you will face. That's just the reality of the marketplace.
How to raise prices (without pissing off your customers)
It's hard to raise prices for existing clients but not impossible. Customers often expect price increases. Your success depends on how you frame it.4
You'll read a lot of articles online recommending you thoroughly explain your price increase to your customers in the name of transparency. I wouldn't. What makes you think your customers want to hear your justification for charging them more?
My business coach recently raised his hourly rates substantially. I didn't need to ask him why. I'm smart enough to know he wants to make more money by capitalizing on the demand for his consulting. Kudos to him. No explanation needed.
Your customers and clients don't want to hear about how "your costs have gone up". It's not their problem.
All this said, you do need to communicate your price increase properly. Here are some best practices for doing that:
1. Take your time implementing the transition.
Roll it out slowly over several months if you can, starting with a small group of customers who can provide valuable feedback. This is a great way to measure resistance before rolling out an increase to your entire customer base.
2. Honor existing contracts and give plenty of notice.
Please don't "surprise" your customers with a sudden increase in their service price. This is when you piss them off. It comes across as arbitrary and poorly executed.
If I were a lawn care operator and wanted to roll out a price increase, I would use language similar to this: "I want to let you know that new customers are paying $90/month for service, but you're locked in at $80/month for the next three months, Mrs. Homeowner."
But, you say, "Chris, if I give them three months heads up then they're going to shop around for a cheaper lawn service!"
No, they won't. Unless you've been providing shitty service and now they can use this price increase as an excuse to leave you.
Too soften the blow, have an offer in your back pocket...
3. Be prepared with other options
Can you offer Mrs. Homeowner from the example above a pre-pay option? "You can continue at the new price of $90/month or you can pre-pay for the year in which case we'll offer a month of service to you at no cost."
Can you add more value or benefits to the customer without adding direct costs? "We would like to offer you access to our 24/7 lawn concierge hotline that is reserved for our most loyal customers like yourself."
Can you bundle Mrs. Homeowner's current service with other services she likely needs, like overseeding or aeration? She'll be paying even more but this package deal of services may be more appealing to her.
You can also combine these approaches.
The point is to be prepared and look like you know what the heck you're doing when you tell your customer they are about to start paying more for your services. Being up front with them and timing it properly should keep them on board.
Raising prices regularly is a part of operating a successful, profitable business. Don't anguish over it. Remember, your customers aren't with you because of price. And, if you roll out an increase properly, you're not going to lose them over price either.
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References:
1-3: How to Sell at Higher Margins Than Your Competitors, Steinmetz and Brooks, page 12-22
4: How to Raise Your Prices by 50%, Karl Sakas
