How To Determine Which Customers To Raise Lawn Care Prices For
Last month we talked about how raising lawn care prices can actually hurt your bottom line by causing your customers to get new bids which leaves you possibly losing your most profitable properties and keeping the worst ones.
You might be wondering “Ok, then what do I do?”.
The answer to that question is slightly convoluted.
Let’s begin by taking a look at your company as a whole and at your customers specifically.
Everything boils down to time and money. Let’s take a look at a typical company:
Gross sales: $200,000
Profit: $10,000 (5%)
Four production workers work 45 hours a week for 28 weeks a year
With that information, we know that the business cost is $190,000 and that this company “sells” 5,040 hours (4 times 45 hours times 45 weeks). If we take the $190,000/5040, we get an average $37.69 per hour. Armed with this number we know that if we get $37.69 per hour of production, we will break even at the end of the year.
Now that we have the Dollars per hour that we need to make, we can look at the customers in particular.
Let’s take a Mr. Roberts and Mr. Kline. Roberts lawn produces $38 for each service and Kline lawn yields $45 per service. By recording how long it takes to get the job done, we can figure out what the Dollars per hour are for each of these. CLIP records this information automatically if your crews use the app in the field.
The time spent on Roberts Lawn is 45 minutes for a crew of two people. This means that the service is worth 1.5 hours (45 minutes times two employees = 1.5 hours). Take the charge to Roberts ($38 divide it by 1.5, and you get $25.33 per hour.). If all of your jobs were like Roberts, you would take the total hours (5040) times $25.33 = $127,680. Knowing that your Business costs are $190,000 you would end up with a loss of $62.320. This means that every time you do Roberts service you are losing money.
Now, take Kline, you charge $45 for the service, and it only takes 25 minutes with a crew of two employees. That means it is 0.8 man hours. $45/0.8 = $56.25 per hour. Now, if all of your jobs were at $56.25 the company would produce 5040 hours times $56.25 = $283,500. Your business costs are still $190,000 so the profit would be $283,500 – 1$90,000 = $93.500. So, your profit would be up from $10K to $93K! Quite a jump!
With this information, you can re-bid Roberts to his time (1.5) times your target rate $40, and you would send him a bid for $60. Do you think he will accept an increase from 38 to 60? Well, he might not, but how would that hurt you? You were losing money on it, to begin with.
So, you re-bid Roberts, but you leave Kline alone. That is how you increase the value of your customer base and get more profitable every year.
Only CLIP gives you this information. Dollars per man hour are the heart and soul of your profitability.
Next month we will talk about Employee motivation.