Which lawn service customers should I raise prices for?
A Tale Of Two Customers
Let’s say you have a customer called Maryland Institute for Education. They’re a bit of a commercial customer. When you do the job costing report in CLIP, you find out that you’re making
$65 per man, per hour on this customer. And that includes mowing the field and the driveway and stuff like that.
You also have another customer named George Kress. When you do the job costing report in CLIP, you find out with George Kress you’re only making 23 dollars per man, per hour.
They’re so different because Maryland Institute takes the better part of a whole day with a two or three person creWhereas as George Kress is just a residential and gets done right away.
It’s hard to compare those two if you don’t have the Job Costing report out of CLIP. And we’ll talk a little bit more about that in a bit.
When you compare them down to dollars per man-hour, however, now you can make an accurate comparison between the two of them.
Why? Everything boils down to how much money do you make per hour.
Think about it. There’s an old joke about the Aggie lottery which says if you win, you get a dollar a year for a million years. It doesn’t do you much good. It’s not a funny joke, but a lot of people think that way.
I’ve had people come up to me and say “I just want CLIP to tell me what my best customers are.” And I say it does. It’s in the Job Costing report. And they say “No, no, no, I really wanna know!” and I say “Okay, well define your best customer.” “Well, the one that has the highest gross sales.”
That’s not your best customer.
I helped this young guy and we very excited because he got a contract for a park. It would have taken about three days to get the whole park done with a crew of four. It was an hour-and-a-half away, and when we boiled it down, we figured out what the job costing was.
He was making about $7 per man per hour.
We know he was paying the guys $10 or $12 per man, per hour. So, right there, he’s at a loss. That’s not counting the gas for the drive. It’s not counting the drive time, counting equipment costs, or calculating the payments. You would lose your shirt servicing that customer. Make sure that you understand that these dollars are making a big difference.
Let’s go back to George Kress and Maryland Institute.
Let’s say you’re making $65 per man, per hour at Maryland Institute and with George Kress; you’re making only about $25 or $26 per man-hour. If you send out a letter to all of your customers saying your raising prices by 5% this year, they’re likely to do what we talked about last week and go out and get a bid.
So, they both do what you told them to do.
George Kress gets a bid and finds out nobody can match the discount price that you’re giving him, so he reluctantly signs the 5% increase and sends it back to you. Maryland Institute likes you, you’ve been doing their property for years, they’re happy with your service, they’re satisfied with the price, but because you said you were raising rates, the board voted that somebody had to go out and get bids.
They get bids and guess what; there’s some upstart young kid out there that wants to do the job. They live right next door and wants to do the Maryland Institute for a lot less than what you. So, M.I. reluctantly drops you with a nice Dear John letter that says “Sorry.”
Not Everything Is As It Seems
What did you do? What happened?
You lost one of your best-paying customers, and you kept your worst paying customer. Multiply it out and what happens is all of the customers that you made the most money on are going out, getting bids, and they’re getting work done by somebody else. And all the customers that you’re making the least on are keeping you.
Now you lose those customers, and you realize you’re gonna have to replace them because you have five trucks or whatever. How do you replace those missing customers? Do you replace them by giving discounts/ coupons/free first cut and all the stuff that just loses money? If so, on top of diluting your customer base to a worse dollar per hour, you’re getting new customers that are discounted. They don’t know you, so you have to go through the whole hassle of them understanding what your standard is and what their standard is what their expectations are. That’s just a hassle. And you go through that every single year. Unfortunately, a lot of lawn care service providers are out there are doing that.
The Advantages Of CLIP
If you’re in this situation and asked yourself “Why does it have to be so hard?”, the solution is likely already in your hands.
If you’re reading this you’re probably a CLIP user—you have in your hands the tool that can stop all of that craziness. It’s right there, all you need to do is use CLIP and use the CLIP2Go app or the CLIPitc App, the app that goes with it so that your folks can hit “start the job” and “end the job”. All that information gets fed back into CLIP. CLIP then digests it, puts it together, and spits out dollars per hour. We track that by the minute so you can see exactly how many dollars per hour all of your folks are making and all of your customers are costing.
With that report, at the end of the year, you can create the Job Costing report. That will give you all of your customers starting with the lowest dollars per hour and ending with the highest dollars per hour. So you take the first batch of pages, and you raise the prices on those, and the rest on you leave alone. Or you take the last batch of pages and send out boxes of chocolates to those
people because they are your best customers.
This allows you to continually get better and continue to increase the value of your customer list. That, along with using perpetual contracts that don’t stop help you improve your business.
It will make your business a little more boring but a lot more profitable.