Most consultants and lawn care business blogs will tell you to raise lawn care prices every year.
It makes sense on paper, if I raise my prices by 5%, I should get 5% more revenue, and since my costs don’t change, I should be able to see 5% more on my bottom line.
Why wouldn’t it be a good idea to raise your lawn care prices?
When I was growing up, my father was into owning rental houses. He would always say that you should raise the rent at least $5 every year. That would “train” the renters that rent always went up. It worked for him, and he was very successful using that technique, but I don’t think it works the same with service companies.
Let me describe the lawn care pricing phenomenon that I have observed.
When you receive a letter from your insurance company that indicates your insurance rate is increasing, you would likely spend the next 15 minutes checking with GEICO or Erie and figure out whether you’re still getting a good deal. Most of us do.
Now, suppose you send a letter to Mr. Jones and to Mr. Smith saying that you are raising the price of their services by 5%. Mr. Jones and Mr. Smith would likely both do what you would do; they check with another service to see if your prices are reflective of the marketplace.
Mr. Jones finds out that your price is still the cheapest in town and he reluctantly accepts your new rate. You’re barely breaking even with this lawn, so with the 5% increase, you might be able to break even, but it will be close.
Mr. Smith also goes out to find a better price. Your company was making a profit on this service, but there is a new, startup company that gives him a great deal. He was happy with your service, but now he sees that you are a little higher and he goes ahead and drops your service and tries the new one. He would have stayed with you, but you triggered the series of events that end up losing you a good account.
So, you have kept Mr. Jones – a low (or no) profit customer and you lost Mr. Smith – a profitable customer. You have diluted your customer base losing your most valuable clients and keeping the worst ones.
Wouldn’t it have been better not even to raise prices? The best idea would be to increase only the ones that are low and leave your best customers alone.
Don’t raise your lawn care prices across the board unless you want to continue to battle the war of low paying customers.
You need to look at every aspect of your business to ensure you stay profitable.
Next month we’ll talk about how CLIP can help you find those low-ballers and fix them individually.