Hey Clippers! Dave Tucker here to talk about surcharges for your lawn care services. Specifically, we’re going to talk about whether you should use surcharges in your lawn care pricing chart. But first, a little vocabulary lesson.
Unlike price changes, surcharges are a temporary rate increase.
A surcharge is just an extra payment for a standard service. For example, if you order flowers on Mother’s Day, you may pay a surcharge. That’s because flowers are in very high demand during that time of year. If you bought flowers on May 25th, on the other hand, you’d probably pay a more predictable price.
When you raise your rates, it’s generally considered a permanent move. A surcharge, on the other hand, is temporary. It’s designed to address a short-term change in costs or demand, so you can protect your bottom line.
For example, if gas prices are sky-high, you might add a fuel surcharge to cover those costs. Without that fuel surcharge, rising costs can put a dent in your profits. But that extra payment can keep your revenues looking strong. Once gas prices drop, you can drop the surcharge and return to regular rates on your lawn care pricing chart.
Surcharges are driven by variables in the market.
To continue with the fuel example, let’s say something happens in the Middle East. The cost of gas goes from $3 a gallon to $5. Who wouldn’t be tempted to add a surcharge? After all, everyone knows gas prices are up, and everyone knows why. Your customers won’t be surprised to see a fuel surcharge.
But you may want to do some calculations before making a snap decision. Take a look at your profit and loss (P&L) statements. Let’s say you discover that gas usually accounts for about 9% of your total costs.
With the spike, that number is now 15%. That means that extra 6% is coming out of your profits.
No one wants to see their bottom line shrink—but 6% isn’t a massive number. You may be able to cut costs elsewhere to make up for the loss. Take a look at your other expenses and see if you can save a few bucks elsewhere. If you’re successful, you’ll continue to enjoy those savings when gas prices drop again!
You should also look carefully to see if fuel is your most significant cost. Are rising gas prices truly the biggest threat to your bottom line? I’m guessing not. In fact, I’ll bet it’s the labor market.
We’ve seen a number of changes to the employment market over the past few years. Wage demand has grown dramatically since the COVID-19 pandemic, especially for low-wage roles—such as lawn care. A lot of lawn care companies are struggling to find good labor—and they’re paying a premium for what they can find.
If your labor costs are through the roof, you might consider a labor surcharge instead. Everyone knows what’s going on with the labor market and the Great Resignation these days.
In fact, 20% of folks are planning to quit their jobs this year. Minimum wage won’t cut it anymore, and just about everyone knows it. You’re unlikely to shock anyone with a labor surcharge. And it might be more beneficial to your lawn maintenance business’s bottom line.
Put yourself in your customer’s shoes.
However, surcharges can be risky. A lot of your lawn care customers have built your price into their budgets. If you’re adding surcharges all the time, the unpredictability can be irksome—or drive them away entirely.
Put yourself in your customers’ shoes. What if your insurance company added an extra $50 to your monthly premiums? What if UPS started charging 10% more to ship your mom’s birthday gift? Do you like paying an extra $30 to check your bag when your plane ticket already cost you hundreds?
If you’re spending hundreds or even thousands of dollars a month with a company, a surcharge can be a tough pill to swallow. Personally, it makes me feel as if they’re trying to nickel and dime me.
Everything isn’t about dollars and cents. It’s about agreements between you and the customer. Whether it’s spring, summer, or fall, they pay you an agreed-upon rate, and you get the lawn done. That’s how you build loyalty with your lawn care customers.
Wondering whether I practice what I preach? This mindset is exactly why we don’t charge CLIP customers for add-on items. Everyone pays the same base subscription fee.
If you need more bandwidth and server space for more customers, we’ll add a fee. But we never charge for set-up, Quickbooks syncing, reports, routing, or customer portals. It’s all included.
So what’s the bottom line on surcharges?
After all that talk about surcharges, I may surprise you with my advice: Don’t add surcharges. It can damage customer loyalty. It’s better to raise your rates instead.
One year, my own lawn care company didn’t get any H-2B workers. We had to go out and pay for local labor, which is much more expensive. To make up for it, we raised our rates—for specific customers.
We used CLIP to figure out who was paying us the lowest per-hour rate, and we increased prices for those customers only. It’s a foolproof way to cull your customers who don’t want to pay your rates.
Plus, since we had fewer workers, we needed to cut back our workload anyway. It worked out beautifully.
When you do it right, surcharges can be great for your mowing business. You can protect your bottom line and trust that customers understand why it’s happening. But there’s something to be said for consistency and how it drives customer loyalty.
Take the time to really think through whether a surcharge is right for your lawn care business. You may find a different solution is more sustainable.
Here’s a quick YouTube video I created on this topic.