INTELLIGENCE REPORT: Money Talks

“The trick is to be competitive in today’s market when you are building in tomorrow’s,” says Scott Cohen, summing up the materials price increases he bears on what seems like a weekly basis at The Green Scene Landscaping in Canoga Park, Calif.

He says materials prices are “astounding” this year. The average design/build company’s operating costs rose 15 percent, the Professional Landscape Design survey says. In fact, Cohen hired a part-time person whose sole role is to evaluate the company’s true cost of materials and labor so they can price jobs properly. “By the time we type our proposal and start working on the project, the prices have already risen on petroleum, the PVC pipe we use for sprinkler systems and drains, and the copper we use for wiring and lighting,” Cohen lists.
 
Those costs can’t all be absorbed in-house, he says.

“We are running leaner and meaner than we have in a long time,” Cohen explains. If margins were 25 percent three years ago, they are 15 to 18 percent this year.

“We see firms giving away their services, and that’s a huge mistake,” especially when materials prices are increasing like they are, Cohen adds. His design fee is $250 for an hour and a half of time on site. “If you have skills, experience and are recognized for your work, you best get paid for it.”

Only 34 percent of design/build firms charge fees for residential and commercial consultations. Those fees run the gamut. Daryl Schauss of Aldie, Va.-based Cedar Run Landscaping charges $50. Bill Trimmer, owner of Professional Grounds Inc. in Springfield, Va., may implement design fees in 2009 to separate shoppers from serious potential customers.

Also, firms say clients ask more questions about financing, value and phasing in projects today. Thirty-four percent of Professional Landscape Design survey respondents say residential clients are slower to pay for their work, while 32 percent say the same for commercial clients. The research also shows only 12.2 percent of design/build businesses offer financing with the average cost of a financed project at $12,221.

But “there are customers who are getting bigger packages with financing than they would have without it,” points out Dalton Hermes, CEO, Hermes Landscaping, Lenexa, Kan.

As for absorbing the cost of materials, Mark Schroeder says he has not lost profit margin on jobs because of firm relationships with vendors who hold pricing for him. “We have some jobs that were estimated a year prior to installation, and typically vendors will not hold prices for that long,” says Schroeder, president, Mark Schroeder & Co., San Diego, Calif. “But if you have relationships with vendors that will work with you through those situations, at least you can manage some of those increases that seem to happen monthly anymore.”

Schroeder says his average profit margin is about 8 percent, though he’ll shoot for as high as 15 percent. “What has helped us is we have good estimating projections,” he says. “We know our costs. Where owners go wrong is not knowing their real costs.”

Hermes will continue to grow the design/build side of his business, despite the fact that “margins are squeezed in a significant way,” by taking on more work. “It’s a competitive market and we have the Wal-Mart mentality that 10 nickels are better than five dimes,” he says. “You have to do more work for thinner margins.”

The key is identifying quality customers and earning referral business, Cohen says.
 
Doug Freer says clients are more comfortable talking price today. They want to understand cost, but they also want to see value, says the owner of Lawn Lad in Cleveland Heights, Ohio. “You better be more value-focused today because that will keep you in business,” he stresses. “Everything around customers is crunching, and people don’t have as much liquid. But they are willing to spend it if you show them the value.”