Lowballer is a dirty word in this industry. But when competition is tough and you see an opportunity, is lowering price a necessary evil? According to our exclusive research, it depends on why and how you do it.
John Wolf, owner of Grass Roots in New Fairfield, Connecticut, defines a lowballer the same way most in the industry do: someone who cuts corners to give low prices and uses inferior products or unlicensed applicators.
“I do think lowball contractors hurt because they are cutting corners and giving what looks like the same product, but the long-term results will show it’s not,” he says.
Out of more than 600 contractors we surveyed, 89 percent say they’ve lost business to a lowballer in the last three years. However, nearly three-quarters have found it advantageous to lower their prices at some point. Some say it’s a good strategy to keep their existing customers happy, while others say they’ll do it when they know a client will have more work for them in the future. Still others use it as a strategy when moving into a new market.
“What hurts most is when large national or regional companies buy jobs simply to increase market share. In many cases, those efforts lower job prices to levels that take years to bring back to realistic levels.” – Bruce Bachand, vice president at Carol King Landscape Maintenance in central Florida
And some don’t view lowballers as all bad. “Low pricing forces us to constantly evaluate our processes and pricing, making sure we are productive, proactive and aggressively managing our expenses,” says Bruce Bachand, vice president at Carol King Landscape Maintenance in central Florida. “What hurts most is when large national or regional companies buy jobs simply to increase market share. In many cases, those efforts lower job prices to levels that take years to bring back to realistic levels.”
Strategic price slashes.
There are cases where lowering price can be advantageous. Many landscapers do it to keep a good customer happy or win over a new client. In fact, 80 percent say there are times when competing on price is necessary and 60 percent have lowered their price to win a job.
Wolf used it as a strategy when he saw his competition offering tick control application to a client at lower price than his company. “I saw that we were doing so many services for him and getting less for the applications would be better than letting another company do it,” he says.
He also says it’s an acceptable strategy when a client receives multiple services and having the customer makes routes more efficient.
Rich Stephens, president of Red Oak Contractors, a $1.6-million lawn care and landscape business in Arnold, Missouri, will discount some aspects of a job if his company is already doing a project for a customer, or if a customer accepts multiple proposals for the same time frame. If that’s the case, he can discount travel time or labor.
Ricardo Baldi, owner and founder of Baldi Gardens in Arlington, Texas, will lower his gross profit margins during the slow season or change the scope of work to lower the price of a job to secure a customer. But under normal circumstances, it’s not an option for his team, even though lowballers are a big problem in his area, he says.
“Since there is so much work here, and we are close to Mexico, we have lots of people moving into the state and they find it easy to become a landscaper,” he says.
Lowering pricing can backfire though. Last year, Wolf lowered prices on fall cleanup for a customer, but when he calculated the hours it took to complete the task, he realized he should have stuck with his original number.
Stephens learned that lesson as well when he once lowered his prices to get a maintenance contract to meet a competitor’s bid and couldn’t make his target numbers on the job.
Cutting prices is the second most popular reason to lower prices among landscapers, right behind keeping a current customer happy, according to our research.
But Stephens says it hurts the industry since many homeowners have a more DIY mindset and look more at the cost of materials than the cost of skilled labor. “When it comes to what we do, two finished projects using the same materials can look and perform very different as time passes,” he says.
He says that the difference will show as early as a year after an installation, and customers who go with the cheaper option often end up paying twice: once to get the job installed and again to get that job fixed.
Getting into the game.
Many entry-level landscapers felt they needed to compete on price when they first started out in the field, but there’s a difference between cutting prices to achieve a goal and competing solely on price. According to our research, nearly three-quarters of those in the industry say price is among the most important factors to customers in their markets. Fifteen percent raised their prices in their first season and 35 percent raised their prices within the first two years.
“An entry-level landscaper is one who just doesn’t understand the real costs of running a business and tends to under-bid for a while until they either go out of business or get educated on the real costs of running a business,” says Gayle Van Sessen, director of sales and marketing at Blade Cutters Landscaping. “A lowballer is one who knows and just doesn’t care.”Landscape contractors generally see a lowballer as someone who either doesn’t understand the industry and how to make a bid, or someone who will lower a price just to get a job. Many also say lowballers don’t have insurance or proper licensing which allows them to place lower bids.
Bachand says entry-level landscapers and lowballers are similar since neither understands the costs associated with completing a job and making a profit. However, Wolf believes entry-level landscapers can bid lower since they have less overhead and can perform work themselves without sacrificing quality.
Stephens says lowballers often have a “Wal-Mart mentality” of doing high volume with low prices. “In our industry, however, this can only work so long because the wear and tear on trucks, equipment and bodies will soon need upgrades and typically the lowballer cannot afford to upgrade and that’s why most of them don’t last five years or more,” he says.
Most agree that lowballers are aware of what they’re doing and cut corners to get the job done, unlike entry-level landscapers who either figure out how to price their services in a way that will net a profit or go out of business.
Sticking to your guns.
But others say lowering prices is never a good strategy. Blake Reeder, president of Verde Landscape, says he isn’t in business to lose money and instead, sells based on quality. He’s been in business for 13 years and brought in $3 million last year.
Lowballers are a big problem in his area of Lubbock, Texas, since they drive prices down and lower the expectations of his clients, he says. And he’s lost clients in the past to lower cost competitors.
“This makes it difficult to sell the quality and service because the customer has been sold based on price in the past,” he says.
However, Reeder says his quality speaks for itself and lowballers actually make his business look good. He’s picked up some customers who weren’t satisfied with the professionalism, consistency and attention to detail of competitors who charge less.
“They make us look good. We charge more, but we provide a top-tier service,” he says.
Van Sessen agrees, although lowballing isn’t a big problem for her in Crown Point, Indiana. She says most often, lowballers are either newcomers to the industry or they’re landscapers who are getting ready to retire. Either way, they aren’t interested in helping to further the industry, she says.
Blade Cutters’ policy is not to bargain with customers on price. Instead, they always give the best and lowest price on the first proposal no matter what. The company has been in business for 19 years and brought in $1.9 million in 2016.
“Several years ago, we used to lower prices for a larger customer, maybe for a specific project, or a one-time project, but then they began to expect it for every project so we no longer do it for anybody,” she says.
Editor’s Note: To see how your prices stack up to the rest of the industry, see our Benchmarking Your Business report in the November issue. (http://bit.ly/Benchmarkreal) Let us know where you stand on the topic on Twitter at @lawnlandscape or on Facebook.