Pricing Residential Mowing

While the contractor is convinced that finding a way to lower that number is the right thing to do, many other landscape firms shudder at the thought of another estimate coming out at a ridiculously low price. "The biggest mistake people make with pricing is wanting a job too badly," related Maurice Dowell, president, DowCo, Chesterfield, Mo. "They want the job because they feel it fits their niche or the location is great, but they’re making a mistake."

Any company in business long enough will inevitably price a job too low. The question is, "Why?" Strategic moves that don’t provide the desired results are a part of business, and most companies rebound from them without causing any negative impact on the market.

But when companies set a price too low because they don’t understand pricing principles or dedicate the time to formulate an accurate estimate, then the entire market suffers. With a little preparation, a dose of sound business decision making and some attention to detail, contractors don’t have to be mathematicians to come up with the right number at the bottom of the page.

A MODEL START. Accurate estimating is something of an art as well as a science. But when only one of those two elements goes into formulating price, science should win out. Contractors with a track record of pricing success know exactly why they price their work at a certain cost.

"The first thing we look at is the square footage of a property, and we measure every property we prepare an estimate for," Dowell explained. "We set price by multiplying our hourly rate for a three-man crew by the number of hours we think the job will take us."

For Dowell, estimating the hours necessary to tackle various tasks is easy, thanks to field research. Since he generates most of the estimates for potential customers, he accompanied crews into the field and measured their average production rates for all of the services they provide, from mowing to applying fertilizer to edging. In addition, he standardized his crew setup so each crew is comprised of three individuals and three 52-inch, walk-behind mowers with sulkies. Aside from distinctive job characteristics, there’s no reason for a crew’s productivity to vary from company averages.

Dowell also spent time identifying his business’ costs so he would know how much money the crews need to account for in addition to their own costs. So, if DowCo has $200,000 in overhead (rent, computer software, administrative assistant salaries, accounting fees, etc.) and the crews generate a total of 20,000 billable hours throughout the year, the cost for each man-hour must include $10 just for overhead.

"Our costs tell us where our pricing needs to be," Dowell assured. "We just had to spend the time figuring the numbers."

Some contractors, like John DeBell, president, Clippers, Chantilly, Va., point to man-hours as the most variable job cost. "We want to know how much of that risky component is on each job and price that job accordingly," DeBell shared. "A lot of people price just on square footage, but if you’re going to do that you better know how many hours you’re putting on your equipment and your labor - that’s what really matters."

Mike Schmitt, owner, Shamrock Irrigation & Landscape, Los Angeles, Calif., employs a different approach to set pricing, but he adheres to it consistently. "I asked a lot of people about their hourly rates before I started this company, and I decided to use one of the higher hourly rates out there to see if the market would bear it," he related, adding that companies should lose at least 30 percent of the bids they submit because their prices are too high. "If you’re not losing jobs that often, then you’re prices are too low."

He also noted that while pricing work from the standpoint of recovering costs is logical, contractors who do this could shortchange themselves in the long run. "I want to push the envelope in terms of pricing in order to yield the best gross margin," he related. "If I say that for every dollar we bill we can afford costs to be X, then I’m not taking into account what the market will bear and I may be undercharging."