Most landscaping companies underestimate their job costs by at least 1%.
That might not sound like much, but for a company with $6 million in revenue, it could mean more than $24,000 in missed profits. And the larger your company, the greater your loss.
Download our Pricing Pitfalls infographic to find out where you could be losing money.
When you underestimate costs, you do the same amount of work—you just get paid less. No one wants that, so let’s explore some common pricing mistakes and tips for avoiding them.
Trusting your gut
As humans, we tend to rely heavily on gut instinct. In many cases, it’s useful. You might even credit good instincts or intuition with helping you get where you are today.
There may be situations where you should go with your gut in business, but pricing decisions aren’t one of them. Estimates should always be based on real data—hard numbers—not guesswork.
Relying on memories of past jobs
One of the best sources for real data is information about past jobs.
What markups did you use? Were they high enough? Did you go over budget anywhere? How many labor hours were spent on the project?
It’s easy to think we can trust our memory—or imprecise calculations—to answer these kinds of questions, but it never works. Our brains just aren’t very good at storing large volumes of data. And a large volume of data is exactly what you need to get a solid grasp on your numbers.
To understand your job costs, you’ve got to track them. Keep a detailed record of all labor, material, and other costs associated with jobs. Monitor what you spend, and pay particular attention to areas where you’re over budget. Otherwise, when you base pricing decisions on vague ideas about past job results, you’ll continue shortchanging yourself and losing money.
Tracking these costs allows you to see where you need to make changes. And it’s a lot easier to do with a business management system that provides real-time visibility into every area of your business.
Pricing based on perceptions of the market
Similar to gut instinct, you might base estimates on your perceptions of the market without even realizing it. The trouble with perception is that it’s subjective. We may feel 100% confident in our judgments, but in reality, they’re always colored by our own assumptions and expectations.
If you’ve been in the industry for a while, you might have a well-honed sense of what works and what doesn’t. But you may also have developed a kind of tunnel vision that prevents you from achieving higher profits.
No matter where you are in your career, it’s beneficial to keep an open mind—and to pay close attention to what other companies are doing.
Watch what your competitors charge, and look into what clients pay other vendors. Don’t limit yourself by assuming the market can’t handle a price increase. Do your research, and have confidence in the value of the services you provide.
Estimating without consistency
If you don’t have a system in place for managing the estimating process, it’s hard to stay consistent.
Account managers might use slightly different rates for similar jobs, labor costs might be updated for one client but not another, or markups might be calculated on a case-by-case basis.
Even minor differences in how projects are priced can have a significant impact over time. For example, a company with $3 million in revenue can lose $36,000 in profits—simply by underestimating labor costs by just 50 cents per hour.
To prevent these inconsistencies, you need a solid foundation. Consider building unique sets of markups for labor, materials, and equipment—and create estimating templates you can use to price similar types of jobs.
A landscape business management platform like Aspire makes this easy by connecting all of your data, from the initial estimate to scheduling, purchasing, invoicing, job costing, and more.
Estimating might have been simple at first, but as your company grows, it becomes more difficult to manage.
When you do everything yourself, it’s easy to stay consistent. You have a good idea of how each job went, what you charged, and what you learned. As you grow and add employees, it’s impossible to keep all that data in your head at all times. And without a fully-integrated system in place, it’s impossible to know if those numbers are even accurate.
A centralized business management solution like Aspire can help you avoid making these kinds of costly estimating mistakes.
Download our free infographic on pricing pitfalls below to see where inaccurate estimates are potentially costing you money.