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Price increase ?

Discussion in 'Business Fundamentals' started by Chief Plow, Sep 23, 2003.

  1. Chief Plow

    Chief Plow Senior Member
    Messages: 201

    Here is a question could use some help.... I took a big hit in rise in insurance cost this year, as I am sure we all did. Also fuel costs are going to be up more this year than last, and I would like to add another sub guy, took on some more work. My prices haven't gone up in 2 seasons. There has to be a fine line for increases I know that, but.... What seems to be the normal percentage, 3% or 5%, 10%... I don't want to loose any accounts, but I don't want to make any less either...Any ideas thanks

    Rick
     
  2. Mick

    Mick PlowSite.com Veteran
    from Maine
    Messages: 5,546

    Like you, I didn't raise rates last year. This year, all accounts went up about 15%. I sent letters out about three weeks ago. There are a couple I haven't heard from, so I figure they're price shopping.
     
  3. deluxeco

    deluxeco Senior Member
    Messages: 115

    We will see what all the cut-throats have to say about that:cry:
     
  4. DanG

    DanG Senior Member
    Messages: 240

    My wife and I were going over the list from last year and figuring out who will be raised and how much.

    Pretty much everyone is getting increased by 10% which works out to about an extra $3.00-$5.00 per push for customers who choose that route or an extra $30.00-$50.00 for the seasonals.

    Based on the cost of gas from last year to this year(almost a $1.00 more), plus the cost increase of various insurances I have to increase their costs just to keep my profit margin the same.

    Dan
     
  5. Greenscape4u.co

    Greenscape4u.co Senior Member
    Messages: 101

    some guys don't increase every year , they wait 2 and 3 years and then give three years worth. I get in the habbit of minimal increases every year , usually the rate of inflation 3 - 4 %. My experience is that customers are more willing to renew a contract with only a $5- $10 increase any more and they start shopping you around :cry:
     
  6. CT18fireman

    CT18fireman Banned
    Messages: 2,133

    The fuel price increase has been discussed in the past and really cannot be justfied except in really large accounts. As far as insurance, why did it go up? If it is because you had a claim where you were at fault for something then it is not fair to pass that onto the customers. You may have customers that drop you for not being safe. I am in no way saying anything specific about you.

    If insurance went up because of the region or other factors then you certainly can pass that off. Remember you can only increase so much before they start looking for a better deal.
     
  7. DanG

    DanG Senior Member
    Messages: 240

    Lucky for you you don't live and work in the great state of NY.:D

    We got a nice little surprise this year from the state.

    Seems that they borrowed so much money from the federal government to pay unemployment in NY because of the amount of people out on it, that they weren't bringing in enough to cover the cost to pay it back.

    So employers got hit with a sur-charge on last years wages of .004%( I think thats the correct amount).

    Lucky us.:realmad:

    Dan
     
  8. sonjaab

    sonjaab PlowSite.com Addict
    Messages: 1,425

    DAN.......I hear ya about getting the BIG Hammer from NY
    over workers Comp. and Unemployment Ins. Increase !

    Heck, I raised my per push price to the bank next door
    10 bucks a shot to 60! I love it when the bank mgr.
    lady calls for another shot!
    Nothing they can do about it either because it my
    property and I lease it to them. They are screwed!

    Don't mean to come off harsh , but what has a bank done
    for you or me for free?
    They think nothing of wacking me 24 bucks when some
    knucklehead bounces a check on me ! 8 bucks for a
    bank draft, 15 bucks for a notary signature etc.....

    Heck at my bar if I raise my price on a beer 10 cents
    the folks have a spastic fit !
    I sell a bottle of Bud for 1.75 for crying out loud!

    Are you going to the BBQ?
    I will be there with bells on! Having plowsite shirts made
    up to sell there. Rooster is gonna do some sippy coffee
    cups and some other goodies................geo
     
  9. BWhite

    BWhite Senior Member
    Messages: 496

    rates

    ALways tricky to figure, then you have to factor in the lowballers. People will tend to go for the low price . " After all its just plowing"
    PS I have never made a claim(knock on wood) ,CTfireman does your insurance company itemize your bill stating that the reason for your yearly increase was because of the claim ? if not how do you tell ?


    I guess part of business is putting in a claim .Why wouldnt you pass it on to your customers . After all the odds are that something will happen . Thats why you get insurance
     
  10. CT18fireman

    CT18fireman Banned
    Messages: 2,133

    Well my insurance has actually gone down each of the last three years. I guess I am lucky and have had no problems. I do not know if they state why.

    My father was in insurance and told me that it would vary by region and state requirements, so that could be a reason. Also if you have notified them of any changes in your business, such as vehicles, equipment, drivers, storage location, and working sites. If nothing else changes though and you make a claim they will raise your rates.
     
  11. Chief Plow

    Chief Plow Senior Member
    Messages: 201

    CT,
    I understand about fuel costs. I would not be looking into this if it were just for fuel. As far as the insurance goes, I have had no claims put against me, and I have had no incidents. NY is just screwy, they tell me the insurance rate is based on what the business makes. Anyways,
    Thanks for the replys

    Rick
     
  12. micah79

    micah79 Senior Member
    Messages: 303

    It is tuff for me because although prices go up ever year for gas, salt and insurance, the prices I can charge go down. I have quite a few accounts from last year who have been calling me saying that I did a good job last year, but some other company gave them a cheaper bid. Competitors are starting to bid as low as $15-18 per drive. I think my min charge of $20/ drive with an average of about $25 /drive is more than fair. I try to tell customers that they get what they pay for, but that only goes so far. I am just so frustrated that so many people are getting a plow for their daily driver, not paying insurance, taxes ,employees, and not even really knowing how to plow. They just figure that they will bring in a few extra bucks on the side. I would be able to charge $15 /drive too if I didn't have to pay for the costs of being a responsible business owner. I am worried that these fly by night guys might be choking me out.
    Does anyone else have this problem? Any suggestions.
     
  13. PINEISLAND1

    PINEISLAND1 PlowSite.com Veteran
    Messages: 664

    Every day Micah !

    I get so sick of it, its about all we talk about this time of year. Some of the bids out there are incredible ! I heard today of commercial accounts that are being bid in the $30-$50 per hour range ! Thats less than 1/2 of our standard target rate.

    How do you compete against that, in a Dutch market ?

    We just keep on selling them on quality, and reliablility, and risk management, and sometimes it works.....
     
  14. Lawn Lad

    Lawn Lad Senior Member
    Messages: 407

    I don't know why prices have been dropping. Maybe people are hungry for work? Maybe more guys are getting into snowplowing? But the market definetly seems to be getting more competitive. Obviously with those customers you have an established relationship you might be able to maintain your price. I've lost a couple of jobs because I didn't lower my price!

    It would be easy to complain that I'm not getting the price on the contracts that I would like. But I'm going to keep beating the brush and flush out our customers - those that will be a good fit.

    My recommendation to all... don't just lower your price to get a job. Sell the quality service. Don't use price as the factor for the customer to make the decision, it will only hurt us in the long run.

    Here is a post from Lawnsite about "low" pricing and how it can only hurt this industry in the long run.

    http://www.lawnsite.com/showthread....e=20&highlight=Rebirth of ethics&pagenumber=1
     
  15. Mick

    Mick PlowSite.com Veteran
    from Maine
    Messages: 5,546

    Well, so far I haven't lost any to lowballers. One emailed me that he's put a snowblower on his tractor, but still wants me to come on "will call" basis to keep the banks pushed back. Another is having a new driveway put in and the neighbor who is doing that offered to plow this winter - for free. I can't beat that:eek: . They said they were real happy with my work over the past couple of winters, though, and would be calling me back when this guy retires in a year or so.
     
  16. micah79

    micah79 Senior Member
    Messages: 303

    Thanks for the input, Tom, Lawn Lad. At least I know I'm not alone. Makes me feel a little better I guess. Our companies tag line is: "Quality and Affordable Solution For Your Outdoor Needs"

    The 2 keys are"Quality" and "Affordable" . NOT:"Rushed inexperienced, shady, and blow out cheap"

    And we will also be there next year to cut their lawn or install a patio for them. I look forward to working for the same customer over and over again. It makes me feel good when I go to the grocery store and I see customers who want to stop and talk to me about how much they like their patio, or how they are gonna be calling me for snow. Maybe I'm just corny, but I like to be good to my customers and still make an honest living. I'd rather be this way than looking for a hole to hide in like some of the half-baked, here today gone tomorrow competition out there.

    Just my theory.
    Micah
     
  17. Plow Babe

    Plow Babe Senior Member
    Messages: 218



    That's good advice, Lawn Lad. We need to educate the consumer about quality and professionalism. When they start viewing snow removal as a real profession, not just something that a ten year old with a snow shovel does, then it will raise their expectations. People want their mechanic, their accountant, their day care provider, etc. to be certified, so why not their snow removal expert?

    Our experience has been that the customers who dropped us for the lowballer (only a few over the years) end up calling us again in a year or two, because either they were unhappy with the service, or the guy quit plowing. One of our strongest selling points is that we are an established business focusing on snow removal, not just doing it as a hobby before going to our day jobs. People hate having to shop around for a new plowing service every year. Our affiliation with SIMA has really helped in this aspect of our marketing. With every bid I send out, I include the "How to Find a Winter Services Provider" brochure.

    Another way we try to avoid this problem is by renewing the contracts early (in May). If you are just now renewing, you waited too long. At first, we had some customers surprised that we were sending out contracts already, but after a year or two they got used to it, and like not having to worry about it in the fall. I motivate them to respond by offering an "early bird" discount. And this year, we went to three year contracts with price guarantee. Of course, the contract is cancellable, so if they want out, they can get out. But generally, as long as they are happy with the service, they don't look for a change.

    Also, try to cultivate a personal relationship with the customer. When they call you, greet them with a "Oh, Hi Mr. Jones, how ARE you, are you having a good summer?" like you know exactly who they are, even if you are scrambling to look at your customer list to remember them. Send out a friendly letter with the contract renewal, and again at the end of the season. Include some personal tidbits, so they view you as a real person, not just a faceless business. Maybe send out little calendar cards or greeting cards at the end of the year. We give our customers referral rewards also. If they refer someone to us, then when we receive that person's paid contract, I send the customer a check for $20 with a thank you note. People love that. And if they are referring to you, it is not likely that they are going to drop your service.

    And of course, the most important thing is to consistently deliver that quality, dependable service.
     
  18. chtucker

    chtucker Senior Member
    Messages: 618

    Karen, all good points.

    I have bid on a few jobs around town that I get almost chased off the property. One 80 unit motel in particular balked at $90 per plow (about an acre of pavement, NOT open at all).
    Mind you they called me because the other guy was horrible, kept having equipment trouble and would not even attempt to push the snow back far enough (1/2 ton short bed).

    I tried the whole "I'll show up, I have new equipment and access to backup" thing, but they were just looking in the wrong place.

    As for Insurance... I pay about 35k a year in insurancesssssss. When the stock market tanked, the insurance companies who had been making a majority of their money in the stock market suddenly needed to start making money at insurance too:rolleyes: In the mid 90s till 2000 or so insurance rates did not reflect the true costs of insureing. It was not important as the REAL money was in the stock market. Get your premiums, invest that money, make LOTS of money, pay out minimal losses. Now they have to pay losses out of premiums.

    Back to the topic, yes I did adjust my pricing (shoot for $90 per hour on per push, $75 per hour seasonal) and I got everyone to sign multi year contracts so that I would be building the business every fall instead of starting from scratch every time.

    Howard
     
  19. Lawn Lad

    Lawn Lad Senior Member
    Messages: 407

    When it comes to figuring out how you're going to offer your service and how you'll be the market leader, you can:
    1) Be the low cost producer
    2) Achieve Operational Excellence
    3) Develop a closer relationship with your customer

    Pick two... because you can't do all three effectively. I would assume most of us would go with options 2 and 3.

    This will require educating your customers. It's very easy to try and win and account based on price, and price alone. "Go with me, I'm cheaper". And it's easy for the inexperienced or naive customer to buy into to. They can evaluate some objective criteria. What your marketing message must convey, and particularly during your sales pitch, is the reason or benefit for the customer to select you over someone else, making price the third, fourth or fifth consideration. Often for the customer price will be high on their list of concerns. Be competitive in your pricing, but don't just undercut to undercut. That is lazy selling and very uninformed.

    Any salesman should have very good product knowledge. You can't sell something that you don't know. The person who recites memorized lines about product information is no help to you when you have specific questions. When I buy a truck I don't care that it has a 7.8 litre engine. What do I need? What's the relative cost to the benefit I'll get when I jump from a 6.0 L to an 8.1? Educate me!

    You've got to remember that people buy from people, in most instances. When they call, they need to know someone is going to pick up the phone and answer their questions then. Not 3 or 6 hours later when you get their message. People buy from people they trust.

    Establishing trust is very difficult with prospective snow customers. They don't know you from the next guy and you're making similar claims. "I'll be here, I have equipment, I'm timely, I'm this, I'm that." The best way to establish trust is to ask questions and find out what the needs of the property owner are and how you can address them. Find out what problems they had with the last contractor and then offer a solution through your service. Trust won't truly be established until you've proven yourself on the job assuming you get the opportunity.

    But if you sell this way, you won't be opening yourself up to price issues. If you win a customer purely on price, you'll loose them on price when the next guy comes along and under bids you. The basis for your relationship was price driven, and unless you're continually willing to lower your price to meet the next lowballer coming down the block, you'll loose the customer. Worse yet, if you do meet the next guys price, the low baller market is setting your prices and you're going to loose money. You may know what your costs are to operate, more than likely the lowballer does not. Why do you want him setting your prices?

    Educate the customer, get to know them, sell the relationship. Don't make price the first thing out of your mouth when you've got that first 30 seconds in front of the customer.
     
  20. micah79

    micah79 Senior Member
    Messages: 303

    Nicely said. I am trying to convince prospective customers that all snow removal services are not equal. I think the misconception that service companies are like a retail item is a real problem. Its the whole Walmart mentality. But, we are not a box of Tide laundry soap, or a bag of cat food. Due to the new retail strategies, customers think that lowest price is the best value. This may be the case when shopping for a name brand retail item such as soap or catfood. This is not true when it comes to larger purchases or services. I have been asking customers why they are seeking an estimate from me instead of keeping the service they had last year. It seems that most were tired of waiting so long for service to be completed. I then tell them that although my price is a little higher than the guy last year, I will be prompt and dependable. I also have higher quality and I dont tear up grass or hit garage doors. For these reasons, I tell them that I am a better value. This works for a lot of customers, but not for all of them. I have still had quite a few tell me that all snow removal services are the same and they want the lowest price. It makes me feel just like a box of laundry soap when they say that. Some customers just can't be convinced. It seems too much damage to our industry has already been done with these people.