It all started when a young man decided to go into the landscape business after he’d been working for a company as a field foreman or supervisor for a few years. He thought that the field knowledge he’d gained was the most important thing, and had given him the knowledge he needed to start his own business. He felt it was his time to live the American dream, but how was he to acquire customers?
The first thing that came to his mind was to offer lower prices.
He’d undercut the competition, because after all, if he’s less expensive he’ll get the jobs. He had never been in business before, and he didn’t have any exposure to the business end of the business. It was only after he’d been in business for a couple of years that he realized that he was not making any money. As a matter of fact, he was probably losing some. Once he realized this, if he was to survive, he had to raise his prices. This scenario has been repeated many, many times.
Now let’s fast forward to earlier this year, when TrueGreen/ LandCare was purchased by an equity group for, literally, pennies. It seemed that when they were part of ServiceMaster, in order for them to increase their volume, they priced their services very low; so low that many other landscape service providers felt they couldn’t or wouldn’t compete.
Most businesses are sold on a multiple of earnings. ServiceMaster purchased TrueGreen/LandCare for $250 million and ended up selling it for just under $37 million, which goes to show you that the business was not profitable.
Just recently, one of the largest landscape maintenance companies in Florida closed its doors. They were having a hard time meeting their financial obligations and, of course, the bank wouldn’t lend them any money. They too, were undercutting the market.
So it puzzles me to think that people running businesses that do a volume of $50 to $250 million annually can’t figure out that being the low seller is not very profitable. It’s very difficult and stressful to work on razor-thin margins.
We can be more competitive; however, we have to approach it from another angle. Maybe what we have to do is get more productivity from our crews in the field.
Streamline your field crews and get your labor costs more in line with increased productivity, so the next job you bid will be extremely competitive, and profitable as well.