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Why Your Price Should Not Be Based On What Your Competitors Charge

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Business Advice

Proper project analysis is so important when it comes down to earning a job and receiving good customer referrals. Despite contrary belief, it’s really not about who can offer the cheapest price. Your success in landing a sale is determined by a variety of factors – namely your ability to accurately price a job, your ability to present the estimation in a detailed fashion and your ability to justifiably explain HOW and WHY you came up with the quote.

It’s important to remember that the process of planning and estimating a project is representative of your company’s quality as a whole. At the end of the day, your project analysis is your sales tool. It serves as a gauge for your prospective customers to determine how you will handle the process of building their landscape project.

If you just focus on setting the cheapest price, then your customers can expect just that: a cheap result. And your customers will be even more upset if you come in over budget, which is highly likely if you didn’t take the time to accurately estimate the job in the first place.

However, if you do take the time to accurately price your work (based on the cost of your materials AND the cost of operating your business) and you take the time to professionally present and explain your estimate, then your customers can expect a higher quality end product. You have established a level of customer service for your business that is based on delivering the utmost in care and quality. As a result of your expertise, you have a competitive advantage that allows you to price your jobs higher and charge more.

So how do you accurately price a job?

Unfortunately, evaluating the cost of a service is much more complex than simply evaluating the cost of a product. To put a value to your services, you need to consider a number of variables – not just the price of the materials used – especially if you want to have a reasonable return.

Every price estimate or quote should include:

  • A sales figure
  •  Gross margins
  • A list of materials needed
  • The amount of total labor days required to complete the job
  • A planned work schedule.

Your price should take into account your direct costs, such as your materials, labor and equipment, as well as your indirect costs, which are often referred to as your ‘overhead’ costs (such as your office rent, insurance, transportation, HR, advertising costs, etc). After calculating your service costs (including your direct and indirect expenses), you need to add a percentage to your price that accounts for your rate of profit. Your rate of profit is necessary to see a reasonable return on your business and, more importantly, to grow your business. After you determine your rate of profit, select a pricing method, based on your own business’ unique needs, that will take into account all your costs and your preferred profit rate.

So, while it’s important to be aware of both your competitor’s price and of industry trends, you shouldn’t base your own price on anything other than your own costs. Your direct and indirect costs are different than your competitors and; therefore, your prices should be different too.  

LMN’s estimating software will help you price work accurately and effectively with a few clicks of the mouse. For more information visit the LMN Systems Library.

Landscape Management Network is a collection of systems, tools, and training to help great contractors build and manage great businesses. Visit the LMN website.

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