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chefdrp
04-11-2005, 09:16 PM
About a year ago, I posted this on another forum. I figured that it's MY post so I should be able to repost it anywhere I want. A lot of you may be already familiar with it, but for the newbs, here's an opportunity for you to learn from my mistakes.

How I nearly lost it all in '95
Basically, I grew too fast. Unstead of knowing that I was really lucky, I thought it was because I was incredibly intelligent and talented! NOT. Here's what happened.

Like so many newbs, I used pricing as a marketing strategy. I took the attitude that if another, more experience LCO was doing this yard for $30, I could come out at $25.

"Oh, he'll do it for $20? Ok, I'll do it for $15."

Well, that's ok, I suppose, if you really need the work so bad that you can't afford to pass it up, but you're hurting yourself in the end, if you continue. However, one of the symptoms of too low a price is that you suddenly find yourself with more work than you can get to, but you never have any money after you've paid your expenses.

But in my blissful ignorance, I started using this "genious" strategy on large apartment complexes and other commercials. By 1994, I had a contract with the V.A Hospital, a 23 acre Condo complex and 3 property management companies. All of these were gained by being the low bidder. And I stupidly thought: "This stuff is easy!!"

However, it's all a house of cards. Here's what happened:

Once I had the contracts, I had to buy more equipment to handle the extra workload. I did not have the cash, so I had to finance. I also had to buy another trailer and another truck to pull the trailer. I was pretty fed up with trying to nurse an old truck along, so I went down to the Ford dealer and bought a brand new truck, which I financed. Then I found that in order to get the work done, I had to hire help. But once I hired help, I found that slack periods due to droughts, or heavy rains or winter, threatened me with the loss of my workforce. Workers are not at all understanding of your problems. The large commercials wanted to see uniforms on my employees so that they could be easily identified, so I bought clothes. Also, signs on the truck. Then I found that 1 truck couldn't carry everything, so I bought a 2nd, again financing. And too, I had to buy insurance, pay for workman's comp and I had to provide proof of all of this to each property. I couldn't stay at the office so I kept a cell phone with me all the time. If you'll remember, cell phones were NOT digital just yet, and were way more pricey than they are now. On the large properties, my employees were sneaking back to the truck to make personal calls. I had cell phone bills of $300 or more per month.

Long story short. All throughout 1994, every penny I took in, I turned around and paid right back out. I didn't have anything left for myself. But, at least with all this new equipment, new trucks, employees in uniform and contracts in hand, I at least looked like a big shot. That winter was one of the worst I've had had up to that point because there wasn't any money to put away. I lost all of my employees because I didn't have enough work and then when the spring of 1995 arrived, I had to hire new people and train them. What a nightmare! Also, I had fallen behind on my payments on EVERYTHING. But I promised my creditors that 95 would be different, cause I had lots of work lined up. And I did....all of it underbid. I also bought into a very common myth: "In order to increase profits, increase revenue." In other words, take on more work, even if it is underbid. Oh God, was that ever STUPID!

So 95 was even a bigger screwup than 94. I worked even harder, mistakenly thinking that I could compensate by doubling my efforts. My new employees began to think that I was making a lot of money on their backs and began to undermine things behind my back. My new truck took a tremendous amount of unexplained abuse as did all of my other stuff. Tools constantly disappeared. Work NEVER got done on time and I finally started catching employees sneaking off on the larger properties and taking naps or smoking pot. When I started firing people, the break-ins started. Windows got smashed out of my trucks and everything got stolen several times. Police treated me like I was the criminal and I was wasting their time. And I had dropped the insurance when there wasn't any money to pay for it. When contract renewal times rolled around, amazingly, I got underbid on EVERY property. That meant that all the problems that I had, would now be awarded to other LCOs even more stupid than myself. So now I faced another winter with no contracts, no work, creditors already at the end of their patience and ready to repo. I lost my trucks, I lost what machinery I had left and I went through the worst winter of my life, even worse than 94. I even thought my wife might leave. I had one Scag 52" that I had paid off, and that's what I started with the following year. And I got a Shindaiwa at the pawnshop. Instead of getting a blower, I used a broom.

So that's how I learned not to lowball. I learned first hand what lowballers get for their efforts. And all of the troubles made me mad. Mad enough that I got the courage to stand up and ask for more money AND to not fool with deadbeat price hacking customers. In 96, I started over again, working by myself and this time, getting the money I needed. And it's been that way ever since.

So, if you've just started in this biz, and you've read down this far, take a lesson and save yourself a lot of trouble.

DON'T BE A LOWBALLER!
__________________

chefdrp
04-11-2005, 09:17 PM
this is a post from MOWERDUDE and since its a new season i found it and reposted it.

dvmcmrhp52
04-11-2005, 09:23 PM
Lowballing is a problem, but growing too fast is a real nightmare as you have explained.
Even if your pricing is too low wether it be from lack of experience or just plain lowballing tactics in their truest form,
If your growth was limited to a manageable level you probably would have survived and learned in the process. The fall would not have been as drastic.................just my thoughts...............

MudslinginFX4
04-11-2005, 09:25 PM
Darrin, thanks for posting that. I've read Mowerdude's story before, but I wan't to say that I just read the whole thing again a second time! Sometimes it takes a little reminding of why we don't underbid. I get asked all the time to lower my price by my customers, I'm actually even loosing more bids then ever this year becaues I'm almost to the point of being OVERPRICED, but I stand my ground. Stories like this make me think twice before lowering that cut by $5 or $10 dollars to put me in the ballpark with the other people. I hope everyone reads this at one point or another and thinks before they price things out.

nriddle77
04-11-2005, 09:59 PM
Great post! It should be required reading for everyone here on LS.

grassmanvt
04-11-2005, 10:36 PM
I think I'll attach a copy of this to the price increase letters. It's definatley true about the low-ball game, it works untill it becomes a real-full time business then explodes in your face. I have been thinking about raising most prices and this just reasures me. Luckily, I do have plenty of work and I am actually hoping a few people cancel.Thanks for sharing the story, hope it helps a few people avoid that mistake.

tinman
05-30-2005, 12:25 AM
good repost...this one should get bumped once a week. would also make a good addition to my local paper's classified "yard / land service" section. 30% of the guys listed in that section end their ad with , "lowest prices around, or most yards $25 ( not many $25 yards in my area ), or cheap rates".

Envy Lawn Service
05-30-2005, 01:20 AM
Glad to see this post make it's way over here.
It should be a 'sticky' on all these sites.

smitdavi
05-30-2005, 01:33 AM
that's an eye opener

Tharrell
05-30-2005, 08:15 AM
I've read this post and the original and both times I came away with the same thoughts. I don't think the problem was underbidding as much as mismanagement, $5-$10 underbid is not going to put you out of business.
I don't know how much someone is currently paying for service when I bid so if it's underbid, it's an honest bid. I don't care how good you are, how professional you seem to be, how you think you are perceived by the public, most bids go to the lowest bidder---the lowballer. I myself have lost 4 big jobs this year--and I really thought I had underbid them, or at the very least they were close. I spent half a day looking at these 4 properties and working up the bids.
I read so much on here about lowballers. But, isn't the bid winner the lowest qualified bidder---the lowballer?
You have to know your costs and manage your business within those boundaries. You can be the lowest bidder and make money if you manage your costs.
Some people on here have come up with a dollar figure per hour and think that applies to everyone.
When I started, I thought about what kind of equipment could be used on a property and priced accordingly.
For instance, a small yard I do (my first) was too small for a tractor but really too big for a 21". I priced it for a 32 or 36.
Also, a big yard could be done with at least a 48" possibly a 61", priced accordingly. No matter what you have because that's what they'll pay.
My point is expansion takes thought. Slow growth is good albeit sometimes painful. I'm not bashing you or trying to start anything, I just wanted to add my thoughts about growth.

BravesFan
05-30-2005, 10:11 AM
I've read this post and the original and both times I came away with the same thoughts. I don't think the problem was underbidding as much as mismanagement, $5-$10 underbid is not going to put you out of business.


Oh really? Lowering gross income 25-30% can't put you out of business, huh?

What type of margins do you have?

Dennis

PROCUT1
05-30-2005, 12:21 PM
5 OR 10 dollars ABSOLUETLY WILL PUT YOU OUT. A non owner operated operation is luck to profit 5 dollars off a lawn.... For most it is less.

Mueller Landscape Inc
05-30-2005, 12:48 PM
Like so many newbs, I used pricing as a marketing strategy. I took the attitude that if another, more experience LCO was doing this yard for $30, I could come out at $25.

"Oh, he'll do it for $20? Ok, I'll do it for $15.

The reason for failure is in the sentance above. This person did not know their real cost of operating. Using pricing as your marketing stategy is viable if you know your costs and do not price yourself below those cost. It is one of the many strategies that have been used to make many people a lot of money. Strategies are created, honed, perfected, and put into motion by management.

Tn Lawn Man
05-30-2005, 12:49 PM
Oh really? Lowering gross income 25-30% can't put you out of business, huh?

What type of margins do you have?

Dennis


Exactly!!!!

Let's take $5 off of 75 accounts (one man operation). That should be about:

$375 a week

$1500 to $1875 a month

$12,750 a year

And this is just a one man operation, let alone a company with several crews.


I get sick and tired of hearing that the only way an LCO can pick up new accounts is to lower the price of the industry.

Has nobody heard of: Marketing, Great Work, Networking

Heaven forbid that you do a little work to get a new account, let's just lower our price. That is the lazy man's way out.

ince8728
05-30-2005, 01:30 PM
i'm only in H.S. now but i have been lucky enough to have my aunt & uncle who are also in a service buisness guide me and tell me the do's & don't of owning & running a buisness. I'm currently maintaining 20 lawn accounts and have numerious landscape jobs lined up. I love this type of work and it's what I want to do for a living when I get older. This year I have realized that in terms of pricing for lawn maint I am on the higher side of being competetive, which is exactly where i want to be. I am told that people will respect me more being a little higher instead of being redicolously low. When i frist started just cutting lawns about 5 years ago i was always worried about being too high or when i was cutting the lawn i couldent stop thinking that i should be charging $5 or $10 more. Those days are long gone, every weekend I can't wait to get up early and make $$$.


- Matt

Tharrell
05-30-2005, 05:01 PM
If you know your costs you can make money.
No, 5-10 dollars shouldn't affect the bottom line that much if you are in line with your expenses. Now, you could say you left some money on the table but that's another story.
Think about how many variables are involved.
All the different kinds of equipment, trucks-trailers, payroll, etc....
It's all about costs and what the market will bear.
Let me know when the official price list is published, until then I'll price mine at what I need.

lowmiler
06-01-2005, 03:13 AM
The moral to this post is, STAY OUT OF DEBT! He failed simply because he overextended himself. Also, it seems he did not have the skill to "cost" a job. The guy had no clue. Passing his failure off as "low balling" is naive.

The most efficient operators survive for the long haul. I guess Walmart are "low ballers". They operate on lower margins than their competition.

I am always trying to reduce costs, and increase productivity. While maintaining quality. If I fail it will be because of my inability to achieve those results.

green thum
06-01-2005, 07:24 AM
:rolleyes: Thanks guys!!There is a lot of useful info in that thread.

chefdrp
06-01-2005, 07:46 AM
your welcome guys. Thats why i dug it up. I didnt write the thread. It was written by another member. On the first page i saw my name quoted and said tomyself, "I didnt say that". then ii remembed that i copied and pasted this.

Tharrell
06-01-2005, 09:02 AM
I'm sorry, I have to add something. When I first started, I read a lot of posts on this and other forums about pricing and $ per hour.
They were posted like we were all in a union or something.
Being efficient AND profitable is more important than a set price per hour.
Again, how do newcomers KNOW what to charge? They find out what everyone else is charging most of the time.
I'll tell you about my first lawn. They told me (I didn't ask) the last guy hadn't called or showed up and what he was charging. Yeah, I charged a dollar less! So what! They never paid it. They always paid what the other guy charged and I've been able to raise them a little over the years.
I've since analyzed this property and the original price was very good for several reasons. It was profitable and also on a small corner lot in a well travelled area--EXPOSURE.
I now price properties with several items in mind.
1-what will the market bear?
2-what do I need?
3-what would another LCO use and approx what would they charge?
Not in any particular order.
I would like to price properties at what I'd LIKE to get but there are COMPETITORS.
Do you get it?
We are COMPETITORS, not family or friends.
It's nice we can converse on here but, we are still competitors.

Green Pastures
06-01-2005, 10:10 AM
I don't believe that this has anything to do with how fast you grow your company, it's about time, people and money management.

Fareway Lawncare
06-05-2005, 07:25 PM
If you Break it Down this is the Story of Someone who Could Not Handle the Pressures and Economic Realities of Running Crews and Had to go Back to Being Solo....

Nothing Wrong w/that but Some People Can Kick it Up a Notch as They Expand and Keep Profits and Expansion on a Parallel course....

Jay's Lawncare
06-05-2005, 08:25 PM
My perception of this situation is simple. Now, It is not my intention to belittle anyone but this guy's problem was the fact that he had the majority if not all of his equipment financed while at the same time trying to underbid to get jobs. Mathematics should have told this guy that he wouldnt last long operating like this. By the time he figured in workers comp, insurance, and payroll, he was destined for financial failure. Now, you take the same situation with a guy who OWNS his equipment truck and trailer, and things might be different. Maybe its just me but I will only purchase equipment when I can pay cash for it and not until then. This mentality has allowed me to be competitive in the market i operate in...just my 2 cents....
Jay