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View Full Version : Whats wrong with low balling?


lawnstudent
03-02-2002, 01:08 PM
I have seen the anger expressed in these forums to those who low ball jobs. But why can't someone low ball a few jobs to get started into this business? I'm not suggesting that you low ball everything, just a handful of jobs that you know you are going to lose money on so that you can gain experience and get exposure. Everone here, I think would agree, that most of their job leads come from customer referrals or from neighbors that see your work. Isn't this a reasonable marketing tool to get started, to build a reputation? Especially if the low balled customers have been given the information that they have been given an artificially low price because they are your first customers?

Jim

CSRA Landscaping
03-02-2002, 01:18 PM
Jim, I understand where you're coming from but believe me - once you start that, you begin a vicious cycle that is next to impossible to break.

- You talked about referrals in your post ... well, when one of your customers refers you to a friend of theirs, you can be sure that they tell their friend how much they are paying you.

- Also, you're going to have a confidence problem once you think you need to ask for more. People will usually try to talk you down some, so if you start low and you have people try to talk you down, you're going to think there's no way that they'd even consider the higher price that you -need- to charge to run a profitable business.

- You won't be able to afford to fix that breakdown when it comes along. Usually, people that charge enough to live on don't have anything laid up in store for rainy days. One major breakdown could wipe them out.

- A person tends to get what they pay for. Conversely, a person tends to provide what they were paid for. Does that make sense? If you go low, you may be different than most folks. Most folks think "They paid me $X so I'm ONLY going to provide X and no more."

In my opinion, this is a bad road to start down. Start asking for the higher prices and I think you'll be alright. Remember, begin with the good habits and you won;t have to worry about retraining yourself. Good luck.

A1 Lawn@Landscapes
03-02-2002, 03:32 PM
CSRA has it right. Once someone bids low on an account, that customer feels that anything over that is a rip off. There is always a new guy lowballing one year and gone the next. It is like a revolving door. If you need more $ than what you are making, get a part time job at night. I would much rather stay in bed than lose $ just for the sake of working.

I would suggest an aggressive advertising blitz such as flyers and community newspapers. You could be putting out flyers to get profitable work instead of losing $ working to get more work that you will lose $ on. Just my opinion.

John DiMartino
03-02-2002, 03:57 PM
I dont think most low ballers even know there operating costs,so they cant bid correctly.hey dont take into account wear and tear,and maintance.Why work for free anyway,that isnt the kind of exposure you want,beleive me,ive got a young friend that does that,trys to break into an area,prices it cheap,only problem is the parts guys,equipment stores,and repair men dont work for you any cheaper,because your new-they charge the same.He couldnt afford to pay his help,his repairs,and the maintance,so he neglected his equipment,which then cost him a mower engine,almost a truck engine,now he's 8K in debt from working cheap,so see where it got him,now how is he going to work his way out fo debt with these cheapo cutomers?He is known as the guy to see for a low price,but his work isnt as neat as it should be,and he hasnt drawn any pay in 8 months,in addition to owing family members about what his equipment is worth.

lawnstudent
03-02-2002, 09:45 PM
CSRA,

good point on the confidence issue. I hadn't thought of that one, but the confidence issue goes both ways. How can I have the confidence to charge what an established LCO charges when I don't have the experience yet. At the end of my first season I would hope to be near the level of service of an extablished LCO. At that point I would hope to command the going rate.

Don't get me wrong, I am doing a business case. I intend to run a legit business. I will have insurance factored into my business case. I have equipment maintenance and replacement costs built into my model. I am trying to get a handle on all of my costs and make sure that my pricing will produce a profit. I am only suggesting that as a marketing tool, offering a limited number of discount coupons to maybe the first three customers. This will get my feet wet. I would have accounts that I could use for photos. I would have references. I would feel comfortable asking for the full rate. Do you guys still think this is a problem?

John DiMartino
03-02-2002, 10:08 PM
lawnstudent,you may be better off to work for a landscape company a yr or so,you'll make money for one,it doesnt sound like you will on your own,at least not right away,and gain needed experience.You figure what are you going to do for money while your giving away your services,and paying out more than your taking in.how you going to cover expenses,and costs.I dont feel therei s enough profit in this business to cut costs that much,and still be here a few yrs from now,and be able to live a decent life.get some experience,thi will give you the confidence in your work,and you will be ableto bid accordingly,and actually make a profit,which is why we do this in the end.

CSRA Landscaping
03-03-2002, 12:01 AM
What John D. said about getting experience from an est. company is a great point. Giving discount coupons is fine, just don't lose money on it, that just sets a bad precedent, exactly like the fella that John talked about that everyone knows has the low price. The cliché quality, not quantity actually has a lot of merit to it. Like I said, though, it's your choice. If I'd have known when I started out, though, what I know now, I never would have gone down as far on price as I did a couple of times.

I just happened to think of something that would be a huge help to a new person in this field. I have a spreadsheet that you can plug measurements into and it spits out the estimates for various & sundry services. E-mail me and I'll send it to you, if you have MS Excel. You can change the numbers to fit your prices, if you need to, but being organized and actually getting the measurements will prevent you from getting burned a time or two and that's what you'll have to do anyway. All this program does is make it easier on you.

KirbysLawn
03-03-2002, 02:08 AM
If you have to ask I would be wasting my time trying to explain.

HBFOXJr
03-03-2002, 10:22 AM
All of the points brought up by others are valid and really true.

It sounds as if you may be a college student and possibly studying business. If so, great. But if you are, you are trying to make assumptions based on no or low level industry experience and an incomplete education.

Contracting is not like retailing. Possibly it is more like manufacturing. By that I mean, as contractors we do not sell hundreds or thousands of products on an everyday basis. Most of us only sell a handfull of services so there is no opportunity to fatten up anywhere else. Our prices are ususally for a season, not a weekend or a week. You have to charge what is required every time, every day and don't go below cost.

We are also unlike retailers as we don't have any supporting wholesalers or manufacturers that will give us a price break on anything special in order for us to price competively to the client. We're paying the full asking price every time, every day.

Ask yourself, "why do I think I've just reinvented the wheel?" So, so many young people come along full of p--- & vinegar thinking the other guys in business are just like the parents that raised them. Old and out of touch with today and reality.

Wise people take advantage of their knowledge of history and the mistakes and successes of others that went before them. Although fresh new ideas and thinking outside of the box are to be encouraged and even lauded, low ball pricing doesn't fall into that category.

B. Phagan
03-03-2002, 01:11 PM
I would suggest that everyone in this profession has "lowballed" once or twice, including myself and did it many times before I got the drift on estimating, cost controls and restricting buying habits. When you have a 45 man operation, you learn really fast as you evolve.......leaving IBM and starting as a "lawndog" was not near as pleasant as I thought it would be.....I should've named my business Murphy's Law Lawn Care. As you evolve, you learn.

As good Americans in a capitalist society, I find most folks just don't know what it costs to do business. They don't have the management info systems in place like P&L's, Balance Sheets, etc and have no clue what it costs to do they job, much less how much profit they need to bring in. Really don't think most of us want to work for nothing! But many do.

Based on my vast experience in the profession, speaking all over the country to lawn folks, hundreds of consultations and seminars and workshops, I've concluded the industry is not "stupid" as many people think.......the major problem is most don't know "what they don't know".

Most people think the biggest problem in our profession is lack of employees.........I strongly disagree.....the # 1 problem in our industry is a lack of business education and then business education specific to the green industry, a very unique profession with seasonality, agreements, job estimating, etc. Having done consultations with owners that have had MBA's, various degrees as well as the CPA status but no knowledge about the industry can be just as bad.

I've seen many companies, large and small fail and certainly as we all know that is not due to a lack of work........it's the lack of knowledge.

Second biggest problem is lack of horticulture expertise. Too many of us don't know the difference between and hand grenade and torpedo grass.............and ironically, this is our sales and service, bread and butter, etc.

I think you'll find those who are knowledgeable about business and hort are the ones that experience the most success, so learn from someone who's "been there".....educate yourself in areas you need help in. You'll be much more successful.

Nebraska
03-04-2002, 01:56 PM
I wonder if we are spending too much time giving away soo much information, that many of us spent thousands of hours and dollars figuring out by trial and error, for free that allows "joe's mowing" to move forward with far less "pain"? I think we walk a fine line especially knowing for a fact that the competition lurks these boards too.

LawnLad
03-04-2002, 02:52 PM
Lawnstudent... you ask a good question. I'd agree with Phagen that most of us at one point or another have low balled. And low balling, if you want to call it that, has its place in the market. Sam Walton did it well, and his model continues to thrive. His model depends greatly on high volume to get market share. This strategy works - but you have to know your cost of operations like the back of your hand.

My philosophy has always been if you win them on price, you'll loose them on price. It goes back to what CSRA said so well in his response.

When I was working on a marketing project in college several years back, I went to talk with several owners of larger landscape companies. Figured I'd get some good info for running my company out of the deal. One of them, who has done pretty well for himself (nationally recognized, doing $5 to $7 m in design/install with another $1.5 m in maintenance) said to me in the interview, "...if you're too busy, you're not charging enough."

I mentioned to him that I didn't have enough time to meet all the demand from my customers. The demand was at the price point I had set through my pricing. He suggested I charge more and continue to raise the quality bar to justify the higher prices. That we have done.

This guy also opened his doors to the Ohio Landscapers Association for the annual faciliites tour. He welcomed anyone of us to contact him personally if we had questions. I did several weeks later. After meeting with him, he set me up with his office manager to answer my questions about how they bid, handle paperwork, etc. She spent three hours with me sharing their office systems.

Why would he do this? His philosophy is that if he can help others become more professional in the industry, he is only making it a better industry for himself and his company. How true this is. I believe in his philosophy, which is why I'm so willing to share what I do - even with competitors. I may not have the answers, but I may be able to offer an idea or two that will spark someones imagination about their own business. I won't talk about pricing on specific jobs. But I'll share most anything with anyone who feels they'll benefit from the information since I feel ultimately it will come back and benefit me.

B. Phagan
03-04-2002, 03:46 PM
Amen Lawnlad, Amen!!

Well put and I wish more in the profession could read those comments!

We may just get our industry "professional" if more people thought like you....unfortunately, too many try to make profits based on production........$10-15 a cut.........mow a ton of customers.......in retail Old Sam Walton had the right idea but last time I checked, NONE of us are in the retail business.

Premo Services
03-04-2002, 04:06 PM
Originally posted by Nebraska
I wonder if we are spending too much time giving away soo much information, that many of us spent thousands of hours and dollars figuring out by trial and error, for free that allows "joe's mowing" to move forward with far less "pain"? I think we walk a fine line especially knowing for a fact that the competition lurks these boards too.

I agree to a certain point with you. By giving new people knowledge they will take it and use it for their business. These people would be doing quality work, and bid at the prices that we could live with. So the customer won`t think that they could get ligitimate insured companies doing quality work for the a lower price. I understand that there will always be a mow, blo,and go guy doing this as a side job and charging redicously low prices. But, you know what comes with low prices, low quality work. As I become more in tune to what my customers want and expect, I become the person that they want to continue to do business with. I say that I welcome the competition. It will make me strive to do beter and keep the jobs that I have, and continue to grow my business at the prices that I need to charge for the work.. Like others have said, giving low prices creates a vicious cycle that is hard to stop. I did it when I first started. I did not know but learned my lesson. I realized the costs of doing this were much more and had to raise the prices until I lost the customers that I had given the low price to. If someone would use the info to start out right,then it would be a lot easier for me to get the prices that I need to make a good wage also.
Jus my 2 cents

tlcservices
03-04-2002, 04:38 PM
i would like to know what is lowballing? My costs run $21.20 an hour, so if any of the experts can tell me what lowballing is please speak your mind. ps i would like to know what your costs are per person also thanks in advance for all the expert help

Premo Services
03-04-2002, 06:00 PM
[tlcservices] i would like to know what is lowballing?

Lowballing or Lowballers as they are referred to is someone that does not pay taxes, have insurance, or run a liget business, and can charge low prices because of this. Most of the time the quality of work is really low also.
A lot of people new to this business do it, not knowing better. But, thanks to sites like these they can get the knowledge to do it right.

KirbysLawn
03-04-2002, 06:06 PM
Like I said....

LAWNGODFATHER
03-04-2002, 06:17 PM
His philosophy is that if he can help others become more professional in the industry, he is only making it a better industry for himself and his company. How true this is.

This is the sole reason I am still offering advice, as to getting all your prices up in hopes we can make this a more profitable BIZ for all of us.

LAWNGODFATHER
03-04-2002, 06:25 PM
Originally posted by B. Phagan
Amen Lawnlad, Amen!!

Well put and I wish more in the profession could read those comments!

We may just get our industry "professional" if more people thought like you....unfortunately, too many try to make profits based on production........$10-15 a cut.........mow a ton of customers.......in retail Old Sam Walton had the right idea but last time I checked, NONE of us are in the retail business.

As Bill has written, in order for us (an LCO) to uses this model, we would have to be lowballers in order to do the volume we would have to do to make up for the lossleaders that mowing can turn out to be in order to get the amount of client base to up sell to bring up the prfit margin.

This means millions a year in just mowing, which inturn mean millions in equiment to do the work.

Last I check none of us here had this going, so lets not start the trend.

Profit, quality, not volume first.

CSRA Landscaping
03-04-2002, 07:18 PM
That was very well said, Doug. That's the approach that I see many here taking on LS. That's what keeps me coming back.

HBFOXJr
03-05-2002, 07:39 AM
Although I enjoyed reading Sam Walton's book some years ago I still feel the need to reiterate that contracting is not retailing.

When Walmart was getting started they did everything as cheap as they could such as eating cheap when traveling and sleeping multiple people in a room. How many of us are doing things in a fat way now? I'm guessing not too many. How many are big enough to put the squeeze on a vendor for special pricing, terms or services? Probably no takers here either.

Walmart claims the lowest prices, everyday garrenteed. It's frequently a false promise but I still shop there.

Recently a Philadelphia snack cake company was doing a promotion. At my favorite grocery store they were 2 boxes for $4, at Walmart, right by the registers in the impulse area they were 2 for $5. Walmart is neither stupid or the cheapest and we are not Walmart.

Anything as labor and equipment intensive as mowing has no business being a loss leader in a business that sells a handful of services or items.

It is one thing to wheel and deal on a single job when you really know your costs of production and you have a legitmate reason for wanting to secure that job.

As many have already stated before me, low pricing overall by newbies tends to lower the bar for all as people falsely think that is the going rate.

When you get people like this, how do you get them up? Raise them or cancel them. Then what happens to the word of mouth or the client list building process?

Nothing should ever be given with out getting something in return.

Nebraska
03-05-2002, 11:01 AM
There still exists a fine line between educating and divulging all your efficiencies.