Downward price pressure

[Deere John]

This season, I noticed that some (only two) customers were asking about price breaks for OUR efficiency. We invested in vee plows and other small things to allow us to take on more work, and the customers are doing the math to get up the nerve to ask for a break.

I responded with a qualified NO, based on our costs to provide a finished product ( with some detail). Question: I was wondering if others have noticed the same thing, particularly those using the push boxes that improve efficiency so much?? Are people noticing the time vs. cost ratio for your services?

[John Allin]

If they have noticed, they aren't saying. And if they do, my answer will be "no", just like yours.

[Alan]

We make improvements in efficiency for OUR benefit, not so we can cut out own throats. Nobody has approached me with that yet, but I'm sure they will at some point. I'm not about to even consider it.

[blades]

Deere John,

I'm a real newbie here (first post), and have been loitering this past weekend, as I'm seriously considering getting a plow for my truck.

My guess (regarding your question) is that this sounds like automotive supplier tactics, and this may be the result of a trickle-down theory. The auto (and other large) companies put a lot of pressure on their OEM suppliers to actually give price concessions each year on thier product, the logic (if you can call it that) being that the supplier is getting better at making a particular part, and should be improving in terms of both process and efficiency. These concessions are actually demanded by the larger companies, and are typically negotiated up front. I think GM is typically 4% reduction per year for the first 3 or 4 years of a product cycle. All this results in, however, is a higher up-front piece-price to the large company, as these concessions must be built into the price of the supplied product.

What does this have to do with you? The smaller companies attempt these same tactics with THEIR vendors, whoever they are, in an attempt to reduce their costs. Usually doesn't work, though. More OEM suppliers should try to use the same logic you presented to your customer. Unfortunately, when dealing with large companies, there is no such thing as logic.

Sorry for rambling so much :)

[landscaper3]

We picked up a few accounts (new ones) they had me come over for a estimate and when I gave them the estimate the customer siad WOW thats too much can you work with me on price, I siad no I cant I have set prices and its late in the season for me and im real full and cannot ajust my costs, at least 6 asked me too, got 3 of them made them sign a contract which they didnt like but WE - DO - NO - WORK - TILL - CONTRACT - IS - SIGHNED. I even tell them if they want me to run one over for them to sign ill be glad too. If they say mail it ill look at it I say until contract is back no work is to be performed. I run a hard and direct system from being burnt by residential people so now all go on contracts. The ones who have no problem signing are the ones youll get paid by and the ones who dont want to sign are the ones who MAY not pay.

[GeoffDiamond]

Last year I started useing the F 650 on private roads, for years we just beat a 1 ton down them. Only last year we used the F 650, I think after the first storm i got 6 phone calls asking if the price would go down, because it took less time. My answer everything no, no, no, and no.

Geoff

[RB]

I would acutally consider giving them a price break.

If a customer asked me for a price break I would polietly ask them how much of a break they need. I'd then try to find out why they are askign for a break. Maybe they just received an unsolicited bid that is a little lower than yours. They like your work and want to keep you, but they are in business and you know you probably won't be there next year if you don't lower prices. How much do you want the job?? I'd also ask myself if I can afford to give them a break.


I guess for me it would have to be a win/win -- what am I getting out of this deal by lowering prices??

Am I crazy??

[GeoffDiamond]

if you give them an inch they will take a mile. In the snowblowing biz it's true.

Geoff

[Alan]

I won't dicker, period! If I can't work for my rates I'll park the truck. If you want a cheaper price get somebody who does cheaper work.

[RYAN]

I never budge on a price. The time it takes to do the job should have little or NO bearing on price. Say my truck breaks down one day and I have to remove there snow with a hand shovel. Are the going to let me triple charge them sice it took a lot longer? I doubt it. And I won't budge either.

[DaveO]

I have seen a trend towards down pricing around here. The lack of snowfall in this area(S.E. Mass) has created a lot of "lowballers" just trying to get work.

Most larger acct's still retain the better contractors for their seasonal contracts. The smaller commercial acct's are getting lower and lower bids every year due to the number of plows around, and the lack of work.

Almost every smaller commercial is switching contracts every year because of a "lowballer".

I am now a single person operation due to a split with my partner, and have lost two commercials this year. One to a "lowballer", the other to the property owner who bought his own $100 plow truck in attempt to save every $$.

The weather has been so warm the past couple of years, that customers watch the weather and decide "NO PUSH", because it should melt in 2 or 3 days anyways.

I think we NEED a severe winter of snowfall to remind people of the value of our service, and weed out the fly by's.

Dave

[GeoffDiamond]

I have some relatives in the portland area. The winter of 1995/1996 weeded out the men from the boys. I think the winter before one of my reliatives parked his truck and plow because of low ballers. Well in 1995/1996 where portland had record snowfall, his old customers were calling him back pleading for his services. That was a weird winter I think Portland had more snow than Caribou for the month of september, because all the storms were costal.

Geoff

[JD PLOWER]

I have to agree with Dave, here in the Boston area we have seen a DRAMATIC DROP in prices . That trend has been going on since the early 90s when the economy was slow and every cowboy with a pickup called themselves a contractor. Its only become worse with the explosion of 4x4s. I am praying for a severe winter just so we can show that a contractor who is willing to do a quality job for a little more money is worth the price they ask. I have come to the realisation that a buisness around here will always go with the cheaper price unless they are forced by Mother Nature to see the error of their ways.

[John DiMartino]

I find that if you go after the bigger commercial/industrail sites,the prices arent affected by low-ballers as bad,because they cant handle them,and they usuallu do not carry any insurance other than normal auto policy,so they arent allowed on the sites.I am picking more of them up and dumping the residentials,since they are easy to lose and dont pay great anyway.

[jrblawncare]

John,I'm new at the plow game this year,but I'm with everyone else.NO WAY...on the price break....You said it,you got your V's to help with your efficiency,not for the customer.Competition in your area may have a bearing on this,you will know that better than us.I guess I'm looking at it like on the "green side"...If I'm mowing with a 48"walkbehind and go out and get that 9k 72"ZTR mower and cut my time in half,will I give them a break...I should say NOT! JRB

[MJ]

If anything, you need to raise the price to pay for the equipment. Not only is it more efficient from a time-saving perspective, but it should also be more effective in performing the job. The result would more cleaner lot etc or better visual effect in the case of lawncare. So, my response would be "No, but I do need to consider an increase." End of discussion.

Mick

[plowking35]

I will admit that in one respect I have saved my customers some money over the years. It was probably during the lighter years when my contract minimums were not met, and I didnt charge the full amount of the contract price. But overall we charge 3-5% more each year. Every per push account goes up every year, and all seasonals go up, unless it is a multi year contract, and they rate locked . Some of our contracts have a built in increase every year, and we just charge the new amount the next season.
We have a serious lowballer in town, and the rest of are still waiting till he flames out, but so far he has stayed alive. We cant figure it out, but he is still out here, putting pricing back to 1981.
Dino

[Michael Fronczak]

We had a serious lowballer for lawncutting, snowplowing prices were OK, we had a mutuall friend, after he went out of businees I got copies of his snowplowing & lawncare estimates, as well as accounts recievables list, didn't add up his bills far exceded his income, $ 100,000, he had 4 pickups all within 7 years old, a F600, skidsteer, two tralers equiped for mowing, and a dump trailer, I'm sure more I was never at his shop, I never could figure out how he was advertising weekly lawn service starting at $ 10 and was buying this stuff +property, a boat, a bagel/donut shop ect., I told my friend I know there is money in this business, but not that much, especially when you have only been in business 2-3 years, he was one more year after that discussion. His wife was just recently arrested and charged with embelzing aroun $ 500,000 from the law firm she worked at.

[John Allin]

RB -

I don't think you're crazy. But, I do believe that after a few years your attitude will change. Especially when you figure out what it's costing you to do business, get enough customers that you don't have to be beat up like that, or if you get burned a few times.

All these guys on this thread can't all be wrong....

[JCurtis]

Fuel prices continue to rise, insurance continues to rise, interest rates continue to go up, etc., etc., etc..

With all of the costs associated with running a legitimate business increasing, it is out of necessity that we look at ways of running more efficently. If we didn't we would all be out of business.

Our landlords, electric companies, fuel suppliers don't give us price breaks if they do things more efficently. If anything they raise prices to make up for the added investments they just made to improve services.

HELL NO TO PRICE BREAKS!!!!

[thelawnguy]

Everything in this world is negotiable. Fact is, if everyone else is also becoming more efficient, that job (and others) you held the line on may be someone else's gravy job next year as you unknowingly become overpriced in an increasingly efficient and competitive market.

"Our landlords, electric companies, fuel suppliers don't give us price breaks if they do things more efficently. "

In my market they do. Its called competition.

[jaclawn]

I have had lots of thoughts and conversations on this very subject; getting the work completed faster, by using more efficent(expensive) equipment.

I have not come across this in the snow trade, because most of my plowing is done during off hours, and my commercial customers are not there to run the stopwatch.

I have, however come across this in the "green" end of the business. I can remember the most notable occorence, many years ago, when I first upgraded to commercial walk behind mowers, from 21" mowers. My time on site was greatly reduced. A few cutomers asked if the price would drop because it now took less time. NO.

I explained that there were a number of reasons for my decision. 1. That machine costs much more than a smaller one. 2. That machine costs more per hour to operate than a smaller machine. 3. That machine costs more to repair than a smaller machine. 4. THat machine takes up more space on the trailer and in the shop than a smaller machine... YOu get the idea.

I put it to the people like this: If you hire me to dig a ditch in your yard, and we agree on a price of $200.00, Great. If I come out with a pick and shovel, and spend an entire day digging by hand, you would say that I really earned my money.

Now, on the other hand, if I come out with a $40,000 backhoe, and am finished in 45 minutes, you would probally complain.

The result is the same, the ditch is dug. How it got done is irrellivent.

[OBRYANMAINT]

no way over head costs too much(labor)

the sweet taste of a low price is quickly forgotten to the sour smell of a bad job

[Deere John]

Hi All - thanks for the reply's in the past two days. I'm just signing on now as we have been out for the last two days with 2" already on the ground today again and the same forecast for tonight.

Anyway - I am holding the Co. guns, and you know what(?), I signed up three more seasonals yesterday on my terms, and the fourth elected to remain as a "I will call you if under 3" but with a negotiated depth trigger above that. I told him fine, but without a place on the list, he comes in at the very bottom...

Bottom line is MY bottom line - hold the fort on prices

[Hemipower]

Originally posted by plowking35
I
We have a serious lowballer in town, and the rest of are still waiting till he flames out, but so far he has stayed alive. We cant figure it out, but he is still out here, putting pricing back to 1981.
Dino

What is he charging??

[plowking35]

On a walmart sized lot, he is chargeing 30% of what the last contractor did it for.
Dino

[Stonehenge]

Well, I'm certainly not keen on lowering prices. However, I did just buy a PC a week ago for the same price I bought one 4 years ago. The processor is 6X as fast, it has 20X the HD space, DVD, CD-RW, internal Zip, on and on.

I certainly got a price break for that industries efficiencies.

PC's don't work well as plows, but you get the point.

[Hemipower]

Originally posted by Stonehenge
Well, I'm certainly not keen on lowering prices.

Me neither, but when everyone and their brother has a
plow, i.e., competition, prices *will* go down.

However, I did just buy a PC a week ago for the same price I bought one 4 years ago. The processor is 6X as fast, it has 20X the HD space, DVD, CD-RW, internal Zip, on and on.

I certainly got a price break for that industries efficiencies.

That's cuz everyone and their brother is making,selling,
and re- selling the damn things. : )
Congrats on the new system BTW.

PC's don't work well as plows, but you get the point.

Yep. The point is we have to deliver better service
at a fair price and honest price.
I'm not above making a killing, in fact I'd love too.
I also like to eat, so if everyone is doing ten
dollar drives I'll do em for 9. I would never
park the truck if it will make a buck.

just my .02c

Wanna hear something sucky?
I heard a clunking noise this morning under the truck.
Lo and behold the complete rear section of a rear spring
is GONE. I ain't kidding, completely gone. The only
thing holding the rear axle in is the other spring
and the front section of the wasted spring.
I wonder if it would hold up to a plow in an emergency?
Anyone?

[Matt]

So much for making a buck doing those drives for $9 that someone else was doing for $10.
We are no way near the cheapest contractor in our area and still have to turn away accounts that want the service, but we don't have the time. We really need to line up subs but I am afraid that with the subs will come a lower quality of work.

[BRL]

Stone Henge,
Good point but its really comparing apples to oranges. The PC is a manufactured product that is sold, while snow plowing is a service that we sell. While products can be manufactured cheaper and with better efficiency with an end result of cheaper prices for consumers, our service can only become so efficient before the necessity of buying larger & more expensive equipment, and those added costs do not result in cheaper prices for consumers.

[John DiMartino]

We havent had a good winter since 94.We need a severe storm to separate the men from the boys,then you will see these under equipped low priced operators loosing contracts left and right due to lack of performance.Guys that should have been driven out years ago are still here due to weak winters.

[BRL]

You're right John. I remember many guys & gals buying plow trucks after the blizzard of '96 here and how all those people were going to make a mint. Since then we've had 8 plowable storms & I've slowly watched all of those new trucks & lots of used ones up for sale by their disillusioned owners. In my area I look at being in the snow biz as playing the stock market. You have to be patient & be in it for the long haul. Our time will come. The weird thing I noticed driving around here is that there are a whole lot of plow trucks up for sale this week now that our season may really start. I'm wondering if these people were just waiting for snow to be forecast to try to better their odds for selling them, or maybe to get more money for them. Never saw so many for sale at one time around here.

[Stonehenge]

BRL,

I have to respectfully disagree, regarding the purchase of expensive equipment.

The only reason I buy equipment is to drive the unit cost of whatever I'm doing down, making me more money. Are you buying equipment that's making you less efficient?

Now I'm sure the bigger eqpt costs more, but it should be making your labor costs drop, because you can do so much more work with the bigger eqpt.

But don't get me wrong - we're on the same side - I think that those efficiencies are something you should pocket, and not give back to the customer. Along with that bigger equipment comes bigger headaches, bigger potential for disaster. That's compensable, to me.

Not apples to oranges. Maybe Granny Smiths to Braeburns.

[thelawnguy]

Originally posted by Stonehenge
But don't get me wrong - we're on the same side - I think that those efficiencies are something you should pocket, and not give back to the customer

In a perfect world, yes. In the real world, you use that efficiency to keep prices in line with, or lower than, competitors, prevailing rate, etc.

Doesnt do much good to have the best, highbrow equipment if you have no customers willing to pay you to use it.

[John Allin]

For what it's worth, I have to side with Stonehedge on this one.

We invest in equipment (large, expensive equipment) soley for the purpose of putting more on the bottom line. Yes... the possibility of expensive repairs can be daunting, however it is our intent to increase the overall margin and not give money back to the customer. I think it is part of our mission in the service business to increase efficiencies in order to increase margins. We have made a conscious effort not to lower pricing strategies to get business just because we can afford to do the work cheaper knowing we have more efficient equipment. And it does take effort (sometimes monumental effort) to keep the pricing where it should be in the face of contractors trying to "break into" the biz.

I have a competitor (who charges mostly by the hour - and most of you know how I feel about THAT) that has just (this season) invested in several sno pushers and he didn't increase his hourly rates. Just put the pushers on the loaders and left his rates the same. From an accounting standpoint - that is foolish as he apparently has no overhead recovery program in place to cover the depreciation on the pushers.

Of course, he has increased his volume somewhat by taking on more business - but (as far as I can figure) his overall seasonal profit (in total dollars) is the same or lower than previous years. Same total profit on increased volume?? That can be a fast track to bankruptcy if he grows too quickly. I've seen it time and time again around the country.

In a seasonal service business, like ours, I am not at all in favor of lowering pricing just to get business. And, so far (over 23 years) it seems to have worked for my snow business - and we continue to grow quite nicely.

[Hemipower]

Originally posted by BRL
Stone Henge,
Good point but its really comparing apples to oranges. The PC is a manufactured product that is sold, while snow plowing is a service that we sell. While products can be manufactured cheaper and with better efficiency with an end result of cheaper prices for consumers, our service can only become so efficient before the necessity of buying larger & more expensive equipment, and those added costs do not result in cheaper prices for consumers.

I realize we are comparing apples too oranges as well but,
when people are taking bids it is usually the lowest one
that wins. I know this ain't the smartest thing to do
if you want the best service but I also understand
it is a competition thing. My point is when I'm hungry
and the rent is due I will only park my truck when
the gas cost is more then I'm making plowing.
Of course I can get away with lower cost cuz I have little
overhead and I do all my own repairs.

I know next year I'm getting another truck so I can keep
my spare parts to a minimum. Plus I hate those three in the morning wrench thrashes. I agree with that other guy
that I don't want my service to suffer with subs.

I will find a way or make it. : )

[Hemipower]

Originally posted by thelawnguy
Originally posted by Stonehenge
But don't get me wrong - we're on the same side - I think that those efficiencies are something you should pocket, and not give back to the customer

In a perfect world, yes. In the real world, you use that efficiency to keep prices in line with, or lower than, competitors, prevailing rate, etc.

Doesnt do much good to have the best, highbrow equipment if you have no customers willing to pay you to use it.

Very good points. Who wouldn't want all the best and biggest
equipment? I admit I got into this business cuz I wanted a
4X4 too play with and a love
of plowing.

My first truck cost $500.00 and lasted 4 years
till I slid into a shipping container. My next was $750.
and lasted till the body collapsed onto the frame.
My current one was $2000. and I hope it too last at least
15 years. I am sand blasting and painting it to assure this. In fact I don't want one of those new
computerized things that can not be fixed on the spot.
But that's me.