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at what point is enough enough with low profit customers?

Discussion in 'Business Operations' started by Right Touch, Dec 8, 2010.

  1. Right Touch

    Right Touch LawnSite Senior Member
    Messages: 382

    As my business continues to grow and expand, what do I do with the low profit residential customers that I took on years ago when I was a solo operation? There is the nice guy side of me that feels I should keep their prices low and put up with their constant complaining and there is the business side of me that says I have never read a business success book that says, "The best way to grow a business is to concentrate on your low profit customers." I feel bad raising prices on these customers (most of them older people who dont understand todays prices) but Ive recently gotten married and had a baby, and my company provides a level of service that is worthy of a slightly higher price. Do I pursue my gut feeling and raise my prices knowing I will lose many of these customers because they care only about price, or do I find a way to continue to service these properties knowing I am only netting a couple hundred bucks a year? they are $30 a cut, never ask for any extra services besides fall cleanup, and never get our company more work through referrals or anything, so you figure we cut maybe 25 times a year so thats $750 plus maybe $150 for fall cleanup, totaling $900. After paying labor, fuel, equip maint and such, net profit may be $400 a year. What point is profit too low for the hassle? Does anyone set a low point for profit? Or is any profit worth keeping?
  2. Woody82986

    Woody82986 LawnSite Silver Member
    from DFW, TX
    Messages: 2,128

    I am of the persuasion that any profit is good profit until it hinders you from taking on new work with a higher profit margin. Basically, until your schedule is completely full you should keep any and all profitable clients. Once you reach capacity, you either have to decide to start dropping lower profit margin clients when you gain a new client with a higher margin... or expand and keep taking the work with an expanded work schedule.
  3. Az Gardener

    Az Gardener LawnSite Gold Member
    Messages: 3,899

    Sell them, or if your really generous give them to a young upstart.
  4. Right Touch

    Right Touch LawnSite Senior Member
    Messages: 382

    that is the point I am at. We have 100 or so residential/small commercial clients with one 3 man crew doing it all every week. Too much for one crew, not enough for 2 crews. I would like to get more commercial work to fill in the space if I do start a second crew, just not sure of the correct approach to obtain those accounts.
  5. Darryl G

    Darryl G Inactive
    Messages: 9,500

    The way I deal with it is that those customers just don't get priority service. Lesser price means lesser service. So if it's been raining for a week, when things dry out I'm going to jump on my high end priority customers and let the budget customers slip. Or just do the higher priority trimming weekly and do the rest, like around the wooded border and the trees in the back yard as needed. They probably won't even notice. Pretty much I have a set time amount of time that I budget for each property based on what I'm charging for it and try to make it look the best I can in that amount of time. No, I'm not going to leave the lawn half cut, but I'm also not going to go crazy making it look perfect.

    So I guess what I'm suggesting is having different levels of service and don't give them anything they won't notice, while still protecting your company image. Budget customers get basic service, full service high end customers get platinium service and decent full price customers get silver service...something like that. It doesn't have to be something you market, just an internal thing. And maybe bump them up just a little.
  6. MarcSmith

    MarcSmith LawnSite Fanatic
    Messages: 7,157

    simple... raise the price. if the don't like your service for the price you charge, then they will leave you and open space for new jobs. if they decide to stay, then you are making more on those jobs.

    lets say you've been a loyal customer of safeway for 3 years, do they keep their prices low for you????

    Yes there is a point in which the first clients that we all "gave away" services for to get started have to pony up to keep up with the times. but if you haven't raised prices on them in years, chances are the sticker shock when you raise their price will send them looking. Especially if they are complaining. you'll get more complaints if they are paying more for the same service.

    what are they complaining about..
  7. Eric E

    Eric E LawnSite Member
    Messages: 70

    Years ago I spoke with a business consultant. He said to take the bottom 30% of clients, and send them a well thought out letter explaining there would be a price increase. If they agree, great! if not, replace them with a more profitable client.
  8. zturncutter

    zturncutter LawnSite Bronze Member
    Messages: 1,308

    This would be my approach.

    If you want to get rid of any guilt, tell them about
    your growing family and when the majority of them tell you it's not there problem you will feel better about raising them. It's business, your family comes first.
  9. Eric E

    Eric E LawnSite Member
    Messages: 70

    Forgot the other part of this...Do it annually.
  10. MarcSmith

    MarcSmith LawnSite Fanatic
    Messages: 7,157

    eric, where possible you need to do it with employee's as well... cull the bottom 20-30% annually.

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