One of the single most important things in growing a Landscape Maintenance Business is having a stable business base. That is a book of business that renews from year to year. The higher percentage of jobs retained each year, the less new sales are required for positive growth. The better companies in the industry retain at least 90% of their contracts from year to year.
Another major benefit to client retention is that efficiency improves each year for the first couple of years, making the job more profitable. If on top of the efficiency improvement you are able to also increase the price that is even better.
Price increases are always necessary to recapture increasing costs of doing business. Has there ever been a year where employees took a pay decrease because their costs went down? However, over the last 15 years, getting price increases has become increasingly difficult.
Many companies have high retention rates and eroding margins. Go the extra yard and position yourself for the price increase.
Hopefully, you do job costing, so you know what margin each job earns. Should you increase high margin jobs? I think that you should, although you should be willing to back off if you face resistance. Low margin jobs should be increased as much as the client is willing to pay. Take into consideration the whole picture. Do you get much enhancement work? If so, it may be worth keeping a lower margin contract.
Call or visit your customer to discuss the increase before putting it into writing. This is critical. If you just send a letter advising of the increase as some companies do some clients put the job out to bid without even telling you. What works?
- First and foremost, stay close to your customer and do good work. As the owner of the business you personally have the most leverage in securing the renewal and getting the increase. If you delegate this to employees, remember that they do not and will not have the same vested interest as you in getting the increase and will back down just to get the renewal.
- Understand and be sensitive to your customers business. If their business is hurting, you may have to forgo the increase. You can reduce services to retain the same margin, or sometimes it is best to delay the increase until better times.
- Make sure you are in a strong position at renewal time. Be more diligent in checking the client’s property in the months prior to renewal. You can’t afford to have a customer service glitch at renewal time. Make sure your crews take extra care at this time.
- Do some reconnaissance. Try to determine if other service providers of the customer have been able to renew and get increases and how much? If you see changes in other service providers that should be a warning signal that it may not be business as usual.
- Get involved in the customers budget process. If you are close to your customer, you should be able to find out when they budget for the coming year. Give them a budget number for your increase, as well as a budget for enhancements. They usually have budget guidelines and will be able to tell you what they are expected to do with service providers. In tough times they may be asked to cut costs. You need to know this.
- When asking for an increase, do not just ask for an inflationary increase. That usually doesn’t sell. Be specific in citing which of your costs have increased. This year most companies have had increases in liability, health and workers compensation insurance. The customer has also and will be able to identify with that. Build your case around specific cost data.
In summary, this is a critical area of business management. Placing emphasis and efforts here truly pays off on the bottom line.
Consider Auto Renewal Language in Your Contracts
There are times such as during recessions the renewal of a contract could trigger a bid process that you want to avoid. During recessions there is always someone out there that will put in a low bid. One protection is to include “auto renewal language” in your contract.
Language for Auto Renewal
The initial contract is for a period of one year. The contract will continue on a month to month basis after the first year. Either party can modify the terms or cancel the agreement by giving 30 days notice to the other party.
Alternate
The contract period begins on (date) and is for the period of (term in years) ending on (date). The contract will continue after the ending date on a month to month basis unless either party notifies the other of their intent to end the contract by giving 30 days notice or their wish to change the terms of the agreement.