The Road to Success is a Landscape Trades business column by Rod McDonald, who shares inspiring stories, practical ideas and smart navigation tips for green businesses.

Setting prices — whether you are a landscape contractor, a small-town independent greenhouse operator, or an established third-generation wholesale nursery — can be a difficult process. There are many factors that determine success in pricing, and luck has little to do with it. A friend of mine grew up in a family that ran a respected nursery. My friend asked his father how he established the price list and the response was, “Well, the fellow north of me is always a little too high in my opinion, and the fellow to the west of me is a little too low, so I take their price lists and I try to be in between.” My friend challenged his father. “Dad, what if the fellow priced higher than you is losing money on an item, and you still price lower than him? That doesn’t make any sense.”

His old-school father replied, “This is why I paid for you to go to university?”

KNOW YOUR COSTS

Existing market forces are only one of the factors in establishing price. Your cost to produce a product, whether it is a two-gallon potentilla or an irrigation system, must be determined. Keep these things in mind: Depreciation is often overlooked, yet it occupies a legitimate ledger line in book-keeping. It costs you to replace equipment, so prices should allow for depreciation.

A contingency allowance is also a legitimate estimating cost. I knew a land-scape contractor who always bid low. His entire bidding scheme was based on a perfect scenario. The sod truck had to be on time, he could never need extra topsoil, and every worker had to perform at 100 per cent every day. Needless to say, he went bankrupt.

Undervaluing your own time is another frequent mistake. Often times, an independent contractor will work long hours for low pay — something he would never accept from an employer. One contractor explained to me, “I don’t include my truck because I need a vehicle to drive. I don’t include my phone because I need one anyway, and it’s just my wife answering it. If I don’t make much money, at least I don’t have to pay someone else because I do everything myself.” His company folded and everyone in the trade knew why.

PAY YOURSELF

Business owners should pay themselves a salary comparable to what they would have to pay someone else to do the same work. Even if the salary is just a line entry in the books, it will show just how much you are making in profits — or how little.

Recently I met a greenhouse operator who was in her third year but was barely turning a profit. I asked her about prices — they were 40 per cent lower than the market leader and 25 per cent below the industry average. I told her the answer to profitability was right in front of her — she had to raise her prices. Her response was a common one. “But people complain that my prices are already too high,” she said. “Yes,” I responded, “and if you cut them by 25 per cent they will still complain.” I asked her if customers complain about quality and the answer was a resounding “No!”

People always complain about prices. In all my years in business, I never had a single person thank me, or even comment on a low price or door-crasher special. I never lost a moment of sleep over price complaints. Respond to complaints over service, quality and cleanliness, but not price.

A few weeks ago, I was having lunch by myself in a cappuccino shop. A young man from the neighbourhood asked if he could join me. He told me he had previously worked for a local contractor who cut corners. He said that homeowners complained bitterly about the quality of the work. He said his boss got a great deal of work because his prices were low, but warranties were non-existent. The young man decided to apply for a job with a more reputable firm. What could I say, except that he was making a wise decision?

SCREEN YOUR CUSTOMERS

Your price must reflect the level of service and the quality of the product you provide. As my business grew and my reputation developed, the price-cutting competition had less of an effect on me. I found we were rarely bidding for the same job. I quickly learned to screen potential customers when they called for estimates. People who said things like, “How much to slap down 200 yards of sod?” or those who admitted to calling every contractor in the phone book, went to the bottom of my list. Repeat customers were always at the top of my estimate list, followed by friends and neighbours of customers. I wanted to quote for people who wanted to hire my company.

My formula for setting prices included the cost of purchasing materials, overhead, labour, government costs, depreciation, a contingency allowance and most importantly, how much I valued my time and services to be worth. Over time, I learned not to undervalue my service and it paid off. It kept me on the road to success. LT

Rod McDonald owned and operated Lakeview Gardens, a successful garden centre/landscape firm in Regina, Sask., for 28 years. He now works full time in the world of fine arts, writing, acting and producing in film, television and stage.