[Cochran]

I have realized there are two landscapers in one of the communities we service that are essentially price gouging residential customers. I have encountered one/both of them now for the third time while submitting bids. They are submitting bids for similar landscape design/install work, but their proposals are double what my proposal is! How do you make the customer realize the competition is grossly overcharging without badmouthing?

My proposals have a very nice profit margin included and I feel they are very fair. They are paying the bills, paying me, and putting some in savings. When clients tell me the price of the competition I am completely blown away! I explain my proposal and the quality they are receiving by choosing me as their contractor, but in the back of my mind I wonder if the client is thinking I'm an undercutter or a poor quality contractor.

The previous two bids I won one and lost one. The homeowner that went with us is very satisfied. They called us because they felt the pricing was too high by one of the contractors. Not sure about the other homeowner, though the landscape installation is way below my standards...

Have any of you encountered this, and if so, how do you politely inform the customer that you're fair and the competition is taking advantage of them? This is just getting my gizzard right now since this is the third time in 3-4 months I've run into this. This homeowner I am dealing with rigt now is very concerned about quality and I know I can meet or exceed her expectations, but I'm not too sure the competition can. This homeowner paid her home builder well and they're not afraid to shell out the money for a nice job.....how do I make her realize (without being too "pesty") that more money doesn't mean better quality with the competition I have?

[Stonehenge]

Cochran - I hate to say it, but that sounds like it's coming from a lowballer. Before I ruffle any feathers, let's assume you're not, and that you're making a decent living with the work you do.

I wonder why you would even need to educate the client about your competition. If they have the disposable income to hire your services, they're probably smart enough to know $10,000 is more than $5,000. And if they have that money to spend, they know it doesn't grow on trees and in general will want to preserve as much of it as possible. The only variable at play is what the perceived value is to the client. If the client is satisfied that the higher price will gain them better work or better service, who's to say they're wrong? If their expectations are met, then to them it was worth the difference in price.

Now your competition may have much more overhead than you do and may need to price that way to recoup their costs. Or it could be that they have higher expectations for their return on investment. To me that's not price gouging. That's charging what the market will bear. Capitalism. Price gouging is a movie theater prohibiting bringing in home-popped popcorn, then charging $6 for a small tub of corn.

If the clients are choosing your competitors over you, despite the difference in price, you should take a long hard look at why and make some changes. After all - earning money is not a crime.

That's not what you were asking, but I hope it helps.

[Cochran]

Cochran - I hate to say it, but that sounds like it's coming from a lowballer. Before I ruffle any feathers, let's assume you're not, and that you're making a decent living with the work you do.

Stone--I'm really not a low-baller, unless I'm competing against one of these two contractors I'm usually one of the most expensive. It's only this particular city out of all we service that this is happening.

I do know their overhead is higher than mine just on labor alone--it seems they need twice the folks I do to get the same job done in the same amount of time. Their pricing structure has only inflated this highly just in the past few months. I know I've adjusted for fuel and price increases, but not as much as they have, apparently.

If the clients are choosing your competitors over you, despite the difference in price, you should take a long hard look at why and make some changes. After all - earning money is not a crime.

Right now, it's at 50/50--I've won one and I've lost one (that I know I've bid against one of these two guys). I don't want to be in the lower percentage and that's why I want to solve the problem before it really starts.

[Lanelle]

At the moment it doesn't matter much what tune you sing to these prospective clients.
They need to hear from someone else such as some of your satisfied clients. Get a list of people together (call them, get permission to use as references, phone number to use) along with photos of their jobs and give it to the prospectives. These folks can call and chat with your clients and you can let those clients brag about you. They have to be sold on your value. Remember, the client isn't really sure about the technical side of the proposals and what will result in quality and what may not so they need to see the proof in the form of third party experience with you. Good luck, hope that helps.

[Fine Edge]

Good! We love a certain company that works in some of the same areas that we work in also. It seems they are always waiting for the one big home run that will give them a fat payday.
With my references, portfolio and knowledge, we get every single job when we quote hand in hand with them. I love that company! I really need to call them and see if they need anything just so they stay in business.
Bottom line: Don't worry about it. Stay confident in your own company and take Lanelle's advice.
I just saw it happen to my client from the pool company. They hit some minor rock ( the loader w / teeth was slow but still digging it ) & they decided they had to have a backhoe. No biggie. They rented a Bobcat 442, 445 or something like that and used it for a total of 8 hours.Still used the same operator that was going to be digging the pool anyway.
Charge to the client that he OK'D:
$4000.
Ouch!

It happens all the time, just a part of life.

[jshilan]

I'm pretty much in the same camp as Stonehenge.

Price gouging can only occur when a consumer has to purchase a product or service because they have no other choices. For example, say a country was completely dependent on a fuel source to power their vehicles, heat their homes and earn a living. And let's say the providers of that fuel source know that the country is completely dependent and that they currently have no viable choices for alternative energy. Next, what if all of these providers got together along with the government and agree to artificially raise prices as much as three or four times? This would truly be price gouging. What this does is ...

Hey wait just a darn minute, I think this is really happening.

Your situation is completely different. You are in a competetive marketplace where consumers have choices of whether they want a specific service, who they want to work with and what they feel is an appropriate price. The market determines the prices not the individual. If a company can get above market rates for something, then either they are providing a better product or service, or giving the perception of a better product or service. Either way they are getting paid more for something that you charge less for.

If I were you I would look at how you are perceived as a company. If someone can sell the same product as you for twice the money, that is fantastic (for them). I also would strongly advise that you do not spread rumors about this other company or approach them, for several reasons. One, it is illegal (slander). Two, it just makes you look bad. Three, it just doesn't make any sense.

Maybe your prices are too low. Maybe the market desires higher pricing and you are off the mark to the downside. Since the consumer is willing to pay more, by hiring your competition, you are actually making the consumer question why your prices are so low giving the perception that you are actually providing an inferior product or service or running a questionable operation. This is the real problem.

Raise your prices tomorrow. There is nothing wrong with making more money.

[Greensmith]

Raise your rates 50% and still get the contract? I wish I could do that! Are these guys getting the contracts?

[prapoza]

I can't believe you're complaining about this. If you know you are going against these guys raise your price and still get the job. As an industry we are way under valued/priced. We take on a lot of risk show up with lots of Iron and get 10-15% profit if all goes well, industry average is actually around 7-8% last time I checked.
There are well established builders in my town that charge double or triple what some other well qualified, great craftsman charge. They have a great reputation, history (2nd or 3rd generation builder) and long standing clients. I can't imagine hiring these guys but their clients can't imagine hiring anyone else.
You started your business, by the info on your website, in 2005. Maybe these people don't want to take a chance on a new guy. I would say you need to raise your prices.

[agla]

Somehow they are perceiving a higher value in these other contractors. Different people value different things with more or less intensity - a different balance of values, if you will. Some get hung up on little odd details and are blind to other things.

We've all run into people who get all happy and excited about painted wood chip mulch and others who would make you rake it up and take it as far away as possible for example. Some people are more worried about impressing their friends by being able to say XYZ, Inc. did their landscaping than if they had twice as nice a landscape by a lesser known company.

It is probably less to do with you than it is to do with the prospect.

One thing to be on the lookout for is to have too much in your portfolio. If there is one thing that a prospect really detests because of their own personal taste and they see it in your portfolio, they can become fixated on it and become blind to all the other good things that you have done.

I have noticed that a lot of landscapers like to include before and after pictures to illustrate dramatic improvements (I used to do this and have to fight with myself not to do it). What we don't get is that it trashes the overall look of our portfolios compared to having nothing but the nicest stuff. (think about the commercials for weight loss with the before and after of the girl in the bikini - it kind of ruins the after, doesn't it?).

Raising your prices is not going to change perceived value. Different people like different stuff. Because one or two people like someone else's stuff better than yours does not necessarily mean your stuff is not great.

The high end market in my area tends to go for rather simplistic plantings rather than specimen plants and edgy design. It is almost hard to be restrained enough to do it, but if you don't go with the flow you won't get the job. At the same time, the lower to mid market wants to be "thinking out of the box". Its kind of funny, but it makes it very difficult for landscapers to bridge over into the higher end. It also frustrates them because they see the higher end guys as being dull, unimaginitive, and less deserving of the work. Could it be possible that you are reaching into a market that is after a look that you are looking past?

[Cochran]

Ok, maybe Price Gouging is the wrong term to use--maybe Taking Advantage of the Pocketbook would have been better.....

Let me try to explain a little better--We service 5 cities and their surrounding communities in our area (about a 45 mile radius from our house). In 3 of these communities, I get slashed right and left with the lower cost guy-I know when I get a job in one of these areas the homeowner wants quality and values my services. The 2 other cities (the one in question included here) the lower cost guy has a little harder time competing because a higher percentage of these clients want higher quality work.

My pricing structure is the same throughout the area, there are variances in my fuel pricing based on where the location is, but basically I bid all jobs equally regardless of location. After overhead is figured in, I have about a 35% profit on landscape installs, which I put 15% of that into savings for growth/expansion/emergencies in the future.

I do run small installation crews (no more than 3 men) because quality control is a big issue for me. I also operate my business out of my home. We drive older vehicles that are in nice/good condition. These factors help keep my overhead lower, which may keep my pricing lower than the folks with more employees and newer vehicles and commercial locations.

When purchasing materials for jobs, I only purchase quality materials. Especially with plants--I almost always buy my materials from out of town growers because of higher quality (our wholesale suppliers are limited to 1 grower here). In turn, that pushes my materials costs higher. I use a mulch that was special ordered per my request by my supplier because of it's quality--it's almost twice the cost of what my competition has been using. This makes my COGS higher than the competition.

At this point, when I submit a proposal I include a list of work we've installed along with a few pics and a direction to my website (which I need to update photos!). I am working on creating a more comprehensive packet of information for the customer to present to them at the initial meeting that includes pictures of work, our philosophy, how we operate, etc. so they know upfront what type of company they are dealing with.

I guess my main concern is that I am honest, probably almost too sometimes, and I dislike people taking advantage of people. I know to keep my mouth closed and the professionalism associated with only saying kind things. You will never hear me talk badly of my competition, even when solicited by a potential client. That is a big no-no in our company.

I have been spending quite a bit of time on my company structure--pricing, services, etc. and determining where to focus/grow/expand. I am preparing for what our economic future may bring and gearing up to not be the guy that goes under. That's probably why this issue in question is bothering me right now.....

[Stonehenge]

Cochran, I know you really deep down think they are doing something wrong. And god bless ya for wanting to make sure your clients get a fair deal. But these other guys aren't doing anything wrong. Honestly, they aren't. They don't have an advantage over the client that they are exploiting. They're just charging more money. If anything, all else being equal, a higher price puts them at a disadvantage. As Fine Edge mentioned, I'm like Pavlov's dog when a few other company names come up that we'll be bidding against, because I know we've owned them on almost every bid we've competed on.

Give your clients some credit, and respect that they are smart enough to make the smart choice. If that choice isn't you, then figure out how to ensure that next time it is.

I don't think you're alone. I think this mind-set is pervasive in our industry and probably prevents a lot of small companies from earning more of the income they deserve for the work and investment they put into their companies.

[agla]

I'm curious to know how you know that the others are charging twice as much as you. The only time anyone ever told me what someone else priced a job at was when they were telling me that I was too much money or to vent about costs being too high. Even so, it is rarely anything more than a qualitative "way more" rather than a quantifiable measure. Are these prospects showing you bids?

[Cochran]

In two instances (including the one that prompted this discussion), the homeowners told me forthright what the competition charged. In the third instance--the bid that I was awarded--the homeowners told me the competition was higher and the total square footage for landscape was less. I found out the actual bid price (from one of the competitors) from one of our local suppliers--this competitor went in bad-mouthing me and my business and telling the manager, who is also a family friend, what his bid was vs. mine. I later found out from the homeowners, when we were completing the job, this particular contractor actually went to their house after learning he wasn't awarded the job demanding to know who got the job, what the price was, and then went on to bad-mouth our company--I think he wound up bad-mouthing landscape contractors in general, but I didn't get that in depth with the homeowner. It was a comment the homeowner stated and I did not ask questions or feel the need for the homeowner to elaborate on the statement.

[Fine Edge]

It all boils down to what each individual client believes in as far as quality, price, service, & contractors in general, just to name a few. The human race, as you know, is very diverse in their thinking and perceptions.
About 4 months ago, we were designing and bidding almost identical backyards in terms of patio, lighting, walls, sod & planting in neighborhoods that had houses of the same value. One we got and were approx. $10,000 below the highest bidder. The next one we lost because we were, according to the client, about $12,000 too high. And they were a real good referral from another client, they've seen our work and supposedly "loved it".

Nothing you can do about it since it's too hard to gauge what people are really thinking sometimes until it comes down to contract signing.

And now that Agla mentioned it, I really never got too many clients that gave me a dollar figure on the competitions price until this past year. I bet this past year we have learned 4 - 5 prices before we got the job or right after we were told not to bother.
The jobs where we were told the price of our competitors bids ( they were really high and I believe that 's why the customer talked price ) actually helped us to determine a median budget point for these projects and we were able to design enough to get the client to sign up very quickly.
And let me tell you, don't get mad at me too, when a client tells me that company A was $18,000 and company B was $86,000, I can basically write my own ticket. And then when they tell me that they expected to pay between $35 - $45,000, well.... what's a poor landscaper to do? That project I could have done for $28,000 with a nice profit but they got charged $39,000.
Now I know I've got plenty of wiggle room to give them exactly what they want plus a little.

[agla]

It is always interesting to hear various ways that things get done. I often forget that not everyone is dealing with pricing out the same plan, but are pricing their own custom landscape against others doing the same. That can easily scatter prices all over the place without anyone charging more or less for what they do.

Heck, if you kick 2-gal. plants up to 3-gal. or a 24"-30" up to a 30"-36" it blows the price way up. I see guys do wet laid fieldstone walls on a gravel base while others will put them on a 6" concrete footing, and yet others put them on a footing 48" deep to the frost line. Some homeowners are not going to be looking for or asking about these details. You could have the same plan without plant sizes or construction details and have two companies come up with radically different prices simply for the reasons above.

Then you throw in the idea that each has his own design and it is a free for all as to where prices will land.

There is not a serious landscaper out there who does not describe himself as "high quality". It is really about expectation and delivery. If you go to a "middle class" neighborhood and spec' large stock, handcrafted stonework, and lots of higher end bells and whistles, you will price yourself out of work and the word will get around that you are expensive although you may be charging short money for what you are planning to deliver.

Then there is the flip side to that coin. You work the middle class and meet their expectations well and price well for what you provide. You get called into a more upscale market (could be location or could just be the individual client) and the expectation is that you are going to be providing an instant landscape with the craftsmanship and ammenities that would need to be watered down for your usual customer.

Would you (generic you, not any particular poster) truly be able to go to that higher level prospect with your portfolio and be showing them things that are equal to their expectations? You are showing quality, good craftsmanship, and excellent design. Are they identifying what they see in your portfolio as equal to their own lifestyle? If they see another portfolio that is full of nothing but houses of similar and higher value as their own with newly installed bigger plants, stone walls instead of block work, and totally uncompromised ammenities it changes everything.

You and I know that the layout is great, the craftsmanship is great, and that it easily translates using bigger plants and installing better and more ammenities. The prospect sees each photo as an item on a shelf rather than potential. If he sees a portfolio full of landscapes in it that he wants to grab and put into his site, you are in. If he sees a few of those scattered with other landscapes that don't meet that standard, you are out no matter how good they are.

Finally, if you have a great portfolio that meets all of their standards, but there is one other person out there that has a portfolio that is perceived as being just a bit more of what the prospect is identifying with, you are in second place and go home with nothing.

Of course portfolio is not everything, but if all else is relatively equal this is the result.

I honestly believe that the further up you climb in the market, the less pricing affects whether you get the job or not. It is only an issue if it is way out of line. No one buys The Lexus because it is $5,000 less than the Benz. If the guy wants the Lexus, he won't buy the Benz if they dropped the price to match the Lexus. It is simply because that individual wants the Lexus more than the Benz. It is no different with landscapes.

.... and nobody really wants a Kia, but they do get sold.