Surviving the ‘Undercutters’

October 1, 2010 -  By

Contractors fight lowballers in a battle for core business.

 

What’s the biggest obstacle to growth today for the average landscape contractor?

Certainly, the prolonged recession comes to mind for most contractors, as that tops Landscape Management readers’ list of top success blockers. But a mere fraction of a percentage point behind sits lowball/underpricing competitors. Giuseppe Baldi calls them “the undercutters.”

“We’ve had customers tell me they can find someone to do it for $20 so why should they pay us $30?” says the landscape maintenance manager of Arlington, TX’s Baldi Gardens.

 

“Competitors get scared and want to give stuff away,” explains Todd Dilley, general manager of Minneapolis, MN’s The Lawn Ranger. “They think they need business at any cost, so we’ve lost business to people driving the price down too much, and it’s just not worth us doing the job for so little.”

Dilley’s had to lower prices 5% though they’ve been trying to resist price wars. He’s hoping to hold steady and increase prices 2% to 3% next year.

Nationally, August was the 21st consecutive month in which more owners reported cutting average selling prices rather than raising them, according to National Federation of Independent Business’s September Economic Trends report. Widespread price cutting contributes to the high percentage reporting declining sales revenue. Plans to raise prices were unchanged at a net seasonally adjusted 10% of owners.

On the cost side, 3% of owners cited inflation as their No. 1 problem and only 4% cited the cost of labor, so neither labor nor materials costs are pressuring owners to raise prices, NFIB’s report reveals. Without pricing power and sales volume, profits are not able to recover. Only 18% of businesses reported higher profits, while 42% say profits are declining.

Competitors in Matt Griffin’s region are driving pricing — and profits — down. “In our area, there are about 80 companies and really only about four of them are actual, reputable companies — the rest are fly-by-night guys,” says the president of Prime Lawn/Prime Design in Kingwood, TX. “For instance, we bid $21,000 on a job and someone comes in and bids $13,000. How is that even possible? So our biggest challenge this year was how to keep our quality up, but still compete with those guys. You don’t want anyone thinking your quality is poor.”

How does Griffin prove quality? Past history. “We can tell them all we want that they’re wasting money on going with the cheap product or the cheap company, but you have to back that up,” he explains. “When you pull out 12 to 15 pages of references, you know nobody will call them all — maybe not even one. But we do pride ourselves on having that list and that knowledge.”

LM Staff

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