Who loves to leave money on the table?! Not this guy, and I doubt you do either.
Who loves to leave money on the table?! Not this guy, and I doubt you do either. There are plenty of pricing strategies and ways to evaluate their effectiveness, but my goal here is to give you a good starting point so I’m going to intentionally keep it broad. If we don’t cover a certain nuance of pricing, then hit us up and we’ll try to help. Let’s get it!
Before you can analyze whether you priced a yard correctly or not, you have to know what hourly rate you are targeting (Target Hourly Rate, or THR). We cover how to price jobs and how to land on an hourly rate in detail in our blog post called How to Price Lawn Mowing Jobs.
Here’s what you need to know for now: there are many factors that should be taken into consideration when setting a target hourly rate such as experience level, quality level, equipment setup/overhead, market rates, and your professionalism level. It’s a bit of a science, but the important thing is that you are able to justify your rate.
I’m going to touch on a few of these points before we go on.
Pro Tip: Not all services are the same! Here are a few of mine:
Once you determine what services you’ll offer, set a THR for each of them.
The hourly rate you charge when you start probably won’t be able to sustain your business as you grow. New equipment, increased quality, and higher demand are all factors that should push your hourly rate higher. Make sure you’re increasing your THR to accommodate for the growth you’re projecting. Once you max out your capacity (assuming you don’t want to add employees and more trucks) then you have the freedom to optimize your client list and prices so that you’re maximizing revenue for your effort. This allows you to get better equipment that will shave time off of your existing jobs.
If you haven’t had the pleasure of hearing a client say “the last guy did it for $25” then it’s only a matter of time! When I hear this, I politely ask “Oh, ok. What happened to them?” and laugh internally as the client squirms for a valid answer.
What you need to know about the “$25 guy” is that what they are doing isn’t sustainable and eventually they will have to raise prices or go out of business. Either way, it’s not good for the industry. Don’t be that person!
The point of talking about “the market” is to know roughly what other operators are charging per hour for different services. If you’re charging much less than what others are, then you’re leaving money on the table which ends up hurting you! Go to an equipment shop and try talking with another operator who may be able to point you in the right direction. I find that when you come at those conversations from the standpoint of “I’m just starting up… would you mind helping me?” then most people are happy to give a few pointers.
Yeah, this one is no joke. Everyone feels the effects of inflation differently but as business owners, we need to pay attention to it. Inflation came in right around 7.5% for 2021 with fuel prices rising over 40% in the same timeframe. Ouch.
Adjusting prices for inflation is a simple calculation:
Current Price x (1 + Inflation Rate) = New Price
For example, if your THR is $60/hour and the inflation rate is 7.5%, then you would calculate your inflation-adjusted THR this way:
$60/hr x 1.075 = $64.50/hr
You can do this with your hourly rate as well. Just substitute your current Target Hourly Rate and see what your new THR adjusted for inflation should be. Come back next week for an article on How to Raise Lawn Mowing Prices.
For simplicity’s sake, let’s say your target hourly rate is $60/hour. The generic equation we’ll use to see how accurately we priced jobs is:
Price of the yard / Time to Complete in Hours (TTC) = Effective Hourly Rate While on the Job (EHR)
If our EHR is greater than our THR, then we’re good! We priced this job a little high.
If our EHR is equal to our THR then we priced the job just right!
If EHR is less than our THR, then we underpriced this job. Don’t worry, we can fix this!
We’re going to work a few examples, but all of these will be from the standpoint of one person on the job.
To get a plug-and-play Google Sheet that has these equations built in and will show you how much you need to increase prices or how much time to shave off of a job to hit your Target Hourly Rate, just click here. When you get access, just make a copy to your Google Drive and you’ll be able to edit it from there.
Let’s say you cut a client’s yard for $45 and it takes you 70 minutes to complete.
TTC = 70 minutes total / 60 minutes in an hour = 1.167 hours
EHR = $45 / 1.167 hours = $38.56/hour
Since your EHR of $38.56 is less than your THR of $60, you have underbid this job.
This job should be $70 per cut (1.167 hours x $60 THR).
Next, let’s say you have a yard that is priced at $45 per cut and it takes you 45 minutes to complete.
TTC = 45 minutes total / 60 minutes in an hour = 0.75 hours
EHR = $45 / 0.75 hours = $60/hour
Since your EHR of $60 is equal to your THR of $60, you nailed this one right on the head.
Action Point: pat yourself on the back for now, but know that you’ll want to bump up the price eventually as you increase your THR.
Finally, let’s say you have a yard that is priced at $45 per cut and it takes you 20 minutes to complete.
TTC = 20 minutes total / 60 minutes in an hour = 0.33 hours
EHR = $45 / 0.33 hours = $136/hour
Since your EHR of $136 is (significantly) greater than your THR of $60, you technically overpriced this yard! But before you go “correct” the price for the client, this is the perfect example of why you should charge a minimum price per yard. This price point ($45) is my personal minimum for my business and it is not uncommon for me to have a few minimum yards near each other.
Action Point: Consider skipping the price increase on this client next time since they are already overpriced. The only exception is if their price is at your minimum and you are increasing your minimum price.
A last little tip on the “to raise prices, or not to raise prices” debate is to take a pulse on how you’re feeling about each client. Sure, this may sound a bit mushy but hear me out. We all have those jobs that we dread going to… maybe it’s because it’s a complicated yard with a lot of obstacles or even a complicated customer. I know I’ve felt this time and time again.
If you’re feeling this about any of your clients, it’s time to raise their price. If they are already at (or even over) your THR but they are just a headache then it’s time to slap the PIMA surcharge on them. PIMA stands for “pain in my…” I think you get the picture!
I’ll state the obvious question that’s going through your mind. What if they say no to the higher price? Tough call, but I’ll give you my two cents (hint, this is a life lesson)... you don’t want to work with anyone who won’t pay you fairly. It is okay to temporarily lose a client that is already underpaying you. It will open up your capacity to find a new client at the THR that you know you’ll be happy with. I’d even bet that the value you’ll gain from that new client will go beyond the dollar because better clients translates to less stress.
All that to say, don’t be afraid to fire a client and say “byyyeeeeeee” if they won’t pay you what you’re asking for.
Nowadays there are so many variables that should go into what prices you charge, but a lot of operators just keep them the same for years, even as their speed and quality improves. However, if you’re looking to run a business that is profitable, sustainable, and one that you aren’t dreading each time you have to go out, then it’s a good idea to go through your list of clients and their recurring jobs each season at minimum to see if you priced them correctly.
If you haven’t already, go download and register for our app for free right now. Check will help you get organized and automate the administrative tasks that bog down your business helping you be more professional than ever with almost no effort!