Listen in as Greg outlines a process for raising prices and the importance of narratives in this critical profitability driver.
Recorded at the Aspire Ignite! Conference in Columbus, Ohio, July 29, 2021.
GREG: So I’m a financial guy. I think about ROI. We’re going to deliver value to you today. So therefore I’d like for you to send $200 by Venmo and I’m going to donate it to a charity for the value that you receive. Everyone okay with that?
GREG: All right. Let me tell you a different story. What if I told you a story that went something like this? Guy named Joe had a landscape company. He had about six trucks, six crews. And one night, the police came, arrested him for a pretty serious crime. He lost his business. He lost his family. He said he was innocent. Very few people, if any, believed him, and he went to jail, prison. After about 10 years, he convinced the Innocence Project to help him out. They found DNA evidence. Technology wasn’t what it was– it was much better today than it was then. Went through the process, cleared of his crime, declared innocent. Just like he had said.
Joe gets out of jail and he’s entitled to some compensation, but it takes a while for that to happen. And we’re going to help him get his landscape business going again. And so I need $200 that we’re going to put together all of our money for Joe and help him get his business started again. Restore his life as much as we can. Now, that’s a fictitious story. Which one was more compelling?
GREG: B. Yeah. It wasn’t a hard question, was it? B was more compelling. What made it more compelling?
AUDIENCE: You can relate.
AUDIENCE: The story.
AUDIENCE: The story behind it.
GREG: A story. A human. Emotion. You can relate to it. You’ve read stuff about that in the paper, right? About people declared innocent based on DNA evidence? That’s key that you could relate to it. It had the ring of truth. It had the ring of truth. I mean, if it had been a true story. It could’ve been a true story, right? It wasn’t. It was designed to illustrate a point. That there is an art to raising prices and the art involves story. Story. And that’s what we’re going to talk about today, is the art of raising prices and story. Now, we are going to do some diving into some data. Those of you who know me know that I love data. So we’re going to hit some data out of Aspire that you can get to help you determine the price increases that you want to get. Before we get there, masks are required now. I don’t know if you heard the news. So everyone put a mask on. [laughter] I don’t see anyone moving.
AUDIENCE: After you.
GREG: Yeah, after me. Thank you. [laughter] I almost pulled mine out to see if I could get anyone to make that move. But we see a lot of signs– we’ve seen a lot of signs over the last I don’t know how long, a long time, that say, “Masks required.” And I was on our way– I was on the way here on Monday. We had a team meeting. We all work remotely, and so we wanted to get together in person. And this was on the shuttle bus from the parking lot. Now, those parking lots at those airports have been hit hard by COVID, right?
GREG: You drive by there and they’re empty. Now they’re starting to fill up. So it says, “We require this,” at the top there, “so you can enjoy this.” So a picture of a couple of cartoon characters with masks and then a picture of someone sipping a margarita in a hammock on the beach with the mask– look where the mask is on the beach. Hanging in the tree. No mask. All right.
Story. All right? Connecting the unpleasantries of masks with the beach. Then it says, “Thank you for parking with us and masking up as we welcome back more guests– welcome more guests back to airplane travel. Thank you.” They don’t ask you. They don’t tell you. They thank you. Story. And then I like this last one, being a financial guy. So is this next sentence true? “We are currently running shuttle buses at full capacity to help you get to your destination as fast as possible.” Is that true?
GREG: It’s part of the truth. It’s not the entire truth. We could say, “We are running shuttle buses at full capacity because we can’t find employees, just like landscape companies can’t find employees.” Right? We could say that, couldn’t we? That would be partially true as well. We could also say, “We are currently running shuttle buses at full capacity to save money because the last year has been horrible for us.” That would also be true. Full capacity that comes conveniently right after the masking. To help you get to your destination as fast as possible instead of asking you to wait for a long time because we only have the buses at half capacity and we don’t have enough workers or we don’t have money to pay them. Story.
GREG: So I want to open up your minds to the idea of story as we talk about price increases. And I want you to– I want you to just– hopefully, you have some paper in front of you and you can just jot some ideas down as they come to you about the stories that you could tell to your customers when you’re talking to them about price increases. Some of you are in the north and you go through a kind of renewal process. Some of you are in the south with 12-month contracts, but you need to communicate to property managers what they should expect for next year in terms of setting their budget for the maintenance work that you’re doing for them. Okay. So this is a little bit of an oversimplification. If wages go up by 6%, then the combination of blank and blank must increase by 6%. What are the two blanks?
AUDIENCE: Labor and materials.
GREG: Say again.
AUDIENCE: Labor and materials.
GREG: Not labor and materials. Labor is close.
AUDIENCE: Profit and [inaudible].
GREG: Productivity. Who said that? All right. Yeah, productivity. Another way to say that would be labor efficiency. So if costs go up by 6%, labor cost, efficiency needs to go up by 6%, right? So a 100-hour project needs to go 94 hours this year. 100-hour maintenance contract needs to be coming at 94 hours. Right? And then you make the same gross margin. You can’t always get 6% efficiency, so what’s the other blank going to be? Price or revenue. Right. So your revenue either needs to go up– if your revenue goes up 6%, then you don’t need to increase your labor efficiency. If revenue goes up 3, your labor efficiency needs to go up 3.
GREG: Now, that’s simplified. You can argue around the edges with the math, but– you can say, “Well, if my labor doesn’t need to go up– if my labor’s going up 6, that’s only part of my revenue, so my revenue doesn’t need to go up 6.” Right? That would be an argument. But that just means that you’re not planning to pay your account managers, your production managers, your office staff. You’re not planning to give them a raise. Right? Again, a little bit of oversimplification, but I’m trying to make the point.
GREG: The point is we got major wage inflation going on in our industry and we need to think about and then act upon raising prices on these maintenance contracts renewals. Oops. All right. So I’m going to give you a five-point kind of outline of where we’re going to go to today. We’re going to develop the story. We’re going to review some data that we get out of Aspire. I’m going to show you where we’re getting it and how we do it. Feel free, by the way– and it’s a little bit uncomfortable given the size of this room, but just raise your hand, shout out if you got a question. I’m happy to be interrupted on this because it’s really important to me that you guys get this and understand it. And if you want to push back, I want you to push back on me if you don’t agree with something.
GREG: Educate and equip your key messengers. This is a really important step. So I saw a lot of owners. I didn’t see a lot of account managers. You go tell your account managers today to increase prices, they’re like, “Oh, I hate that. Do I really have to do that?” Or they’ll say, “Okay. Fat chance of that,” under their breath. Right? So we have to help people understand. We have to educate them.
GREG: We have to equip them – that’s where the story comes in – so that they are comfortable and even proud of the work that is being done and are; therefore, proud to ask for price increases.
GREG: This next one is also important. It’s the confidence-building step. Right? All of you work very diligently to acquire customers. I know you do. And you celebrate when you acquire new customers. And what’s the last thing you want to have happen to that customer? Lose them. You worked too diligently to acquire them. You don’t want to lose them. You don’t want to run them off. And that’s one of the reasons– the fear of that is one of the reasons people don’t do price increases. They don’t want to lose a customer.
GREG: So we always encourage our clients to experiment. Develop your narratives, your story. Take it to a few customers. See how they respond. Thus far, knock on wood, doesn’t change, 100% of the people come back and say, “Wow. That went a lot better than I thought. That was easier than I thought.” And that’s another way of saying, “I didn’t realize how powerful the story could be.” And then after you do the testing, you continue to roll it out and revise it as you encounter people’s objections. So that’s what we’re doing. That’s the five-step process.
GREG: Now, I want to shift gears a little bit. Most customers’ perspectives look something like this. “Hey, we’ve got 100,000 square feet of turf, 25,000 square feet of beds, 1,000 square feet that need flowers twice a year. We want maintenance, irrigation, and plant healthcare. How much will it cost?” Now, when they’re asking how much will it cost, what are they expecting you to tell them?
GREG: That’s not a trick question.
AUDIENCE: A price.
GREG: A price. Right. A price. All right. But cost is more than price. What else is in cost?
GREG: Overhead. No, be more specific. What do you mean?
AUDIENCE: Rent or lease procurement or lease.
GREG: Yeah. No, it’s not really the landscape company’s overhead. There are a couple of things here. There’s dollars. There’s time. If a property manager has to spend a lot of time screwing around with the landscape and you’re the service provider and the cost is $5,000 a month, in dollar terms, the cost is not $5,000 a month. The cost is $5,000 plus their time.
AUDIENCE: Asset valuation.
AUDIENCE: Oh, you heard that. Sorry.
GREG: No, that’s okay.
AUDIENCE: Asset valuation of the landscape asset. Right? Another one?.
GREG: Yep. All right. And then this next one is related to what Ron just said, asset valuation. And it’s uncertainty. “Man, last summer, we had all those dead spots in our grass because the landscaper did not check the irrigation often enough like they were supposed to. I wonder if we’re going to have that problem this summer.” “Last summer, we had a lot of chinch bugs, a lot of fungus. I wonder if we’re going to have that problem this summer. I sure hope not because the owners are visiting right in the middle of summer, around the same time we had those big problems last summer. I’d better call them.” So uncertainty, time, and dollars. Uncertainty, time, and dollars, that’s cost. So what can happen, if a property manager understands that– and this could be a homeowner, too, right? We just had a new deck built in our backyard, and it was a very, very expensive deck. You know why it was very, very expensive?
AUDIENCE: It was made out of lumber?
GREG: Well, it started off expensive because it was made out of lumber. But no, it was very, very expensive because I had to go look at it every day and tell the guy 15 things to do. Cost me a lot of time. So if the property manager knows the true definition of cost and understands that, and you can educate them on that, and you deliver using less of their time with greater certainty, what can you do?
AUDIENCE: Win more jobs.
GREG: Win jobs. But what else related to the current job that we’re repricing?
AUDIENCE: You can raise the price.
GREG: You can raise the price. Right. You can raise the price. So if you drive up certainty, drive down the property manager’s time or the property owner’s time, and they understand that concept, and they value their time and they value certainty, then the price can be higher. That’s why some people– there’s probably people in your markets, especially if you’re residential, that are known to be really high priced, and yet their business grows. Why is that? Probably greater certainty. Greater certainty. All right. Any questions on that?
GREG: All right. I need to speed up here. All right. You can get this on the slide. This is just kind of a little bit of a tangent on how to sell the value because there are some non-obvious needs that most customers have. This is a report that comes out of Aspire. This is a pivot work tickets report. So you got a reports module, pivot work tickets. Very powerful set of reports. We have property name, revenue, labor costs, labor hours, actual labor hours, estimated gross profit margin, and margin estimated.
GREG: That’s typically what we do when we’re doing– we call it an annual property review. So we’re reviewing the profitability of all our properties on an annual basis in order to communicate price increases for next year. This is how that report– we do a more detailed version than what I just showed you. We typically do it by division. Sometimes, we’ll go down to service type. So this is the more detailed view of that. Again, easy to set up in Aspire. Once you have it set up, you just memorize it and it’s always there. There are some tricks in here, like you want to filter out invoice type T&M. Anyone know why?
AUDIENCE: Your estimates are probably off —
AUDIENCE: Estimated gross margin–
GREG: Estimates are off, right? So most people either estimate zero hours for T&M or one hour, just to know that it needs to be scheduled, right? And so it’ll throw off your estimated hours versus your actual hours. So you want to leave T&M out. There are some tricks and tips that we’ve learned over the years working with multiple clients like that that are really important. Otherwise, you get some bad data. So we take that data– that was the data tab up here. You’re seeing on the bottom of the screen one: data. And then we have the summary tab. We’ve got other tabs that we use. I’m just going to highlight these two.
GREG: And I’m not sure why we’ve– I think there was a reason why we looked at just a quarter worth of data. Normally, you’d look at year-to-date or data for the last 12 months. And what we’re trying to do here, in this step one, step two, and the color-coding, is kind of simplify having a lot of numbers. And this report is really designed for account managers. That’s why we have this thing called account manager instructions. So we’ve got the property name. We have this lookup table here that we pull out of Aspire so that we can get the account manager names. The N/A means that we lost the property.
GREG: We say, “Hey, it’s a gross profit margin below plan. It’s a gross profit margin below plan.” And then we have a formula in there that says, “Yes, it’s below plan.” So on the assumptions tab, we input what the plan is. And then this particular company had a goal that the other services– and we define that narrowly. It wasn’t all other services. It’s the services that were likely to recur every year in their market. And we had a goal for other services as a percentage of maintenance revenue, and that’s over there in column O. Step four. And we said, “Hey, is revenue from other services below plan?”
GREG: All right. And if either one of those was yes, then we need the account manager to tell us what he or she is planning to do to correct that situation. Could be a price increase, could be more enhancements next year. This year, right, in the time we’re in now, it’s always going to be a price increase. It’s going to be a part of the solution. And then we have some data about how well we performed and there in the green columns, I through M, that tells us how well we performed on the maintenance. Right? So that’s supporting this step three here in column E. Right?
GREG: So here’s our maintenance revenue. Now, we repriced the labor. Okay? So we’re going to assume that actual hours in Aspire are going to be actual hours next year, and we’re going to reprice that labor for what we expect next year’s burden labor rates to be. Because there’s nothing like seeing the impact of a 6% cost increase to motivate you to do something, right? And it’s shocking. I’m going to show you a table here in just a minute and how fast your profits can go away with 6% price increases. I mean, 6% labor increases without a price increase.
GREG: So that’s what this is, and we do a new gross margin using that repriced labor. Here’s what we originally estimated it at. Here’s the amount we’re below target. Now, it’s a little tricky, right? So let’s say that your target is 50%, your margin is 45%. It’s really easy for people that haven’t been in the business a long time, who are not account managers, who aren’t financially sophisticated to say, “Oh, we’re at 45. We need to go to 50, therefore we need to raise our prices 5%.” Right? Because 45 plus 5 equals 50. Now, while 45 plus 5 does equal 50, that’s not the right math, right? It’s not the right math. Trust me on that. Just do it on paper. We don’t have time to go through it today, but it’s not the right math. And so sometimes it’s an eye-popping amount of an increase, and that’s why we do this.
GREG: All right. Now, we started doing this with some of our clients about six months ago and I love this chart. This is what’s called a scatter diagram or scatter plot. And so this company had a gross margin target of 58.6% or something like that and had a labor hour efficiency target. People do efficiency two different ways. So their definition of efficiency is actual hours divided by budget hours. So less than 100 is really good, more than 100 is really bad. Some people do it the inverse, right? So actual hours divided by estimated hours, their goal was like 86% I think. So you see the colors. There’s the x-axis and the y-axis. So the x-axis– I did that opposite. The x-axis is the labor efficiency– excuse me. I don’t know which axis it is. All right. That’s bad. All right. Keep going over here.
GREG: So the one on the left is labor efficiency, and that’s set at like 86%. And the numbers count from 0 down to above 100. And then across the top, you’ll see the gross margin. And so this very quickly gives you a display of where your properties are. So over here in the green, upper-right green, it says, “Acceptable.” That means this is meeting both of your targets in terms of labor efficiency and pricing margin. Over here in the blue means you’ve met your labor efficiency because you’re more efficient from here up. Right? That means you met your efficiency goal, but you’re short of your gross margin goal. So you’ve got a pricing problem to work on over here. Down here, you’re above your gross margin goal, but you’re below your labor efficiency goal, so you got a production issue or an estimating issue. Right? And over here you got both.
GREG: Now, every dot’s equal, which is not true in reality, and I’ve got another graph to show you this. This client, they’re in pretty good shape. And they’ve worked it for many years, so I’m not surprised that they are in good shape. But this is a good visual representation of the work that needs to be done. This one’s called a bubble diagram, and it’s the same information as before except that the size of the bubble indicates the size of the revenue per property. So really big bubbles are really big properties. So you see some really big bubbles down over here. That’s not abnormal. You heard Kevin talk about sharpening the pencil on bigger contracts and that’s what’s happened here. Right? But you also see some big bubbles up here. Do you have to sharpen the pencil on every big contract? Apparently not. Apparently not.
GREG: So good visual representations. Some people like those visual representations and that’s why we do them. This is what I like. Give me the table. Okay. So, again, color-coded and the revenue for the last 12 months and the number of properties that fall into that category. So there’s 44 properties with a pricing, production problem, 135 that are acceptable, down there in the green, 270 properties overall. So there’s a variety of things you can do with this, both tactically, related to the art of raising prices, as well as strategically, about looking for more properties that are in the green and looking to see if there’s something about the properties there at the top in pricing, production, some reason why they are where they are. Some common traits to those properties.
GREG: All right. So look what happens– I’m trying to increase the pain in the audience. All right? Get ready. Trying to increase the pain. So look what happens here. So you notice this first table says at the top, “Current year labor rate.” The second table says, “2022 year–” that doesn’t make sense, but just ignore the year there. “2022 labor rate.” Acceptable properties dropped from 135 to 116. Pricing, production went from 44 to 59. Pricing went from 39 to 58. So in one year, we have a significant loss of acceptable properties.
GREG: All right. So some of the tactical questions that those series of reports, whether it be the table that was first, that comes out of Aspire, or whether it be the bubble diagrams– again, the data all comes from Aspire. It’s just how we’re presenting it. Should we increase pricing for estimates? Maybe we have an estimating problem. How do we increase pricing on existing customers? Do we need to terminate some customers? Sometimes customers just need to know how good they have it with you, and the only way they’re going to know that is by trying someone else out. And you got to let them go. Got to let them go. And then do you have upselling or cross-selling opportunities?
GREG: So here’s the pain. Here’s the pain. Let’s just say that this company had $100 in revenue. This is done so you can see the percentages, right? So net profit, average landscape company, 5 bucks on 100 bucks, 5%. Gross profit’s 53 there. One year, no price increases, 6% labor increase. So labor goes from $35 to 37.10. Profit goes from $5 to 2.9. Lost almost half your profit in one year. Do that two years, you’re kind of starting to break even. Now, I think it actually happens faster than that because we haven’t done anything– we didn’t increase G&A. That means three years with people in G&A not having wage increases unless they’re offset by some other savings. That’s the pain. You feeling the pain? Do I need to go on? Do I need to increase the pain? No? All right. Let me just pause here and see if there are any questions. Got to be some questions. Yes.
AUDIENCE: What did you mean by cross-selling?
GREG: What did I mean by cross-selling? So we think of up-selling as people that have maintenance contracts that we want to sell enhancements to or maybe tree work or irrigation work or something like that. Cross-selling, I think of– we run reports where people do a lot of construction. We want them to get the maintenance contract. Because who’s the best person to maintain what was constructed?
AUDIENCE: The person who installed it.
GREG: The person who installed it. That’s right. That’s the story, isn’t it? It’s true, but it is a story. It’s conscious, right? So that’s cross-selling. Another example of cross-selling is if you’re in a residential business. How many people are you selling maintenance to that you’re not selling chemicals to? Or how many people are you selling chemicals to that you’re not doing maintenance for? You can get all that information out of Aspire through some reports that then get manipulated in Excel. But probably the most applicable one is that construction to maintenance.
GREG: It’s amazing to me– it’s often because those are different divisions. And everyone’s busy. There’s no one in this room that’s not busy. I feel highly confident of that. And it’s busy. And so we periodically, usually, quarterly, pull up a list of those completed construction projects in Aspire, run that against the maintenance revenue, make sure they have some maintenance revenue. And if they don’t, then we tell someone to get after it. Ultimately, you want a process that when the construction job gets completed, that you’re rolling right into the maintenance, and that’s someone’s responsibility. Yeah?
AUDIENCE: So as far as [inaudible] tell us this, but do you ever consider price increase based on influential status of your client?
GREG: Okay. So do you ever consider price increase based upon the influential status of the client? Absolutely. Absolutely. So we would call those strategic accounts. I think that’s an excellent question, because it’s important for everyone to think about that, but that question then starts us down the road of, well, we’re not going to increase it on these five clients because they’re strategic. And we’re not going to increase it on these five clients because we just got them, or we’ve only had them a year. And we’re not going to increase it on these five clients because they might do a lot of enhancements with us. And we’re not going to increase it on these five clients because, and these five clients because. And it’s just a really– it becomes a slippery slope.
GREG: Should you consider the strategic value of the client? Absolutely. But just be aware of the slippery slope. Picking on account managers now. I’ll pick on owners in a minute. It’s easier for account managers to convince you, the owner, not to raise prices than it is for them to go out and tell a property manager they want to raise the price. It’s easier for owners to give in than get those property managers out there to raise prices. And so a lot of owners, our clients included, they don’t ever get around to it. That’s a problem. And it’s really hard to recover because if you miss a price increase one year, you’re never going to get it back. You’re not going to double the price increase the second year. It’s gone. It’s gone. Great questions. Any others?
AUDIENCE: I’ve got one. A slide ago, you mentioned you may need to terminate some customers [inaudible] too low. Why would you not just increase them to make it– maybe they’re going to go away anyways because it’s a 25% increase, but why would you not start with that? And then are there other circumstances that you would just go straight to termination?
GREG: Great question. That’s an important clarification. So why would you not just give them a 25% price increase instead of terminating them? I think it’s in the– and the answer is you would probably almost always give them a big price increase knowing that they’ll probably terminate you. But I think you go in with a story.
GREG: And the story might be, “Look, I’m sorry. We have not served you well. We’ve been doing price increases with a lot of clients and we haven’t done one with you and we’re way far behind that. Our wages have been going up 6%. We’ve really been working to pay people a livable wage. You’ve heard about the $15 minimum wage and we’re way above that, and we’ve really been working that with our employees and making sure we’re doing good with them. And we’re going to have to– we’re going to have to increase your price 25%– we’re going to have to increase your price 26 and a half percent.” It sounds a little more precise, right, than 25? “26 and a half percent. And I know you’re probably going to– that’s probably going to be tough for you, but I just wanted to explain to you why we’re in the situation that we’re in, and I’m sorry about that.” And you might be surprised. Some of our clients are surprised.
I do want to touch on one thing on the story, getting back to the story, kind of close this up with the story. And that is, what did I do in that story that I just told?
AUDIENCE: Took ownership.
GREG: Took ownership? Yep.
AUDIENCE: Gave them a logical reason.
GREG: Gave them a logical reason. What did I tie into, though? Those are all excellent. What did I tie into that they probably heard about?
AUDIENCE: The human aspect. The human aspect.
GREG: The human aspect, the livable wage, the $15 minimum wage. There’s a lot of stuff– we’ve got a couple of clients in Florida, but there’s one that– I don’t want to get too political here, but I guarantee you, every one of those people living in those homeowners’ communities that they serve, they’re like, “Yeah. We need a $15 minimum wage.” Because they all moved from New York. “Yeah. $15 minimum wage.” “Okay. Great. So we’re going to increase your landscape contract 15% this year or 14.2%.” “What? You can’t do that?” “I thought you’re for a livable wage.” “Yeah, but what does that have to do with our landscape contract?” Drives me crazy. And I’m sure it drives you crazy because you’re living it, right?
GREG: All right. But I think, tying that in– again, I think you want people to– at the beginning, “Give this guy 200 bucks for charity because he’s here? I already paid for the conference. What the–?” Tell them a story about Joe and his landscape business and getting out of prison and having nothing and it’s totally different. You might not be in a position to give me 200 bucks, but you’re not going to walk out there thinking, “I can’t believe Greg asked for 200 bucks at the Aspire conference. Man.” I kind of thought, when I did that, that the Aspire people might be coming running up– Brian back there might come running up and cut my mic off. But, fortunately, he wasn’t paying close enough attention quite yet. I’m sure I got his attention with that, but– all right. I think I better shut up here pretty soon.
GREG: All right. What we’ve done today is we’ve talked about managing the portfolio. It’s step four in our six-step process of path to 12%. There are other steps that are important. You’ve got a little bit of commercial there on your table if you’re interested. And we’re happy to talk to you. I think I’ve got five of our team here with us. We’ve been growing like crazy and we really enjoy working with our clients. We’ve got a number of them in here. We had a great dinner last night with 14 of them. So we measure our success by your success. If we’re not helping you succeed, reach your goals, profit and otherwise, then we’re not successful. And I mean that sincerely.
GREG: So that’s what we do. Happy to talk to you further. We talk about life margin. Profit margin is not all about profit margin. Same things that we help you do that we know as financial people will improve your profit margin will also improve the life margin of owners, and I think it will improve the job satisfaction of the people below the owners. Why? Because we take Aspire data, we put it in actionable reports, and we push it down to lower levels in the organization so that they have authority, responsibility, accountability to make decisions, and owners have great data to see what’s going on in their organization. So it’s really a win-win.
GREG: That’s one of the things that drives us. And life margin is the excess of time and energy that’s no longer required to be invested in the company.
GREG: All right. I think we’re good. We’ll be around. I’ll be up here. Some of our team is up here as well. So happy to have discussions, and I appreciate you putting up with me, with my little stories at the beginning. And thank you for your time. [applause]