Tim Austin learned a valuable lesson during the last big recession in 2008 and 2009: Run lean.
“When that recession hit, we focused on maintenance and snow removal instead of going out and competing for design/build jobs when the prices were getting driven down lower and lower,” says Austin, president of A&H Lawn Service in Ann Arbor, Michigan.
Low overhead and labor efficiency are how Austin plans to weather the next storm, and he’s expecting just modest growth this year. “The market is good now for landscaping and there are lots of jobs out there. Here in our area, construction is almost on the scary side, there’s so much of it going on,” he says. “You wonder when it’s going to collapse again like it did before.”
Customers are still willing to pay for quality, he says. “And, they value serviceability after the project is complete, and that’s a big thing for us,” says Austin, adding that when the market is down and design/build jobs taper off, maintenance is the company’s bread and butter.
The same is true for Ryan Van Gieson, owner of RVG Landscaping in Wayne, New Jersey. He opened his business in 2014 and today has 12 full-time employees during the season with eight vehicles on the road. About 45 percent of his business is design/build, and the rest is maintenance and snow removal.
This year, he’ll go from two to one design/build crews. This will allow the “project guys” to fill in with landscaping work like mulching and planting during off-days. “We are trying to build this year around the possibility of the market (declining) in 2020,” Van Gieson says.
Efficiency is the key to competitive pricing and making the most of an operation when times get tough. When the economy is booming, efficiencies pay off with higher profit margins. “We learned – don’t rely on labor and buy the machinery to make a job go by faster,” Van Gieson says.
Equipment for design/build jobs, such as track loaders and skid-steers with attachments, reduce the labor burden of these projects. “We can get away with a design/build crew with two people and put the third guy on another (maintenance) crew instead,” Van Gieson says.
Van Gieson gets three-year leases on machines and when the period is up, he sells the equipment versus taking the buy-out price. “Sometimes we can get up to $10,000 more than the buy-out price that way, and we take that money and recycle it by making a one-time payment on a three-year lease so we’re good to go,” he says. “The warranty is there, the service is there for no charge – it’s phenomenal and there are no hidden expenses.”
Austin is careful about how many installment loans A&H Lawn Service takes on. “We have a mindset of paying as we go for equipment, so when the Recession hit last time, we were able to keep a very low overhead,” he says.Equipment costs can eat up profitability and impact pricing structure, so he’s also careful about buying equipment only when he knows the machines will stay busy.
Ready for Recession: Low overhead and labor efficiency is how Tim Austin, president of A&H Lawn Service, says he’s preparing for an inevitable downturn.
Of course, materials and labor drive pricing – and with the tight labor market, finding good people to do the work hasn’t been easy. This is why Van Gieson is focused on labor-saving equipment.
Pricing accuracy is essential. Austin says his company used to price projects by square foot or unit cost. “We had a base unit price and we measured square footage, and that is how we built out our design/build pricing,” he says.
In 2016, A&H Lawn Service invested in a landscape management network software. Now, pricing figures in estimated time, overhead, markups, profit margin, hourly labor rate and materials costs. “The first year of using the software, we had the best year ever because we had a truer cost of materials,” he says.
For example, the old way involved multiplying the materials price by two to get the installation/materials cost. So, a red maple at $200 would cost $400 to install. Or, a gingko tree for $300 would cost $600 to install. The problem was, the labor cost is consistent but material prices were fluctuating up and down, making it harder for the company to be competitive. Plus, margins on jobs are better this way.
Pushing up prices.
In the last 10 years, prices at A&H Lawn Service have increased about 25 to 30 percent because of labor, materials costs and general inflation. From 2008 to 2014, the average annual price increase for services was about 1.5 percent, Austin says. From 2014 to 2019, prices have jumped up about 3 percent annually.
But Austin says he isn’t getting pushback on price increases for maintenance or design/build.
As for Van Gieson, prices climbed by 15 percent for maintenance clients this year. This is driven by the fact that he feels design/build business could decrease. Even with the increase, as of early March, 70 percent of existing clients had returned service contracts for the 2019 season. “Our clients are very supportive of us,” he says.
He’s OK with some customer attrition because with the labor market, he wants to fine-tune the residential client base to those who want weekly service and higher-end property owners.
“We picked up an extra 25 commercial properties, so when the recession comes, I can keep guys on full-time without having to cut anyone, as it stands now,” Van Gieson says.
When addressing design/build pricing, maintenance is part of the big picture because the services balance each other.
“Every year, we have been growing substantially, but this is the only year where we’re trying to downsize slightly yet shoot for the higher-end client,” he says. “So, we’re focused on doing a little less work and making more money.”
That way, if the economy shifts come 2020, his business won’t be ramped up to the extent that it’s difficult to keep crews busy or maintain acceptable profit margins. Thoughtful growth is the theme.
“We don’t try to grow too fast – slower, more manageable growth is better in case there is a downturn,” Austin says.