NEVER Compete Using Your Hourly Rate!

Hey, everyone, it's Mike Andes and you're listening to the Landscape business course podcast. I wanted to jump on today and say something that I kind of sometimes just take for granted in all my content, and that is talking about why you shouldn't share your hourly rate with your customer. It's not good for you. It's not good for your customer. First, let me explain why it's not good for you. Alright? If you are sharing your hourly rate with your customer, let's say, for example, you charge $50 per man hour. A lot of people will say, hey, I'll give you two crew members and it's gonna cost you $110 per hour. Or they give some sort of hourly rate to the customer as a way of estimating. First of all, I think it's really kind of a lazy way of estimating because it's so easy to just come up with that number and know what your hourly costs are and just give that number. It's lazy because it makes you look like you're not doing the work of knowing what your craft is, being able to estimate budget hours, being able to estimate materials. And so just by giving someone, hey, this is charge per hour and this is the material, and we're just gonna tack on the material cost, it's very, very lazy way of doing things. Here's why it's bad for you. Number one, you'll never be able to implement P4P. You'll never be able to implement pay for performance, because if you're charging the customer by the hour, having your crew work faster, more efficient, more productive is not going to make them any more money because it's just going to reduce the dollar value that you charge the customer. So it's not helping anyone there. The other reason why it's going to hurt you is because your crew, or you, whoever's on the property doing the work is now gonna have another taskmaster over their shoulder looking at everything they do that in this case is the customer. Because the customer's gonna be worried about how long you're punched in the job, how long you took a lunch break, and literally they're gonna clock you on what you're charging them, because now you're charging them by the hour. That's why it's bad for you here, why it's bad for the customer. Okay? Number one, the thing that's bad for the customer is it's so easy to compare rates with other competitors that are charging by the hour and giving that hourly rate away. It's so easy to do that the customer ends up going with the lowest price many, many times because they'll just literally call around and ask for hourly rates until they get someone who's low and then use them. It's bad for them because that person, they're not educated. A lot of times, the customer, the consumer, on the value of having someone that is charging more, that does have insurance, that is licensed and bonded, that does have trained employees, that doesn't have employees that are going to steal or going to break things. And so they don't see the value in that simply by looking at hourly rates. So that's the first negative for the customer. The other negative for the customer is they don't want to have to watch over your shoulder. They don't want to have to clock you on your time. They want to just get the job job done. That's all they care about. They want their lawn mowed every week or they want like a project installed. They do not care and do not want to be watching what you're doing or watching how long you're on lunch break or watching if your guys are lazying around. They do not want to be doing that. They want to pay a certain price the same way that they go to McDonald's and they pay the same price every single time for the Junior Whopper. Or they go every single time when they go to Bloomingdale's, they buy that dress for the same price every time. Cause the price, there's no haggling, there's no bargaining or back and forth. It's just, this is the price. This is what you get. They would much rather have that. They'd much rather be like when you give them an estimate, you say Mr. Jones is gonna cost $430. They'd much rather that than you charging them $40 per hour. Because now if you're charging them by the hour, they gotta watch you. They gotta make sure you're not sloughing off. They gotta make sure you don't just charge them an extra couple hours on the bill for no apparent reason. They gotta make sure that when you go pick up materials that you're not driving for three hours when it really should only take you 20 minutes. So these are things that the customer actually doesn't want to have to do and doesn't have to care about. So I truly believe that by charging flat rates, by charging someone giving the customer just the pricing of the job, dollar value versus all the things they're going to be included in that project or Job or cleanup or whatever they're getting is much more valuable to the customer and they're willing to pay more. For example, let's say you charge $50 per man hour and you know that a cleanup's gonna take 10 hours. So you're gonna go charge the customer $500 for this cleanup. Now, I truly believe that you could do that same job in say, six hours. I truly believe that someone would rather pay you $500 for the cleanup than for you to come into the cleanup and say, I'm gonna charge you $50 per hour. A good affluent customer that you wanna build a long term relationship with, they're the type of person that does not want to watch over your shoulder. They do not want to go price shopping. They want to have a value, the price. Compare that with what you're going to get done and see if there's a transaction to be had. Now, of course, there's inherent risks that you are going to underbid a job. You're going to say it's going to take 10 hours and end up taking 15. There's going to be that occasional job. What it forces you to do is get really good at your craft to make sure that you hit budgeted hours. If you're using pay for performance, it increases the ability for your guys to make more money by hitting those budget hours and again enforces productivity and efficiency. I would much rather charge someone $500 for that cleanup. Get it done in six hours. And now I've literally generated, if you average it out like 90 bucks an hour instead of I get done in six hours. And I can only charge them now $300 because I gave them this $50 rate. So the objective of pay for performance, for example, is to allow your crew to beat those budget hours and thereby put more money on the table business as well as for them as the employees, as well as put the mind of the customer at ease, knowing that you can do work for them without them having to be there, without them having to watch over your shoulder, without them kind of crossing their fingers and hoping you do a good job and they'll just burn the clock. And so what you want to do is you really don't want them to be able to compare apples to apples in terms of hourly price. Because if you're going to go compete on hourly rate with all your competitors, I promise you that it's very hard in an hourly rate to then sell yourself on value. Like if I'm $40 per man hour and someone else is 35 $5 per hour. I can kind of upsell on the fact that I have nice trucks or I have insurance and I have. But guess what? $5 per hour is not gonna make that difference in cost for me as a business owner. I need to charge that 50, that 60 plus. And if I go out and tell my customers that I'm gonna charge them 80, 90 plus DOL to be pulling weeds or trimming bushes, they're gonna freak out. But what they won't freak out at is, oh, Mr. Jones, trimming that hedge is gonna cost $160. I know in my mind that's two hours, $80 per hour, for example, if that's what I'm charging. But in the mind of the customer, they just see $160. They see trimming the bushes and the shrubs and taking all the debris away, and that's a good value exchange for them. Now, if I told them $80 per hour, they would freak out. Go to some other Joe blow down the street that doesn't have insurance, doesn't have good employees doing drugs. They don't show up half the time. They take twice as long as my crew. And they're gonna charge, well, Mr. Jones, I'm just gonna charge you $40 per hour. That person might literally take four hours and cost $160 to do the job. But because they're not efficient, because they're not trained, because they don't have all the value, there's actually no benefit to the customer. And so a lot of you are hiding behind the fact that you don't want to share your hourly rate because you think it's bad for the customer. They're gonna be mad about the price. When in reality, it's actually better for the customer when you give them a set rate, a set dollar amount, I should say, instead of giving them an hourly rate. So I wanna make this very, very clear. It's much, much better for you, it's much better for the customer, and it's much better for your crew, who now has budgeted hours to be hitting for. And otherwise, it's just like, hey, the reason P4P works is because it makes it where the employee, the faster they work, the more money they make. The same way that you as the owner, the faster they work, the more money you make. And now that's the same thing with the employee. What you want to do is not create this weird incentive for them to work longer. And that is, hey, if I'm charging the customer by the hour, hey, you guys just Take your time, diddle dally, do whatever, because we're charging by the hour. I promise you, you're gonna have a far, far higher ratio of customers complaining about price after the job if you're charging by the hour. Never, ever, ever share your hourly rate. If someone wants a breakdown of costs or they ask, hey, I want, you know, you charged $3,000 for this wall install. Give me the breakdown of materials and labor. That's fine. We'll give them the breakdown of, you know, $1,500 for labor, $1,800 for materials. We'll give them the breakdown, but we're not gonna tell them how we came to that $1,500. We're not gonna tell them that's 30 hours at $50 per man hour. Those are the things that we don't share. We just give the $1,500 for labor. In the customer's mind, they see 1,800. Do they see $1,500 being labor? And then that's up to them to make that decision. We are not gonna give our hourly rate away because in the hourly rate is baked in a whole lot of things the customer doesn't know about. Overhead and insurance and gas and the fact that we have office people and an estimator that had to come out and do the job and look at the job and talk about those materials and the paver patio we're installing, those are all baked in that hourly rate in labor. And so you do not want to have to try to explain that to a customer. You do not want to get in this debate. If someone ever tries to pull that number out of you, they're not the right customer for you. L1 out of maybe 3, 400 of our customers at Augusta Lawn Care ask about that hourly rate. If someone is pushing you on price during an estimate, just say very simply this. They say, hey, well, what's like a ballpark figure on this job? You think instead of giving them a number and then later on kicking yourself because it's too high or too low or worse yet, giving them an hourly rate, just say this, Mr. Jones, I'm actually just here to take a video and to look at the time, how long it's gonna take us and the materials, what I'm going to do is I'm going to get that information to the office, and within 24 hours, the office is going to email you an estimate with an exact price. That way, you know exactly what it's going to cost you. Now, if they start asking you Once you give that price to them, the next day you send an email to them with an estimate and they start saying, well, what's your hourly rate? If they start saying that, say, Mr. Jones, we don't charge by the hour. We simply charge for the job regardless of how long it takes us. If it takes us twice as long, it's still going to cost you that $500 or whatever that price is on the estimate. And so that's a lot of reassurance to the customer knowing that that price will never change. Literally, our estimates at Augusta never, ever change. And when that happens, when you as the estimator or you start training an estimator, you start getting very, very competent at your skill of being an estimator due to the fact that you never can change that estimate. It's not like, oh, if I'm off, we'll just charge more, or if I'm a little bit under budget hours, we'll just tack on a few hours. You can't do that. And so it does force you to get closer to budget hours. It forces you to get better on estimating. And that's the best for you as the business as well as the customer. If you have questions, post below. Because this is very important. This is one of the things that is making a price war and driving people out of business is because everyone's competing with the guy that's charging 25, 30 bucks per hour with their pickup truck, when in reality the customer is willing to pay more. If you are good at estimating and able to charge by budgeted hours, make your crew more efficient and more more effective at beating those budgeted hours and basically double the productivity of your business by being able to get more work done and being able to bring the prices actually to a competitive rate due to the fact that you're more efficient. If you have questions, comment below. This is a very important thing, something that's ruining areas of this country in our industry because people are just doing a price war on what their hourly rate is. Cause if someone down the road will do it for $35 per hour, well, we'll do it for 30. And if they're gonna do it for 30, we'll do it for 25. It's an absolute horrible game to get into. You have value in your estimate and then give a set price and you have to be accurate on that price. Thanks so much. You've been listening to the Landscape Business course podcast. I'm Mike Andes. Until next time. Be great because nothing else pays.