6/9/22
Topic: How Much You Need to Raise Prices to Combat Inflation
Guests: Dan Gordon & Donnie Shelton
In this episode we discuss:
Donnie's experience increasing prices at Triangle Home Services
Is a 10 percent increase enough?
How price increase effects are showing up in the April William Blair/PCO M&A Specialists Pest Index
How although the Consumer Price Index is hovering around 8-plus percent, the items that go into pest control and lawn care (labor, fuel, chemicals) are much higher, according to the Department of Labor:
Labor rates are up 15.6%
Fuel is up 75-100%
Materials such as fertilizers are up about 50%
How these numbers may be affecting you, assuming the following (data from the PCO Bookkeepers Pest Control Industry Cost Study):
All labor of a pest / lawn company = 45% (Tech, Sales, Office)
Pest materials = 7%, lawn materials =15%
Fuel = 2.5%
Looking at these categories as pennies in a dollar, then,
Labor = 45% x15.6 =7.02
Materials (average between pest and lawn) = 11% x.5 = 5.5
Fuel = 2.5% x .75 = 1.875
That is a total cost increase of 14.395 pennies or percent, not counting cost increases on other items
14% is around the average profit pest control firms show in the PCO Bookkeepers Cost Study, so if you didn't raise your prices this year, you're at breakeven; if you raised your prices 10%, you're behind 4-5%
Why it's a good time to be shoring up capital and keeping an eye on your expenses
Different approaches to raising prices
Why Dan usually recommends doing it by looking at your acceptable dollar per hour target (usually $120-$175/per hour), and raising prices on clients who don't meet the target
Whether you should increase prices again if you already raised them
Why now is a good time to switch to monthly electronic billing vs. after-service billing if you aren't already doing it
Resources mentioned:
"There are two ways to protect the profit: raise prices or become more efficient, and it's got to be a combination of both. —Dan Gordon
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