Episode 84

6/9/22

Topic: How Much You Need to Raise Prices to Combat Inflation

Guests: Dan Gordon & Donnie Shelton

Click here to listen.



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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