One of the most valuable business lessons I’ve learned came from my father many years ago. My dad had bought a piece of real estate that came with an ice cream business he planned to keep, and it was a business he knew nothing about. After 30 days, he discovered his highest cost was employee theft, which he immediately addressed by employing my brother and me.
I was 13 years old; my brother was 8. You would think the ice cream would be the favorite of a couple of kids our age, but we enjoyed the large grill on which we made burgers the most. After six months, my father announced one day, “We’re closing down the grill,” to which we both exclaimed, “No!”
I can still hear my dad’s response to this day. “That grill costs $35 a day to operate, and we’re only selling $33 a day in burgers; we’re moving to chili dogs.”
He went on regarding the margins of several other items and ended with a statement that has stayed with me my entire life. “Always know your numbers.”
Pricing structure
One of the most rewarding parts of being involved with TCIA is working with young entrepreneurs beginning to build their arboriculture empires. The passion you find with the average arborist is uncommon compared to other service-based industries. However, a function regularly overlooked in creating a tree care business is understanding the total costs of a pricing structure and ensuring that each cost is priced through to an hourly rate.
In arboriculture, we enjoy an industry where our biggest hurdle is consistently excessive backlogs. Despite this, we continue to witness companies undervaluing our skilled work and putting a black eye on all of us as highly trained professionals.
The cost of doing business has risen rapidly in the last four years. There are not many costs on our P&L (profit & loss) statements that haven’t increased. I’m always amazed by tree care companies that are not adequately pricing their work and have no cost structure around hourly figures.
Research shows that we, as an industry, still fall well below most professional service-based industries in hourly pricing. Plumbers, HVAC, roofers – the list goes on of industries with companies that are priced well above $150 per labor hour, without equipment or materials. Geographic locations play a factor in pricing, but I would suggest that this decreases as quality service continues to be more and more challenging to attain in our society.
Consumers pay a premium for expertise and ease of doing business. I shake my head in confusion when I hear a tree care provider speak of month-long backlogs and still pricing at $100 per labor hour. Compounding this dilemma is the amount of equipment and skilled labor with which we roll up to properties. We have a long way to go in raising this awareness.
Raising the bar
Understanding all of your costs, breaking them down to an hourly number and incorporating them into your pricing structure is critical to your business’s success and our industry’s integrity. As members of TCIA, we represent the professionals of our industry, and, as we know, given the demand for our services, we can increase our pricing.
The low-bid, fly-by-night companies will never be eliminated. Still, we can raise the awareness of our highly skilled arborists and leverage that in comparison to these companies, and distance ourselves from them by continuing to raise the bar for quality service and fair pricing.
Jim Houston is a vice president and general manager with The Davey Tree Expert Company, an accredited, 52-year TCIA member company based in Kent, Ohio. He also is a member of the TCIA Board of Directors.
