How Much Work Can You Lose

The numbers this sheet uses

Nothing new is assumed on this sheet. The gross profit per unit comes straight off the two earlier ones: mulch at 35% from the 1.23 man-hour column, sod at 25% from the 2-hour reality check. The close rate is an example. Put in yours. Everything on the page is arithmetic on these, so if your mulch makes $35 a yard and not $42, use $35 and the rest recalculates.

Mulch, sell price

$120 a yard

Mulch, gross profit today

$42 a yard, at 1.23 man-hours

Sod, sell price

$450 a pallet

Sod, gross profit today

$113 a pallet, at 2 man-hours

Close rate today

40%, 4 bids won in 10

Same revenue is not the same money

Start with an example that is not our trade, because it makes the point in one table, and the math is the same on mulch or sod. A mowing company has 100 clients at $50 a cut, and it costs $30 to cut a lawn. Revenue is $5,000, cost is $3,000, gross profit is $2,000. Double the price to $100 and half the clients walk. Revenue is still $5,000. Cost is $1,500. Gross profit is $3,500.

Same revenue, and it is easy to stop there and call it a wash. It is not a wash. It is 75% more gross profit for half the trucks on the road. And the number nobody works out is that at $100 a cut you could lose 71 clients out of 100 and still make what you made before, because the raise is $50 on a lawn that made $20, and $50 divided by $70 is 71%. Twenty-nine clients, about the same money, on 42% less revenue. The revenue break-even was losing half. The profit break-even was losing 71.

The question was never how much revenue you can lose. It is how much gross profit a job you keep.

The one line, and the close rate you need

A raise goes to gross profit dollar for dollar, because the cost does not move. The $40 of mulch and the $38 of labor cost the same whether you charge $120 or $130. So the most work you can lose is the raise divided by the gross profit after the raise, which is what the unit made today plus the raise. Raise mulch 8%, from $120 to $130. The raise is $9.60 a yard, the $42 becomes $51.60, and $9.60 over $51.60 is 19%. About 1 bid in 5 can walk before you are worse off. It is gross profit in the bottom of that division, never revenue.

Run the four columns on the sheet. Mulch at 8%: $9.60 a yard, $51.60 after, lose 19%. Mulch at 15%: $18, $60, lose 30%. Sod at 5%: $22.50 a pallet, $135.50 after, lose 17%. Sod at 11%: $49.50, $162.50, lose 30%. Now read the row above it, gross profit up by: 23%, 43%, 20%, 44%. Sod gave you the least margin of anything in the series, a 38.9% ceiling before the crew arrived, and sod is where a raise is worth the most. An 11% raise on sod is 44% more gross profit on a pallet, because the $275 of sod never moves. Raise first where the ceiling was lowest. The material that squeezed you hardest pays you back fastest.

Then the close rate. Say you close 4 bids in 10 today. Multiply that by what a unit makes today and divide by what it makes after the raise. On mulch at 8%, 40% times $42 over $51.60 is 33%. On sod at 11% it is 28%. Everything above that number is more money for less work. Everything below it, you were right to worry. So the question is which side of 33% your market is on, and nobody knows that. Not me, not a coach, not a calculator. Ten bids know.

The most work you can lose is the raise divided by the profit today plus the raise. Gross profit, never revenue.

The ten-bid test

The next 10 bids on that service go out at the new number, and every one of them gets written down. Not the whole book, and never a contract already signed. The log on sheet 2 has seven columns: the date, the job, the old price, the new price, won or lost, and what they said. The last column matters more than the wins. The filled sheet has the first three in: 18 yards in Barton Hills at $130, won, and the customer did not blink. Six yards in a side yard at $130, lost, the neighbor's crew is $95. Forty yards on a new build at $130, won, and they asked about sod too.

Four rules, and they are the whole test. New bids only, because you do not reprice a contract mid-season. One service line at a time, mulch or sod, not everything at once, or you learn nothing. Same crew, same pitch, same write-up, so the price is the only thing that moved. And write down what they said. Too high is one answer. The neighbor's crew was $95 is a different answer, and it points at a different sheet.

Ten is enough to know which side of the line you are on. At a 40% close rate today you expect 4 wins. At the break-even you expect 3, maybe 4. If 10 come back with 2 wins, the market answered, and it cost you 10 conversations. If 10 come back with 4, you left $9.60 on every yard you moved this season. If you quote 2 mulch jobs a month, 10 bids is half a year, so run it on the service you quote most, or run 5 and know the answer is rougher.

Ten bids. One service line. Same crew, same write-up. Only the number moves, and what they said gets written down.

The grid

Sheet 3 is this episode's grid, on mulch. The raise runs down the side with the new price beside it, the share of bids you lose runs across the top, and every cell is gross profit against today, with today at 100. Under each cell is the same thing in dollars, the gross profit you keep for every yard you quote. Raise mulch 15%, to $138 a yard, lose 3 bids in 10, and you are at 100. The same $42 a yard, and 30% less work. Raise it 8%, to $130, lose 2 in 10, and you are at 98, about the same money for 20% fewer driveways. The break-even runs on a diagonal. Circle it, and everything above it is more money for less work.

The right half of the sheet is the same grid as people. One hundred customers who each buy a yard are $4,200 of gross profit today. At $138, 70 of them are $4,200. Thirty customers you never have to drive to again. At $130 and 80 customers it is $4,128, $72 under today. The red cells are less than today, and there are more of them in the bottom rows than most people expect, because a raise that loses nobody is rare and a raise that loses a third is survivable.

The line works in both directions, and the other direction gets run more often. Cut the mulch price to $110 a yard to win a spring of work, and the gross profit on a yard falls from $42 to $32. To make the same money you now have to win 31% more bids than you did, a 53% close rate from 40%. You have to win more than half of everything you quote, on work priced to make less. A discount is a raise with the sign flipped, and it is usually a bigger bet than the raise you were afraid of.

The gap

The gap on this sheet is bids, not hours. The budget is the close rate you need at the new price. The actual is the bids you won over the bids you sent, straight off the log. Ray ran the test. Ten bids at $130 a yard, and he won 3. The budget said 33%, and 30% is one bid in 10 short of it. On the grid, 3 wins where 4 was normal is 25% of the work lost, and the 8% row between 20% and 30% lost reads about 92. That is $38.70 of gross profit for every yard he quoted, against $42 today. He is doing less work for a little less money.

What 3 in 10 could mean. The market said no, and one bid in 10 is the whole distance, which is close enough that the next 10 may say yes. Or the 7 he lost were the wrong 7, and the job column says so before the wins do. The 6-yard side yard went to the neighbor's crew at $95, and that is a bid a minimum charge would have priced differently anyway. Or 8% was the wrong raise, and the 11% row at the same losses reads 92 too, with more on each yard he does win. Read the log before you read the wins.

Dana raised everything at once, mulch and sod and the patios, in the same week. Her close rate moved too, and she cannot tell which jobs she lost or which price lost them. She ran the same test and threw away the answer.

The budget was a 33% close rate. Ray came in at 30%. That one bid in 10 is the gap, and the job column says what it means.

When raising the price is the wrong move

Three cases, and the sheet names all three. Your price is high because your overhead is, not your margin. Two businesses quote the same patio at a 20% margin. One carries 28% overhead and the other carries 20%, and the first loses every time. Raising its price makes that worse. The bids you lost were the good ones. The grid assumes every lost bid was an average bid. If the raise runs off the 40-pallet builds and keeps the 4-pallet side yards, the grid lied to you. That is why the log has a job column. Look at which bids you lost, not how many. And the going rate really is the going rate. Five businesses quoting the same number, and a raise on the number alone loses. Then the lever is what is in the price, the scope, the write-up, the deposit, and not the price.

One lost bid with a reason beside it is a data point. Write it down and move on. Ten bids with the reasons written down is an answer, and it is the only test of a price that does not cost you a season.

What to do with this

Pick the service you quote most, and put the new price on the next 10 bids. Same crew, same pitch, same write-up, and only the price moves. Write down what every customer said. When the 10 are in, divide the wins by 10 and set it beside the close rate you need. Above it, the raise paid, and the number goes on every bid from now on. Below it, read the job column before you read the wins. If 10 bids is half a year for you, run 5 and take a rougher answer.