Price Gouging. Where to draw the line?

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So I would disagree that a larger company does not have more overhead.

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It depends on what you are defining a large company as. Our company would be large compared to a 2 or 3 man operation. Our company is microscopic compared to Davey, Asplundh, Bartlett, Sav-a-tree etc...

If Asplundh generates $25 in profit per truck per day... they made a ton of money. If we make $25 per truck... I'm going to be bankrupt fast! I cannot work for their local T&M rates. Their overhead is disbursed over so many crews that a minimal amount of profit is required per truck. They also spend much less for health insurance, equipment etc. than I do.

I think Zeb's point is also very clear in that most small operations are not charging enough. Are small companies prices more competitive because they are not paying workers comp, health insurance, not marketing, not saving for retirement? I think if you compare apples to apples... most small companies have higher costs than larger companies. The problem is it is not always apples to apples. The big guys have less cost for sure...
 
The interesting thing is... I put a call into the sales person, from this company I'm referring to, and he hasn't returned my voice message. My message was friendly and I was more or less asking how they got there.

Wikipedia has some insight here. Price Gouging. The very first line raises my brows and gets me to say, "A-ha!" But, when reading further, it seems to be in the context of emergencies.
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Let's say 5 legit companies, with similar expenses, bid within eachother of... say, $500 dollars. And some other company bids nearly 5 times higher than the others... Is there something wrong with that? Is that gouging?

And why would gouging only be applicable when a customer is in some sort of emergency?
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If gouging is only related to emergency situations... Then, what would be the proper terms to describe my example? Would it be better to say "excessive pricing"?

And again, I understand that if a consumer chooses to award a "excessively high-priced" service, that is their choice.

But, who walks away looking like a bad guy? The fair and reasonable company or the excessively high-priced company?

And, when a consumer awards a job to the excessively high-priced company, who looks foolish? The consumer, for not checking other prices? Or, the salesman, for excessively charging someone for services?

Or, are those the wrong questions to be asking?
 
The Wikipedia article brings to mind art work and collector's items.

One painter can ask $20,000 for one week's worth of painting, and another can ask $1000 for a week's worth of painting.

Both seem acceptable and legal when it comes to that art, but the problem seems to enter minds when it comes to services or other products.
 
Jamin,

Another way to look at it is are you leaving money on the table? I hate doing that...

Where small company's beat large companies is in efficiency and service. Maybe you are very efficient?

I used to take every removal I could get... I would bid them tight and figure out how to get them done fast. Now we are loaded with pruning work... I don't want the removals anymore. We can do them, but I'd rather be pruning. My removal pricing is high. Is that gouging? I carry 5 million in Liability Insurance... none of my competitors do. What is that worth? We have high quality employees who have good benefits... 6 Certified Arborists and 2 CTSP's. Yet my pricing is compared everyday to people with far less. I am always the highest! I am proud of that! We sell professionalism and quality... not price.

I have seen posts on here about a Cottonwood bid going for 30K for one tree. I have a buddy in Florida that did a large removal for 22K. I don't even comprehend that... But someone accepted that bid??? I didn't see the trees in person, but????

If you are pricing low and making a profit... good for you! If you keep it up and maintain your efficiency you will be the "big" company soon.
 
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...Where small company's beat large companies is in efficiency and service. Maybe you are very efficient?

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I believe we are. Sometimes we are effecient that I do "leave money on the table." But, not always.

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We sell professionalism and quality... not price.

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Totally here too.

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If you are pricing low and making a profit... good for you! If you keep it up and maintain your efficiency you will be the "big" company soon.

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I have played with bids enough to be middle to middle-high, if that makes since. However, I get feed back that I'll blow people out of the water (and still remain profitable). And I have had feedback that I was the highest.

***But, I guess the whole conflict inside of me (and all of us at times) is we'd like to see patterns be steady. So, when it comes to price flucuations it creates confusion...
 
I know what you are saying Jamin. Around here prices are kinda steady they go up and down when a new guy steps in the tree comp. ring . They bid low to get customers, during storms though they are usually the highest bids. I have heard at a bid that one guy was charging this and that do to the economy. Not one word about work just the economy, I run through the job so the client knows what they are paying for on those bids. Stick to your guns, let your clients , skill, and your comp. do your talking for you on bids.
 
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If gouging is only related to emergency situations... Then, what would be the proper terms to describe my example? Would it be better to say "excessive pricing"?...

...And, when a consumer awards a job to the excessively high-priced company, who looks foolish? The consumer, for not checking other prices? Or, the salesman, for excessively charging someone for services?

Or, are those the wrong questions to be asking?

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No, I think you're asking the right questions. I think it falls under the category of "WTF???" I think in the end they both look foolish. But, each one has that right. The more free the market is, the more people have the freedom to be fools. Having that freedom is better than the alternative IMO. This is why it is so important to teach our customers about our industry. After that, the responsibility ultimately falls on them.

I have found that for an "average" pruning job, the prices will not be that far off of each other. There will be variables such as overhead, insurance, and crew pay. Those items we have to manage. If we don't learn how to do that, then it is not the customer's fault if we don't make a profit.

I found that here in SoCal the "legit" companies I bid against were all about the same as us. Sometimes we'd get it, sometimes they would. And sometimes one of us just connects better with the customer.

The bigger variables I think fall under human nature. We may knock off a bit to try and get the job, maybe just to keep our crews working. We may add some because the job, or the customer, is a PITA (pain in the a@%). And, sometimes we see or don't see something that does effect the price. I have had bids where I asked my competitor, "How did you bid it so low? Didn't you see X?" And they said, "What? Aw %@&*!" I've also had it go the other way.

I think those are legitimate variables. However, there are always those who try to manipulate the market. They do things in an illegal/illigitimate way (paying cash, no insurance, low vehicle maintenance) so they don't have the same production costs. And what generally follows is low quality and safety. I think that is equal to cheating and is just as bad as gouging.

I agree with the other Buzzers about when "gouging" comes into play. I believe it involves manipulation, deceit, and where the consumer has little or no choice. Emergency, high risk, and PITA jobs are higher price jobs due to what we have to deal with to do the job. The increase is legitimate.

But, if you want to be the "Rolls Royce" of tree care, and can back it up with that level of quality - go for it. If you are providing the same level of service as others, then it is up to the consumer to make their choice on what they want to pay.

OK, I'll stop now. Too much coffee this morning...
 
Jamin, I would not call what you are talking about, "gouging" per say. I would look deaper into why the bid was so high. I know right now, unless they are a repeat customer, my prices have gone up atleast double. And I tell the clients that upfront. The reason for my increase is supply and demand. I supply a service, (I have too much to do as it is now), and if they want (demand) me working for them they are going to pay for it. I call it more of a deterent then anything else. Go find someone else. PLEAAASSSSSE. I had someone ask me if a, not so local, tree removal company would be able to do a job cheaper, I said "probably call them and get a bid". And I still got the job. I told him it was going to be a while before I got to it. He said OK. Now hes calling me, "when are you going to get to my tree". So the increase is also in anticipation of the hassles I am going to have to deal with between the bid and when I get to the work (could be 2-3 months).
Everyone has their reasons why they bid jobs the way they do. It is the customers responsibility to make sure they are getting a fair price for the work. It is our responsibility to be honest with the customer. I know some arbs are not the most honest (ive known a few), but the customer should never dive into a large project without a second opinion. Would you get a second opinion if you were told you needed an expensive and dangeous operation? Of course. Just my thoughs
 
To me gouging indicates that the customer has in some way been taken advantage of, whether it is because of an urgent situation or deception on the part of the salesman or even naivety/stupidity on the part of the customer.

I've worked for a large tree company that on occasion seemed to 'gouge' clients, but usually there was a backstory to the bid that justified the price. For example, I remember a job for a client that had three small cedars to remove, priced at a full day for a three man crew plus crane time. It seemed absurd at the start of the day, the crane was unneeded and too much time was allotted etc. Then after the first cut the client got out his shopvac and began vacuuming the sawdust out of the cracks in the pavement in front of his house, full on OCD. It was a fairly priced job after all to accommodate the needs of the client.

An uncle of mine, owner of a successful business, advised me that to price 'just high enough so you've got a few people angry at the cost. If everyone's happy then you know you're too cheap as there are lots of cheap people out there. If the cheap people are happy, then you're too cheap.'
 
A local "respected" tree company charges $2800 a day for a 4 man crew. My company charges around $1500 for 3 men. We are good, work on many multi million dollar estates and have all top notch equipment(9 ton k-bomm log truck, 12" and 24" chipper, skid steer, 75' bucket truck, etc). It amazes me what some people charge AND get. We did one removal for $3500. They got quotes for $8k. Did the 8k quoter not really want the job and figured if I get the job..chaChing$$$$? If the price is too cheap homeowners should wonder if the company has insurance if nothing else.
 
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"This is not to be confused with Guy's high-balling on a job not wanted. Although that is artificially inflating the price it is with different motive. And, I might submit, a business practice that we might want to analyze and modify for a host of reasons. However that is for another thread."

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well by golly then start it anytime, mr. smartypants analyzer/modifier person, you!

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There I go again, not fully saying what I mean...

That was not meant as a slap Guy, not by any stretch. I am as guilty as guilty can be about high balling a job thinking, "I really don't want this job because (fill-in-the-blank) so I'll triple the estimate hoping they will go away."

What I should have added was that Gouging and high balling while both, in essence, are artificial inflation of price outside of market forces the former is due to motivation of of theft and the latter due to the motivation of avoidance.

In that context true gouging can happen with, or without, emergencies but almost always using deception, bullying and/or coercion. The object of gouging is to always "take" as much as possible from the victim. It's not really different than any other predatory scam.

High balling doesn't work that way. When we highball a job we have no expectation that we will be awarded the work. As a method of avoidance I think it probably not in our best interests. THAT is worth exploring in a different thread
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Meantime, please excuse me while I go clean my sneakers, ankles and knees as it seems I may have stepped in something with my last post
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The topic of avoidance could be related to the thread on "Dead End Bids." Which is basically qualifying the customer.

It's always helpful to find out, over the phone, if the lead is a dead end. Then, we can "avoid" doing the bid. I hate arriving to the customer's home and just knowing... that I'm not going to be awarded a job.

I have never been into bidding extreemly high to avoid a job. I figure, I don't wan't to waste any more second on that property than necessary, so I'll pass on the bid. Most of the time I'll help them and point to a different company who has less cost.
 
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A local "respected" tree company charges $2800 a day for a 4 man crew. My company charges around $1500 for 3 men. We are good, work on many multi million dollar estates and have all top notch equipment(9 ton k-bomm log truck, 12" and 24" chipper, skid steer, 75' bucket truck, etc). It amazes me what some people charge AND get. We did one removal for $3500. They got quotes for $8k. Did the 8k quoter not really want the job and figured if I get the job..chaChing$$$$? If the price is too cheap homeowners should wonder if the company has insurance if nothing else.

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I don't know your market, i'm on the other side of the world, i do know wages & equipment is cheaper in the US. But, $1500 for 3 men WITH ALL THAT equipment sounds cheap. Maybe with just a truck, chipper & stump grinder $1500 would be ok, but thats a lot of gear.

Does the 4 man $2800 crew have similar equipment?
If they dont, some jobs like big removals might take them twice as long as your crew.

Does their business have other non-production staff to support, like office,admin,sales? Is the owner included in the 4?
Does yours or does your $1500 only have to cover 3 people all up, including yourself as the owner?

I'm just putting it out there because in my tree business with a 4 man crew there are 6 staff to pay out of the daily rate.

Sometimes a super-skilled team is just that much more efficient that you do the same tree for less because you can do it so much quicker, but i don't really think that means you should do the job cheaper...but you can afford to when you need to...

Now, back to price gouging, check this out. This guy has finally been busted for it. It's been a well known problem across Australia by an organized group for a few years now. They knock on doors, intimidate and pressure the elderly. They just keep changing business names.
$10,500 for a tree?
 
I remember watching a vid about those fellas a year or so ago. I'm happy to not have characters like that about.

Lots of good reading on this thread.

Gouging has been well defined here. Manipulating or coercing clients into prices higher than the value of the service (or goods) provided. I don't think bidding high on a job because of x, y or z is gouging.

I do the majority of the sales for the tree service I work for. It took a while to adjust to the market once I moved out here, but I have noticed that the company I work for, which is a locally owned and operated small business with around 30 years of service in the area is usually the high bid. It does bug me sometimes to know that we deter phone calls by virtue of our reputation as such, but it usually means that the folks who call are not necessarily looking for the cheapest price. I know the overhead, I know the man/hour rates we need to make in order to make bank and I know that at 1500 bucks a day for that kind of manpower and steel we might as well take a blanket to the beach and have a pow-wow.

But to echo what has been said before, you don't want to be the high quality guy known as the low bid, and you don't want to be the low-quality guy know as the high bid. Somewhere in between is just right. Jamin, your integrity and honesty are admirable, and I'm sure it will pay dividends as you move forwards. If your anything like me, however, forwards just can't come soon enough!
 
This has been a good thread. It raises many questions.

1) What is fair?

2) If I make a lot of money doing tree work am I a gouger?

3) What is the risk we are taking worth?

I have worked many government projects that the pricing was set before hand. I was given a choice to work for a pre-determined rates or not work at all. Most of these projects have less hazardous work than we do daily at home. Some of these were Army Corps projects and others were State and Local projects. I made far more profit on these projects than I have in our local tree work operation. Profit amounts that some here would call extreme. These projects are heavily tracked and are considered fair by the government agencies supervising them. If I made the same profit margins during storm projects at home, by many of your standards, I would be a gouger.

When I compare the profits I make doing PHC work they are obscene compared to general tree work. Why isn't this gouging?

I think as an industry we charge too little for general tree work (pruning, removals, etc.). I am embarrassed that our work force makes the pay they do. This work takes a toll on your body and has more risk than almost all other professions. As an owner I make a similar profit margin to other green professionals (landscaping, lawn care, etc.) Yet our profession has far more risk?

The median income for a full-time US male over 25 years old is $43,317.00
http://en.wikipedia.org/wiki/File:Personal_income.png

In my opinion the work we do requires more skill and definitely has more risk than the "median" job in the US. While there are exceptions, most proficient crew leaders don't make a whole lot more than this... If you get 40 hours per week this is $20.83 per hour. If you think I'm wrong about this I reference the most recent TCIA wage and benefit survey. Also take into account that a great portion of yearly take home pay can be lessened by inclement weather and Winter in our industry.

The market for this work is created by us... I hope this thread results in some re-evaluation of what we charge. My employees aren't paid enough and neither am I. I try everyday to push the top of the market and have the reputation of being expensive. I have all A's on Angie's list except for the category of price...

I love arboriculture. I love what I do everyday. I love the passion in our industry that is highlighted on the tree buzz. I think we are charging too little... I think I am charging too little. I am definitely charging as much as I think I can in Dayton, Ohio... I'm not charging enough based on my above statements.

I am interested in your thought's on this post... Am I off base?
 
treecareinc. - You summed it up for me... well done.
I also see that I am charging as much as I can in my (50,000 pop.) town. We deserve more and I am not sure if our day will ever come. But I can die knowing I was good at what I did and spent no time in a friggin' cubicle.
 
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I love arboriculture. I love what I do everyday. I love the passion in our industry that is highlighted on the tree buzz. I think we are charging too little... I think I am charging too little. I am definitely charging as much as I think I can in Dayton, Ohio... I'm not charging enough based on my above statements.

I am interested in your thought's on this post... Am I off base?

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Definitely right on. We will not get where you are indicating without some market retraction, I think.
 
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