Many Landscape Companies
Lose Their Margin at Renewal

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Contract renewals are about “seeding the narrative” and understanding the business “lay of the land” with your client. In Florida, HOAs are actively doing budgets from late May through September for next year. Warehouse/Facilities in the Mid-Atlantic are doing them April – June. If you’ve got a contract renewal on Jan. 1st, and you wait until November to think about it, you’ve missed the boat. The financial consequences are sizable if this is mismanaged, from getting no escalation to straining the relationship to losing the contract altogether. A few communication guidelines can prevent this.

What “Seeding the Narrative” Actually Means

We’re using the phrase “seeding the narrative” or “narrative seeding” very intentionally instead of using “communication” and “communicate” that landscapers are so fond of. Persuasion is about how a story is told across many, many months. Communicating tells us nothing about the pace and style of that communicating. Contract renewals/negotiations are about delivering that discussion in a piecemealed, unforced, and incremental manner. This is what we mean by “seeding the narrative.”

When Escalation Discussions Begin

1. Contract escalation’s discussions begin the day the contract is sold, either by the salesperson or by the client/account manager, but this must happen carefully.
   • If the client detects you are talking about more money next year the day you sell the contract, you’ve already failed. These discussions are incremental, and in that, respectful.
   • If the salesperson collected the intel or built a multiyear contract with escalations, then life is good. Many contracts, however, are not multiyear. The client/account manager should review the contract information right after the contract closes, including the renewal section, and test the waters around the renewal terms with the client. The goal is to learn when budgets are for next year and get a sense how the client is thinking through it.

Auto-Renewals and Narrative Seeding

2. While the conventional logic is to build auto-renewals — and we don’t disagree — this should be contextualized with renewal narrative seeding.
   • Autorenewals work wonderfully when we have done the upfront work of understanding the budget constraints; when we have a clear line of sight that our renewal rate fits with the client’s multiyear budget plans, not much added conversation is needed.
   • If we have no idea about how our renewal rate squares with the client’s budget, and the contract is not longstanding, then the sooner this conversation happens, the better. We must have context with the client.
   • There is a risk to avoid, however. For contracts that have had a longstanding renewal rate that works for our company, and the client has never complained about it, less is more. The history of a continued payer (client) and yearly escalation is all the context you need. Drawing attention to a contract working this well is ill advised. If it’s not broken, don’t fix it.
   • On variable escalations, leverage high with room to back off. We favor combining a local and national CPI (consumer price index). Other landscape company owners have used PPI (producer price index), which typically is higher than CPI. At least for the past decade landscape costs often outpace contract escalations: most of this is driven by labor, but fertilizer and fuel have inflated significantly too. Don’t lose perspective: a 2.5% increase on a contract is better than a -100% lost contract.
   • Narrative seeding allows us to test how a variable increase hits our client: “Looks like our combined local and national CPI will put you at a 5.1% increase. How does that strike you?” This gives them space to inform us what that will mean for their job: i.e., how they look to their bosses. We care about making them look good. This narrative seeding prevents our client from feeling forced to bid-it-out or put-it-to-market. The alternative is a fixed escalation, which works too, but may leave money on the table.
   • We have seen huge success closing the multiyear-scope-plan-adjustment-escalation. Some RFPs dictate a precise scope of services, but others are more flexible, and others ask for a one-year price without clarifying a multiyear situation. When it is obvious that a certain task will change in its scope needs over a 3 – 5 year duration, we present this with a multiyear escalation, but we tie the sizable increase to the scope change and need. The most obvious of these are trees growing, but fertilization needs may increase over time, and sometimes shrubs must be handled differently. We have sold a contract where we provided them a 4-year contract with escalations of 20% for year two, 18% for year 3, and 4% for year 4. We tied the increase in price to clear needs their property will have, provided the explanation, and gave them a road map for predictable budgeting.

The Language That Works

3. In how the wording works, pair improving curb appeal or property aesthetics with an aside about the budget. We serve clients. We improve their value. Be sincere in this attitude, but mix in a narrative seeding: “… the amenity area has many shrubs crowding the walkways hard to cut back, it’s a big project to fix, just thinking through budget next year, should we bake it into the contract … we already have a CPI increase, thoughts?”
4. The goal in all narrative seeding is to be advisory, i.e., persuasive but unforceful, which converts a vendor into their consultant. “Here is this or that idea, we need to think multiyear, here’s some options, what do you care about, your thoughts?”
5. Present some scope increases (in contract) as recommendations to tease out how tight budgetary constraints are (another narrative seeding). This will inform us about whether our client-contact has the power to change scope: “Have you considered treating the turf for invasive weeds in contract?” “Those shrubs are getting too much shade under those ornamental trees, we should cut those back hard at least once a year or the shrubs will get leggy; this is something you should do every year to prolong the beauty of the shrubs, can we add it to the contract?”

The Numbers Do Not Equivocate

Managing renewals is where margin is improved or diminished: the numbers do not equivocate. Here are the numbers on a few different situations, from mismanaged to success. For the sake of the example, let’s imagine $2,500,000 in contracts we need to renew. The three main ways this plays out are listed next, then a chart follows with the financial consequences. In that chart, we are including the Enhancement revenue impact since that is an implied consequence of a renewal strategy we should not miss.

1. Lose the contract, and we’ve lived this. A client/account manager hits the client with an unknown increase without prepping them for it.
2. No increase: costs go up by 3%, margin compresses by that 3%.
3. We improve the client experience with consulting level care, pick up 0.8% increase beyond costs, margin expands and the client is served.

Renewal Management	BOB Impact	Cost Increase	Enhancement Revenue Impact	Total Revenue Impact	Resulting BOB Revenue	EBITDA Impact (13%)
Mismanaged (Lost Contracts)	($375,000)	n/a	($93,750)	($468,750)	$2,125,000	($60,938)
Mismanaged (No Escalation)	No BOB risk implied	3.2%	n/a	n/a	$2,500,000	($40,000)
Managed (4% Increase)	$100,000	0.8% net above costs	$25,000	$125,000	$2,600,000	$16,250

Assumptions: 15% BOB lost in worst case  ·  3.2% cost increase  ·  Enhancement revenue = 25% of BOB change  ·  50% cost base  ·  EBITDA at 13% of revenue

Seeding the narrative or choosing not to do so results in real financial pain or gain. What’s striking is that these incremental conversations we have require no grandstanding renewal discussion with the client but play out in real numbers. Learning the art of persuasion, timing, and reading the room are real skills. It is part of business acumen, but, more importantly, it is part of a company’s growth story that leads to larger enterprise value.