MANAGING RISING COSTS

It's been a challenging few years with rising costs and inflation becoming the new reality. Last April had the highest peak of inflation at 9%. It's now lower, but it's still above the traditional 2-3% levels. Additionally, costs have skyrocketed over the past three years.

Labor is our greatest cost as we work to attract and retain our great team. There is still a tight labor market - plenty of jobs, but not enough workers. Plus, labor-related benefits have increased over the last six years, which drives our overall costs to rise faster than the inflation rate.

Many of our next highest costs - fuel, fertilizer, and equipment - have also risen significantly faster than the base inflation rate over the past two years. 

Read on to learn more about the rising costs and how we have offset some of these increases.

LABOR COSTS

Prior to the pandemic and supply chain shortages that created inflationary pressure on the general economy, labor and labor-related expenses including insurance and new mandated benefits (especially in construction and service professions) have risen at 5-8% annually. We work diligently to improve efficiencies to offset as much of that as possible, but to attract and retain the great staff that provide the great service to our customers, our cost of doing business has been pushed higher than general inflation. Our production wages have risen 75% in the last 10 years and 30% over the past 5 years.

Wage rates, mandatory increases in health care, sick leave and other personnel costs have also driven up labor costs for most service businesses. We have to keep up with these costs to attract and retain the workforce to provide the service our clients expect.   

FUEL COSTS

https://fred.stlouisfed.org/series/GASREGW

With fuel up over 135% compared over the last 2 years, we’ve heard that several of our competitors have tried to pass on a fuel surcharge. Although this is a significant cost for us, we honor our contract rates and have not considered a surcharge. We have also heard of some of the surcharge rates being around 5%, which we believe is significantly greater than the cost increase, turning the surcharge into a profit center. It is frustrating when businesses take advantage of rising prices to increase profits.  

FERTILIZER COSTS

https://fred.stlouisfed.org/series/IR12510

Mostly due to the fact that Russia produces much of the raw materials used in fertilizer, the war in Ukraine has disrupted the supply chain, driving up costs to over double since last summer. They have lowered a bit this past year, but is still up 160% over 2 years.

EQUIPMENT COSTS

https://fred.stlouisfed.org/series/WPS114

Two examples of increased equipment costs: our production trucks and our 21" hand mower. The cost for the trucks has risen from $62,000 to $76,000 since 2019, which is 22%. The mower cost rose from $1,128 to $1,499, which is 33%. 

We are proud to have one of the most updated truck and equipment fleet to ensure our team has the proper tools to perform the great service. This keeps us efficient and assists in our goal to reduce our carbon footprint as newer equipment have lower emissions. It is difficult for us to consider to allow our equipment to age because it would reduce our efficiency and slow our goal of lower emissions.  

Working to improve efficiencies to offset cost increases

We have always worked hard to offset increased costs and are proud that during our long history, we have offset most cost increases. For example, as stated above, with labor costs having risen 75% in the past 10 years, our costs to most clients have risen only one-third of that through our work to improve efficiencies.

With a strong commitment to training when we formed 21 years ago, we are proud to have the best trained and efficient team. We have also worked through LEAN process planning to have mapped and developed critical paths to improve efficiencies on all properties. We also have utilized plant growth regulators to reduce pruning frequencies. We are always working hard to offset labor cost increases.