Choosing the Right Estimating Method Based on the Stage of Your Outdoor Lighting Business

In this series of articles, I have been sharing how landscape lighting designers price out their projects. Examining the "Per Fixture" estimating method versus "Full Cost" estimating method, I have outlined some of the advantages and challenges associated with each method for outdoor lighting project pricing.

In this final article of this 3-part series, I want to look at which stage of business works best with each pricing method. I'll first talk about the stages of business through which owners progress and I will be drawing from what I have learned from my good friend, Brett Gilland, at Elite Entrepreneurs. Next I'll talk about what is needed to use each method effectively and what requirements are needed from the business to support each method. In the end I hope this article helps you grow your landscape lighting business by helping you identify the best options for you when it comes to estimating. Creating excellent products as well as exploring important industry topics and writing articles are just a few ways our Sterling Lighting team lives out our purpose to elevate outdoor lighting professionals.

With that in mind, let's dive into the different stages of business and how they relate to the choice between "per fixture" estimating and "full cost" estimating.

Which Pricing Model Works Best for Solopreneurs, New Businesses, Small and Medium Sized Business, and Well Established Businesses?

Stage 1 Business

As entrepreneurs we all know business can be both challenging and rewarding; it's a journey for sure. Most of us start out in Stage 1 as the solopreneur who is hustling as hard as he or she can doing everything, putting the time in to get to that first milestone of $100K in gross sales.

Stage 2 Business

At this point your little start up has matured into a Stage 2 Business and New Employer. You realize you need to focus on getting leads to feed the machine you're building with those two new people you brought on and next thing you know you hit $300K.

Stage 3 Business

Suddenly your focus goes from time to leads to selling as you push towards that first $1M in gross sales or Stage 3 which is the "Steady Operation."

Stage 4 Business

Once you hit $1M in sales you have become a Stage 4 Business. You probably have around 10 employees making your operation run while you focus on marketing. You probably have a designer or two out there making sales for you at this point. You may have stalled a bit at $1M as you reoriented and started to focus your efforts on people, processes, and systems; these three things start to break at the top stages of business forcing you as the entrepreneur to change. It's at this stage I believe that you really start to question how you're doing things, the numbers are all bigger, and the mistakes cost more.

Stage 5 Business 

Between $1M and $3M in gross sales, while you are in the Stage 4, 7-Figure business, moving from the simplicity of a "price per fixture" estimating structure to something different starts to look like it will solve some challenges you are facing. You have between ten to twenty-five people in the organization and are willing to consider an effective change in the process of estimating.

Which Pricing Model Works Best for Solopreneurs, New Businesses, Small and Medium Sized Business, and Well Established Businesses?

Pricing Model for Stage 1 Business

During the Soloprenuer Stage 1, the amount of time you put into the business is the determiner of success. The "Per Fixture" estimating model may be the best choice when you don't have the bandwidth to tackle the complexity and system decisions needed to implement "full cost" estimating. At this stage, you've not fully mastered the system needs of your business and how you do things. Since per fixture estimating is simple, easy to use, and allows for quick and efficient quoting, this is the natural choice. However, as the business grows and becomes more complex, full cost estimating may become a solution to some problems you may encounter.

Pricing Model for Stage 2 Business

Business In the New Employer Stage 2 business doing between, $100K in sales to $300K in sales, a business may not see the limitations of per fixture estimating. Most jobs tend to be smaller and the total ratio in sales to overhead is still quite low, making this method still quite manageable.

Pricing Model for Stage 3 Business

Business Moving to a Stage 3 steady operation, your business requires an owner to start to become more detailed in his understanding of costs, and he will likely need to start looking at more robust systems for tracking and managing important data. However, he will unlikely choose to implement full cost estimating at this stage.

Pricing Model for Stage 4 or 5 Business

In the Stage 4 and Stage 5 business—$1M to $10M in sales—full cost estimating starts to become attractive and worth the effort of implementing. The numbers a business owner is working with become bigger and riskier; mistakes here can present extreme challenges, so the need to update systems and processes with more detail becomes critical. Owners will need better information and data to continue scaling their business. Getting the estimate right and knowing each install is profitable will allow you to continue the journey so you can reinvest in your business.

Which pricing model is best for landscape lighting contractors?

Ultimately, the choice between "per fixture" estimating and "full cost" estimating depends on the specific needs of your business and where you are on the journey of growth. By understanding the stages of business and where you are, you can decide if switching to "full cost" estimating is right for you.

My advice—if you decide to go down that road—is to be fully committed. Plan and train your people, as bad data can be catastrophic for your decision-making ability. There are some large implementation costs to consider like time commitments, software, and system implementation. If you are on track and scaling at Stage 4 or 5, the investment is well worth it as you work towards a $10M outdoor lighting business.

Read Part 1 of this series - Is "Price Per Fixture" Best for Your Landscape Lighting Installation Company? 
Read Part 2 of this series - Is "Full Cost Estimating" Right for Your Outdoor Lighting Business?

Visit Grow with Elite podcast for additional resources on this topic and an interview with Brett Gililand and Clate Mask.

~Damien Sanchez