Choosing the Right Pricing Model for Your Landscaping Project

When it comes to landscaping projects, selecting the right pricing model is crucial. The pricing model you choose will determine the total cost of the project and the level of involvement you have in the decision-making process. However, it's important to remember that changes may arise during the project that will require a change to the original contract. Risk and benefits are allocated to parties differently, depending on the type of pricing model. In this post, we'll go over some common pricing models used in the landscaping industry and how to implement change orders specifically related to each model.

One of the key factors to consider when selecting a pricing model is the scope of work. The scope of work refers to the specific tasks or services that are required for the project. It is important to have a well-defined scope of work before selecting a pricing model as it can impact the accuracy of cost estimates and the risk involved for both the contractor and the client.

1. Lump Sum or Fixed Price or Stipulated Price

This pricing model involves the contractor providing a fixed price for the entire project, most commonly used for smaller projects or those with a well-defined scope of work. It is also seen for larger projects however, they require that a full set construction drawings and specification be implemented so that the scope of work is well-defined. Construction drawings and specifications can be prepared by a design-build firm, architect, and/or engineers. Because this model comes at a fixed price for the entire project, that means that any cost overruns to complete to scope of work will be borne by the contractor, thus the client assigns most of the risk to the contractor. Since the contractor bears most of the risk they will typically provide higher pricing with a contingency that reflects this additional risk undertaken, and the contractor as a result will be the beneficiary of any savings or efficiencies. Most clients prefer this model as it lowers their risk and involvement in the project, and if the scope is well-defined, it results in fewer changes. That said, any changes to the original contract beyond the original scope of work, should they arise, will require a change order to be initiated, outlining the change in scope, time, or cost of the project.

2. Cost Plus

With the cost plus pricing model, the contractor charges the client for the actual cost of the project, plus a percentage for profit. This model is often used for a variety of project sizes, where the scope of work is not well-defined, or when the client wants to be more involved in the decision-making process. It can also be used where the risk of overrun is high and would run the risk of a high lump sum price. The contractor is paid for all materials, labor, and other expenses, plus a fee on top of the actual cost. This fee is typically a percentage of the total cost of the project, and is meant to cover the contractor's overhead and profit.

The time and materials pricing model is similar to cost plus, and it involves the contractor charging the client for the time (usually fixed hourly prices for differing types of labour, admin, or management) and materials required to complete the project. The client pays for the actual time and materials used, and the contractor may add a fee on top of the actual cost for profit. This fee is typically a percentage of the cost of the time and materials, meant to cover the contractor's overhead and profit.

The typical markup or contractor fee percentage can vary depending on the type and size of the project, as well as the specific contractor or company. However, here are some general guidelines:

• Small projects (under $10,000): Markup or contractor fee percentage can range from 35-45%.

• Medium projects ($10,000-$100,000): Markup or contractor fee percentage can range from 25-35%.

• Large projects (over $100,000): Markup or contractor fee percentage can range from 15-25%.

It's important to note that these are just general guidelines, and the actual percentage can vary depending on various factors such as the complexity of the project, the contractor's experience and expertise, and the location of the project.

With the cost plus pricing model, the risk and benefit is generally borne by the client as they may exceed their expected budget but may also come below it. This, however, is expected to come with the lack of a well-defined scope. With the help of an experienced and skilled contractor, the client may navigate thru the uncertainty with comfort and the client’s project may be completed efficiently and cost effectively while incorporating the flexibility to make changes along the way.

3. Unit Price

The unit price pricing model involves the contractor providing a price per unit of work. This model is commonly used for projects with many similar units of work but where the number of units of work is undetermined. For example, a price per cubic yard for excavation and soil disposal work may be provided by the contractor, where the total volume of soil excavated and disposed will be determined once the work has been completed. The client pays for the number of units of work completed, multiplied by the price per unit. For this model, the risk is shared between the client and contractor. The contractor provides a fixed price per unit of work, and thus, similar to the lump sum model, the contractor bears most of the risk for any cost overruns and most of the benefits from any savings in completing each unit of work. On other other, the client assumes the risk and benefit of the variability of number units of work which may be more or less than estimated similar to a cost plus pricing model. With the unit price model too, any changes to the original contract will also require a change order to be initiated, outlining the change in scope, time, or cost of the project.

While each pricing model shares similarities, there are important differences to consider. With cost plus pricing, the contractor is paid for all expenses, plus a fee on top of the actual cost. With unit pricing, the client pays for the number of units of work completed, multiplied by the price per unit. The pricing model chosen will depend on the specific needs of the project and the preferences of the client.

Cash allowances are another factor to consider when selecting a pricing model for a landscaping project. Cash allowances refer to a set amount of money that is allocated for specific items, such as outdoor furniture or fixtures, that have not yet been selected or purchased. The use of cash allowances is often included in pricing models such as the lump sum or fixed price model, where the contractor takes on the risk of accurately estimating the cost of the project. By including cash allowances, the client can have some flexibility in selecting items that are within their budget, without impacting the overall cost of the project. However, it's important to note that if the actual cost of the items selected exceeds the cash allowance, the client will be responsible for paying the difference. Overall, cash allowances can be a useful tool in selecting a pricing model, as they allow for greater flexibility in selecting items while still ensuring that the project remains within budget.

Implementing change orders is an important part of the construction process, regardless of the pricing model chosen. Change orders ensure that any changes to the original contract are properly documented and approved by all parties involved. Without a change order, there is a risk that work will be performed outside the scope of the original contract, resulting in cost overruns or disputes between parties.

Designs including construction drawings and specifications can be useful in determining the scope of work, which is a key factor in selecting the right pricing model. A well-defined scope of work helps to ensure that the pricing model selected accurately reflects the costs associated with the project. For example, a lump sum or fixed price model is typically best suited for projects with a well-defined scope of work, as the contractor takes on the risk of accurately estimating the cost of the project. In contrast, a cost-plus pricing model is often used for projects where the scope of work is not well-defined, as the client may want to be more involved in the decision-making process.

In addition, designs can also be helpful in identifying potential risks associated with the project, which can impact the pricing model selected. For example, if the design calls for the use of expensive materials or complex hardscaping features, a lump sum or fixed price model may not be the best choice, as there is a greater risk of cost overruns. In this case, a cost-plus pricing model may be a better option, as it allows for greater flexibility in accommodating unexpected expenses.

By providing a clear visual representation of the project, designs can also help to ensure that all parties involved have a clear understanding of what is included in the scope of work. This can help to avoid any potential misunderstandings or disputes, and can ensure that the project is completed according to the client's expectations.

Overall, designs can play a critical role in helping to determine the appropriate pricing model for a landscaping project, as they provide a clear understanding of the scope of work and the potential risks associated with the project. At Trifecta Landscapes, we use designs to help our clients visualize their projects and ensure that the pricing model selected accurately reflects the costs and risks associated with the project.

At Trifecta Landscapes, we understand the importance of choosing the right pricing model for your specific project, and we will work with you to determine which pricing model is the best fit for your needs. Our experienced team of professionals will provide transparent and clear communication throughout the project, including initiating and approving change orders when necessary.

If you're unsure which pricing model is the best fit for your project, we're happy to discuss the options with you and help you make an informed decision. We understand that every project is unique, and we're committed to finding the right solution for your specific needs.

Contact us today to learn more about our services and how we can help you create the perfect outdoor space for your home or business.