Balancing All-Inclusive Contracts

Some property owners and managers seeking snow and ice management services require “all-inclusive” pricing from their contractors. For the client, this is advantageous because it provides reasonably fixed and predetermined budgeting.

This pricing structure is popular and common in some North American snow markets, more so than other methods. While there are obvious pro’s and cons for the snow contractor to consider when offering all-inclusive pricing, it’s difficult to argue with the astute property owner/manager who desires to eliminate uncertainty from their budget.

I would, however, argue snow fighters could stand to have a better all-inclusive picture of their expenses.

Too many contractors derive their prices based solely on jobsite considerations. How long will it take to plow? How long will it take to clear the walkways? How much deicer will we use? And maybe the worst – what’s the going rate? Snow and ice managers must be careful to capture all of the hidden and often overlooked expenses and incorporate coverage for these expenses into pricing.

Over the years, I’ve addressed the importance of knowing your numbers. It is imperative to know your real overhead costs, your indirect costs, and direct cost. Let’s examine some of the more overlooked and hidden expenses surrounding snow and ice management as they relate to an all-inclusive look at expenses.

Inventory shrinkage

Retailers do a good job accounting for inventory shrinkage; while the service industries, not so much. Usually because this is unrecognized or seen as insignificant. Perhaps losing a little bit of inventory here and there isn’t a huge influencer on today’s profitability. But what about its impact to the bottom-line over time? It adds up quickly.

For example, consider these common scenarios:

Spilling salt during loading. A few pounds here and there – no big deal. But what about when it’s a few pounds spilled per truck, and you have several trucks? Multiply that by 40-50 salting events in a season, and you could be talking about hundreds or even thousands of dollars, depending on you’re the size of your snow and ice operation.

Over applying materials. When workers over apply bulk, bagged, or liquid materials it might not seem like a big deal. Again though, this is compounded by the number of over applications and number of events. We could be looking at a lot of wasted money spread across your clients’ parking lots and walkways. Quite often with the over-application of deicers, we also have unnecessary damage to turf, vegetation, and other property. This all costs money to fix.

Damaged materials. Do you consider damaged bags of deicer as inventory shrinkage? Occasionally, bags are damaged during delivery, loading, and unloading. This adds up to a sizable chunk of change over time.

Disappearing material. It happens to some degree with nearly all forms of inventory and you must account for it. When you conduct end-of-month inventory counts, you have a lesser amount than the books show, after you deduct what was documented as applied. Culprits can include errors in estimating actual usage, evaporation, moisture induced dissolving salt, theft, and so on.

We obviously want to do everything we can to minimize inventory shrinkage. Things like training, managing, and proper documentation help, but don’t discount the impact improving processes and systems can have, as well. But even with solid mitigation, if you have inventory, then you have inventory shrinkage. You must account for this as part of calculating and knowing your all-inclusive costs.

Property damage. Unfortunately, property damage in the course of providing snow and ice management services is much more likely than with other service offerings, and these instances of damage can be quite costly. Truck backs into light pole. Snow plow gets a little too close to garage door. Operator misjudges the end of the parking lot and tears up turf, while simultaneously taking a couple of sprinkler heads out, too. Curbs tend to become brittle when temperatures dip well below freezing. You’ve probably experienced this and more.

Then there’s the damage to your vehicles and equipment. When a plow truck backs into a light pole, the truck or salt spreader tends to endure a brunt of the damage. Operators break springs, hoses, and cutting edges. Furthermore, accidents are a lot more likely during slippery conditions and while drivers are fatigued. You have to prioritize doing everything you can to minimize these senseless liabilities; but in the interest of being realistic and examining your costs from an all-inclusive perspective, you have to account for these expenses too. Damage costs money to fix. Usually your money.

For the sake of safety and profitability, contractors must do everything possible to minimize such damage. Even still, some damage should be accounted for when considering all-inclusive costs.

Seasonal change over. While some companies are entirely snow focused, most snow fighters experience a post-winter seasonal change over from snow and ice management to green operations. I believe this is the most overlooked and unaccounted for expense in the snow business.

Have you ever quantified the actual expense associated with changing equipment over from summer to winter operations? Not only is this an expensive process, but the people and equipment involved are accumulating indirect hours instead of direct billable hours. And here’s the best part, when summer is over, you get to put everything back into winter snow-and-ice mode.

Twice a year, snow fighters across North America spend a fortune outfitting and preparing for the change in season. In addition to the labor and equipment costs, there’s administrative costs getting everything set up. Operating a multi-season service business comes with very expensive seasonal change overs. If you haven’t already, you must first gain a real understanding of these costs, and then examine them with respect to your snow program’s all-inclusive cost of doing business.

While you’re committed to providing exceptional service, your equipment and people must be standing ready at all times throughout the winter. This makes it difficult, if not impossible, to multi-purpose them for additional revenue. There is a significant cost in tying up your people and equipment so that they’re ready at a moment’s notice. This is a tremendous cost above and beyond your on-site labor and material usage.

As was evident this last winter, service frequencies vary greatly by geographic market, and from one winter to the next. For example, let’s say you apply deicers 45 times during a winter and plow 14 of those times. If you have five months of winter weather, that’s about 150 days of winter weather. That’s one hundred-fifty days that your equipment and people are standing ready, tied up, unable to produce other revenue.

There are costs associated with being ready to respond at a moment’s notice, especially if you’re only doing production two-thirds of the days that your equipment and people are being exclusively allocated.

So, what to do with all this? First, capture and account for every hour and every dollar. Hours and dollars must go into the correct buckets, so to speak. Track and recognize all of this realistically. These hidden and often overlooked expenses will cripple an otherwise profitable snow program. Once you have a solid understanding of your costs – your all-inclusive costs – you can look at your pricing to make sure everything is being covered.

Mike Voories, CSP is the Chief Operating Officer at Brilar, a commercial landscape & snow maintenance firm with locations across the Midwest. He is also a consultant to the service industries and a frequent Snow Magazine contributor. Contact him at mvoories@brilar.net