Many times, snow and ice contractors are leaving thousands of dollars on the table each and every year. Why? Simply because they don’t know what they don’t know when it comes to pricing.
Are you setting your service fees, or are you letting other factors determine your pricing? Maybe the answer lies in between those questions. The toughest business decisions we make as snow contractors is how much to charge for the services we offer. Current economic conditions may lure you into thinking why consider change now? In a down economy, it would be very easy to say that you are just going to leave things alone and not make any changes until things get better. However, changing now may be the best choice for your company.
Seems the last thing we ever want to do is change pricing, right?
I challenge everyone in 2010 and beyond to take a closer look at your own company and see what you can do differently and better than your competition to operate more efficiently and profitably. The first step is to implement a cost-recovery system for your company so you can determine a baseline for your pricing regardless of the pricing method utilized.
Last year’s snowfall was dramatically different for many areas. It seemed to be feast or famine with very little room in-between. Many contractors experienced a great and profitable season; while others were wandering if was ever going to snow. And for those that did receive sufficient snowfall did you enjoy the profit margins that you deserve? Receiving an ample supply of snow is only the beginning of a successful and profitable season. An accurate and professional methodology to price your jobs must be in place before the first flake falls.
There are many different methodologies to price your plowing and ice management services. Let’s take a closer look at them.
Hourly rate pricing is a very common way to price jobs especially with new contractors. Hourly rate pricing on the surface is the easiest way to match or beat a competitor’s price.
However, there are a few questions that your client must ask before deciding on a cheaper hourly rate. They are; what type and size of equipment am I getting for that price and how experienced is the operator of that equipment? When we were charging strictly on an hourly rate a few things began to happen. We became more efficient with the equipment we were using, we were completing our jobs much faster, our clients were getting billed less and we were leaving too much money on the table.
Our initial mind-set was to raise our hourly rates. When we attempted this, our clients said we were too high compared to our direct competition. We knew we had to change something.
That’s when we began explaining to our clients that our hourly rates may be higher, but we are better trained, and using faster equipment to get the job completed in less hours. This explanation was satisfactory for some while others remained reluctant solely due to the hourly rate. That’s when we decided to make a change.
Per-event pricing is a strategy utilized by some contractors as well. Not nearly as common as hourly rate pricing, this type of pricing is based on a specific timeline that the service will be provided at a given price.
(Midnight to Midnight or so on) This type of pricing may be problematic as well. Your client’s concern may be, “why did you wait to return after the initial timeline was passed?” I am not saying this is a bad way to price your jobs, but be careful and make sure your clients understand that you have no control over the timing and duration of each event and that the timeline may be breached through no fault of your own. This should be clearly defined in your service agreement as well.
By the depth/inch is very common, but can be difficult at best if not properly documented. If you are offering per inch pricing thresholds, you must also have a way to back up your billing charges. Going by what the airport says will hurt you in most cases. As you know, snowfall amounts can change dramatically within a couple miles.
Billing a client for 4-6 inches of snow when they live ten miles form the facility and know they only had 2.5 inches at home on the driveway when they left for work, and it had already stopped snowing may cause some problems.
If you are going to utilize this bidding method, be sure to subscribe to one of the weather reporting services that offers you a specific breakdown on accumulation amounts for each of your service areas.
Seasonal contracts are certainly an excellent way to guarantee your company set revenue for the year. Be careful that you know and understand your specific areas seasonal weather averages when attempting to price a seasonal contract. Certainly don’t let your client set the contract amount and you agree just to get the work. The only thing for certain with winter weather is that nothing is normal.
There are many contractors in the mid-Atlantic market that experienced the seasonal contract frustrations last season with the excessive snow depths and the frequency of the snow. As contractors, we generally try to extend the length of the contract over a period of three years or so to try and level the playing field of seasonal averages. This is certainly a contractor beware methodology. The lure of guaranteed income is awesome, but the chances of failure also exist.
You may want to consider building something into your contract that puts a cap on the number of services/inches per year covered in the contract.
Flat rate – or per-push pricing – is becoming more popular each and every year in many markets. This method guarantees you and your client a set price-per service offered. If you decide to utilize this pricing strategy, be sure to include a maximum amount of snow that will be pushed at the set price.
When we changed to flat rate pricing, we did not put a maximum on the depth of the snow that the flat rate covered until we had a snow event that dropped over twenty inches of snow in just over six hours in 1990. We lost our tail on most jobs and did a lot of snow plowing for the fun of it.
Be sure to set a maximum depth threshold that works for you, your company and your client, that is both fair and ethical. Your flat rate price should be based on the number of hours of service you are selling per piece of equipment and should be adjusted accordingly. We set our flat rate pricing based on the time it takes us to run a complete route under “normal” conditions one time. We found that our customers were very receptive to our flat rate pricing methodology verses strictly an hourly rate option.
This gave us the opportunity to increase our hourly profitability through efficiencies, training and equipment without creating the difficulties of attempting to sell at a more expensive hourly rate. We do offer an hourly rate price for keeping drive lanes open during the day if those are the only areas that can be serviced until the property can be fully serviced.
The really interesting aspect of all pricing methodologies that I find while speaking with contractors across the United States and Canada is that the common denominator regardless of the market is that maybe a combination of these and other methods is probably best for most contractors. It goes back to the simple business saying that says “don’t put all your eggs in one basket.”
This may certainly be one of those situations where it best applies. It’s not wrong or right, it’s what’s best for your company.
Wayne Volz is the president of Wayne’s Lawn Service/Profits Unlimited in Louisville, Ky. Contact him at WaynesLawn1@aol.com.