Snow Removal Pricing Strategies
This article originally appeared in Snow Business magazine.
It’s that time of year when snow contracts are getting buttoned up and contractors begin praying to the snow gods that there will be some profitable snow events during the season. Afterall, a dry winter can be a tough situation to overcome for snow removal contractors. Lack of revenue at a time when there aren’t a lot of alternative services to sell only compounds the situation for most companies. So what can snow and ice professionals do so that when (not if) the next dry winter hits they won’t be penalized again?
Several things. Snow removal is not as much feast or famine as most people tend to believe. There are a couple of pricing and sale strategies you can try so you won’t feel as defeated if it doesn’t snow. They worked for me, so hopefully they can work for you too.
Average it Out
Define an average for your snow revenue based on what you have done for the past several years. This is a much more reliable method for forecasting snow income versus using the previous year or your biggest year as your baseline for projected revenue. Using the previous or biggest year totals is simply not advisable.
Looking back three, five, seven and 10 years, if possible, is very insightful. When I ran GroundMasters, we used to look at our revenue trends all the time and would use this average to our advantage with many of our long-term customers.
Put Your Averages to Work
If you have been providing snow services to a client for a number of years (three- to five-year range), consider presenting your average as an annual price for your contract. For example, the first year you billed $11,000, the second $20,000 and the third $14,000. That adds up to $45,000. Consider offering $15,000 a year to service the property and ask for a three-year agreement.
You can determine how to bill this depending on what other services you perform for the customer. This method is typically accepted by your zero-tolerance customers. They understand that contractors have a cost every year to provide snow removal services, and simply taking that average is a logical agreement for both parties.
Maintain your scope of work. When you sell your services like this, your scope should remain the same or else you need to adjust the price to reflect changes in scope. I would, however, suggest adding a blizzard clause to the agreement if you don’t have one in your existing scope. Doing so protects both you and the client.
Track your services. Throughout the agreement, you should still track services for this customer just as you would if you were billing for services rendered. This can influence the average that the customer is billed for the next three-year agreement.
Most contractors provide as much service as they can; therefore, these averages should be good numbers for you and the customer—particularly now that you will be managing a fixed-income contract against customer expectations and not “billing as much as I can.”
An annual contract isn’t intended to be a win-lose or all-or-nothing agreement. These contracts can be win-win agreements that average your revenue and your customer’s costs.
Snow Ready Fees
Another type of agreement you can offer to soften the ups and downs of snow revenue is an annual or monthly snow ready fee, which is designed to have the customer pay something even if it doesn’t snow. This can help with cash flow during the winter and also helps with budgeting.
The most common way to structure this is to charge a monthly fee that represents one event or round to the site. If you provide service, the customer has a credit for up to that amount. If the month was dry or uneventful, then you are even. The contractor uses the income to cover the overhead costs of having the equipment ready for a snow event, which is how the sales team can present it to the customer—it’s an insurance policy.
Look Out for Yourself
Whatever agreements you come up with for your market and your company, they should never be win-lose. This is not a sustainable business practice for most contractors. I would do everything I could to make snow revenue part of your business, but not something that negatively affects your annual success.
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