IN OUR INDUSTRY, how to best price snow and ice removal services is always a very interesting — and occasionally controversial — topic of discussion. Do you really know why you charge what you charge? How are you determining what to charge? Are you setting your service fees, or are you letting other factors determine your pricing?
Too many times, we don’t know what we don’t know. For nearly nine years, I had no idea why I charged what I charged other than that’s what I thought the market would bear, and that’s what my competition was charging. That pricing methodology had me $90,000 in debt and nearly put me right out of business. As a matter of fact, I thought the only problem I had was that I needed more work.
I had two phrases in my mind controlling the pricing of my jobs. These same two phrases must be removed from your vocabulary as a snow and ice management professional:
1. They won’t do it.
2. They won’t pay it.
That mindset limits the success and profitability of many snow and ice management contractors in the same way it controlled me.
Do what’s right for your business
Have you ever reconsidered your service fees solely on the basis that you thought it was too much? If so, ask yourself this question: Compared to what? Are you limiting your company’s success because you think it is too much to ask for?
The current economic condition may lure you into thinking, “Why consider change now?” In a down economy, it would be very easy to say you are just going to leave things alone and not make any changes until things turn around. However, changing now may be the best choice for your company. Yes, you may be experiencing some tough times, but what are the consequences of not changing?
Efficiency and profitability are the direct results of a business owner understanding and implementing a sound business plan, including the principles and techniques necessary to help become more successful and profitable. Training, education and business knowledge will set you apart from your competition.
I am confident the most significant factor limiting a contractor’s profitability is a lack of understanding and implementing an accurate cost recovery system for his or her company. Many times, we blame our lack of profitability on our individual markets, competition and labor force. Are you seeing the forest and not the trees in your company?
As Albert Einstein said, “the definition of insanity is doing the same thing over and over and expecting a different result.” I challenge you in 2009 and beyond to take a close 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. I guarantee you that McDonald’s knows exactly what it cost to build a Big Mac. Do you know what it costs you per hour of operation for your truck, spreader, plow, pusher, labor, etc. to clear a lot, subdivision, driveway or shopping center? If not, I strongly recommend you implement a cost recovery system based on your company’s overhead, expenses and use rates.
Too many contractors are looking in the wrong places for the right answers to price their jobs. The reality is that everyone’s costs per hour of operation are different. Chat rooms and chat boards are great for some information — but in my opinion, the dollar-a-minute theory and the many other similar pricing strategies are often off-target. Pricing is not a one-size-fits-all proposition.
Here’s why you must know what your actual costs per hour of operation are for your company (compare these to the box, “Don’t follow the herd”):
