Carrying an evenly distributed load is much easier than hauling an uneven load. Imagine carrying a single bucket of water, switching hands to alleviate the strain one side or the other. Now imagine carrying two buckets of water—one in each hand. Regardless of the weight, two buckets are preferable to one because of the weight distribution. The same could be said about the snow business.
In the snow business, the two buckets are “fixed” dollars and “per” dollars. The “fixed” bucket includes any and all money to be earned from things like seasonal contracts, retainers and prepays. This money is virtually guaranteed, if not already in the bank. The weight of this bucket stays the same, regardless of how much it snows.
The money in the “per” bucket is from everything else, including contracts that are per hour, per visit, per event, per application and so on. This money is not guaranteed, as it’s only realized when it snows. The more it snows, the heavier this bucket gets.
Over the last 135 years in my home market, it has never snowed less than 12 inches or more than 95 inches for a winter season. In fact, 80 percent of the time, seasonal snowfall is between 20 inches and 60 inches, meaning that 20 percent of the time, the total is less than 20 inches or more than 60 inches.
What are your market statistics? Do you know? It’s important to have this information at your fingertips and factored into your snow and ice management estimates.
A few years ago, I developed a spreadsheet called a scenario analysis tool. The purpose of this tool is to understand the financial implications of evenly distributed buckets, from 100 percent “fixed” to 100 percent “per” and anything in between, under various seasonal snowfall scenarios. (See Web Extra to download this tool.)
As you can see with the scenario analysis tool, profitability is evened out across all types of winters when both buckets are filled, even if not filled equally. As long as costs are in line, profitability is basically guaranteed.
However, when only one bucket is used, there’s a very real possibility of financial loss. I don’t know about you, but the last thing I want to do is lose money after working nights all winter.
I occasionally meet people who claim they cannot fill both buckets in their market. If this is true, a weather insurance policy may be advisable to reduce the risk. Of course, it would be better to crack the code for filling both buckets than to buy an insurance policy or absorb significant portfolio risk.
As you renew your contracts and sell new work this summer and fall, I encourage you to keep track of how full your buckets are, especially in relation to each other. Review the status of these two buckets at your weekly sales meeting so everyone involved knows the current levels. As you monitor the buckets, you may choose to alter your proposals or selling strategy.
For example, if your “fixed” bucket is getting too full, you may decide to stop offering these proposals or to apply a cap (or a lower cap)—something that discourages adding more to the “fixed” bucket or only does so under more preferable terms. The goal is to end the selling season with both buckets filled.
Photo: ©iStock.com/HAYKIRDI
