Snow companies have long had to manage the pain of covering the overhead expenses of building and maintaining a prepared snow operation regardless of the amount of snow accumulation received.
I have worked with many teams to hedge their bets on snow with proper contract portfolios. Regardless of your market, every contractor serious about being in the business of professionally managing snow and ice should have a mechanism in place to offset — if not completely cover — their overhead regardless of snowfall or storm count.
Over the last 20 years or so, the idea of getting paid regardless of weather has become broadly adopted and has taken many forms, from retainers or readiness fees to seasonal contracts. The key is developing your sales strategy and talking points to address professional snow and ice management services as an insurance policy, not simply the delivered service.
I have also heard “my market won’t accept that” countless times. To that I respond, your market (customers) did things a lot of ways until you or someone else convinced them of the value in changing. John Kotter said, “Leadership is always about change: it’s not about mobilizing people to do what they’ve always done well to continue to do it well.” Finding the approach that works will require trial and error as well as stepping outside of the way you’ve always done it.
Today’s world offers little room for ineffective, inefficient or unsustainable businesses. This makes it increasingly important to find ways to increase profitability in your business. Profitability affords you the resources to invest in new and better people, ideas, technologies, etc. If you are constantly struggling with profitability and cashflow, you can’t lead the necessary change.
Bringing this back to your snow business, it is imperative that you are compensated not only for the service you deliver during a storm, but also for being prepared for each storm and the requested outcomes of your service delivery.
I have begun to see a lot of clients receptive to signing tiered pricing contracts for snow.
Twenty years ago, we were driving seasonal fixed-price snow contracts in several markets, including the Mid-Atlantic, with a model that said we needed at least a 3-year term for it to be fair for both the contractor and the customer. The idea was that one year it would snow close to average, one year over, and one year under; so, at the end of the 3 years, it “came out fair.” This proved untrue more often than either party was willing to accept.
Out of this reality, the tiered seasonal concept has become a mutually beneficial approach. In this structure, a fixed price is set up to a total accumulation threshold of 10% to 20% below the running annual snowfall average; a second fixed amount for up to that average; and a third for up to 20% over (use your own creative brackets that fit your business).
The average used is determined best by evaluating your longest-standing average (often 50 or more years) against your last 10-year and then your last 3-year average. Comparing these numbers gives you a way to mathematically assume the possible snowfall total of the coming season. Disclaimer! This is not a perfect science but more of an educated guess.
If the tiered approach is too far from your current approach, consider a retainer or readiness fee. In this case you determine your “fixed” overhead cost and a methodology for spreading that cost across your customer base. It could be based on square footage or another metric you choose.
In low-snow markets, these fees are often billed against as services are delivered. If costs are specific to the customer or job — such as rented or dedicated on-site equipment — these fees might not be billed against, keeping the price of service delivery based on the direct costs of production.
Regardless of how you go about it, it is imperative for the long-term success of your team that you have strategies in place to cover your overhead expenses and deliver consistent profit to the business. When you are considering your options, don’t forget that no one did anything until they did it the first time.
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David Gallagher is principal for Spiritus Business Advisors. He has over 25 years of experience as a senior service-oriented leader on all aspects of property service. Contact him at david@spiritusba.com.