Since 1986, Reinhart Landscaping and Snow has been plowing our way through the ever-changing snow removal industry, exploring every type of contract imaginable. Through trial and error (and a lot of seminars and conferences), we have used a variety of contracts from hourly to seasonal and then per-inch agreements and every combination in between.

Several years ago, we were challenged by several commercial clients to produce a contract that would help protect their budgets in a larger-than-average snowfall season. So, we set out to create a comprehensive solution to balance the inevitable uncertainties of an unpredictable snow season. After several years working on the contract model, we came up with the "Readiness Fee Contract."

The readiness fee model now forms the backbone of our snow strategy. Customers pay a monthly fee, which reserves equipment exclusively for their property. However, the Readiness Fee Contract is not a universal remedy. Instead, it serves as a strategic tool to limit our and the customer’s financial exposure. It shines most prominently when used on properties requiring one or more pieces of dedicated equipment – a scenario that can be particularly dangerous during low-snowfall seasons if the contractor provides a straight per-inch contract to the client.

Readiness fee example

Let’s look at a hypothetical scenario based on the following example of a seasonal rental of a skid steer and plow for $14,000 ($3,500 per month for four months). These are not real numbers! You need to produce your own numbers and develop your own pricing structure.

Example 1: Per-inch contract. The contractor must cover the equipment rental (or use if owned) in each level of the per-inch pricing, hopefully considering the potential for a lowsnow season. However, this pricing will be a significant hit to the client’s budget in a year of above-average snowfall, even though the equipment rental/use was already covered once the average snowfall was reached.

This contract type puts the contractor at a significant loss in a low/no snowfall year because the contractor must cover the cost of this equipment in the per-inch pricing. In this instance, the contractor pays for the client to be covered in case of a snowfall all winter and must take a significant financial loss.

Example 2: Per-inch contract with "readiness fee." We start by dividing the costs into fixed (rental) and variable (labor). To cover the fixed cost, plus estimated fuel, repairs, staging/pickup equipment, maintenance, etc., the fee is marked up by a factor of the contractor’s choice. For this example, let’s use a factor of 2X. This yields a readiness fee of $28,000 ($14,000 rental fee x 2). This fee is spread over the contract’s duration and billed monthly. The fee is paid regardless of snowfall.

The primary variable left is labor, payable on the actual snowfall events. The per-inch pricing can be based solely on your production numbers. This approach enables the contractor to offer a much lower per-inch price.

In a heavy snowfall season, customers see a significant reduction in their bills due to the lower per-inch cost, while contractors have already covered their equipment and operational costs.

The Readiness Fee Contract serves as a game-changing tool in managing snowfall uncertainties. It shields the contractor from devastating losses during light snow seasons and offers customers financial relief during heavy snowfall years. With its focus on dedicated equipment, it also promotes a more efficient and effective approach to snow removal. This winwin model is another tool allowing us to weather financial uncertainties, no matter how heavy or light the snowfall is.

Dedicated equipment

With our Readiness Fee Contract, we guarantee that the equipment the customer is paying for is reserved exclusively for their property throughout the contract period. This ensures that site operations will not be disrupted due to the allocation of equipment to other properties. This guaranteed service level delivers invaluable insurance and peace of mind to a customer.

Additionally, this allows us to only sell the snow capacity that we have secured, limiting the overcommitment of resources. Once a contract is signed, equipment dedicated to that property is removed from our inventory. When all the capacity has been sold, the sales season is over.

Selling the readiness fee

Communicating the nuances and benefits of the Readiness Fee Contract to customers is paramount. It’s more than a standard transaction – it is an investment in predictability and dedicated service, which requires a thorough explanation.

As contractors, we must break down and explain the elements of the contract to the client: our fixed cost (readiness fee) and the variable cost (labor). We should illustrate, with hypothetical scenarios, how the Readiness Fee Contract provides financial stability for both parties across varying snowfall conditions.

It is crucial to highlight the security it offers – guaranteed equipment, faster response times and reduced per-inch costs during heavy snow seasons. Above all, we must emphasize that this is not merely a cost – it is a commitment to their business continuity, safety and operational efficiency. Using relatable language and numerical examples, while focusing on the value proposition, can help customers see beyond the traditional contract structures and appreciate the win-win situation this contract offers.

Todd Reinhart owns Reinhart Landscaping & Snow in Bloomington, IL. Contact him at todd@reinhartservices.com.