BEST OF THE WEB: Fuel Factor

Contractors are aware that fuel prices continue to skyrocket, and there appears to be no relief in sight. Oil prices have hit a new record and continue to rise. The Energy Department’s forecast for gas prices is increasing, and some experts are saying drivers shouldn’t be surprised if gas hits $5 per gallon before the summer is over. This means the cost to operate trucks, mowers and equipment is getting to a level many contractors weren’t expecting.
 
Feeling the pinch, lawn care operators recently debated how to cope with fuel costs on the Lawn & Landscape Message Board. They kicked around an idea that has become more popular in recent years: adding a fuel surcharge.
 
In a recent poll on www.lawnandlandscape.com, 54 percent of respondents indicated they would raise prices in other areas to make up for the escalating fuel cost. Twenty percent of participants are stepping up fuel conservation measures, while 16 percent said they would add a new fuel surcharge. Only 4 percent are adding to existing surcharges, and 2 percent don’t plan to do anything differently.
 
Message board posters tackled the idea of passing some of the fuel costs on to customers. With the unpredictable state of the market, it would take a crystal ball to accurately pass the fluctuating costs onto the customers.
 
“I don’t know how you budget your fuel charges vs. actual when they have risen as fast as they have over the past four months – or three years, for that matter,” posts Kay Borders, vice president of Cumming, Ga.-based Borders ’n Blooms. “We have no idea where it is going.”

PRICE OF PROFIT. Bill Smallwood of WJ Smallwood Landscaping in Salem, N.H., budgets within 25 percent of the current price of fuel. “If it goes over X dollars then yes, we do have a proportional fuel surcharge,” he says. This year we will be hitting a 3 percent fuel surcharge once gas hits $3.50 per gallon.” (At the time he posted, the price per gallon at his predetermined station was $3.499 per gallon.)
 
Kory Ballard charges 5 percent on all maintenance and commercial contracts, with one-time jobs at 2 percent. “If I’m a customer I understand they are paying at the pump also, but I’m not worried about that,” says the owner of Perficut Lawn & Landscape in Ankeny, Iowa. “I’m obligated to do the most I can to keep our company profitable in these trying times.”

PROJECTING. Some companies predict gas will hit a certain price and base their surcharge on that projection. However, Smallwood doesn’t agree with this method. But he does advocate charging extra to make up for large increases.
 
“I think it’s fair to recover additional costs if fuel skyrockets out of the stratosphere,” he says.
 
Todd McCabe calculates how much fuel he will use each month and his projections are fairly accurate. But the owner of McCabe Landscape Group in Wrightsville Beach, N.C., uses a different method on his maintenance accounts that has been successful for the company.
 
“A couple of years ago we implemented a ‘voluntary’ fuel surcharge,” he posts. “We wrote a letter explaining that we did not want to raise prices across the board so we would implement a surcharge that the customer could pay only if they wanted. I would say 98 percent of the customers pay it even though it is not required.” That surcharge is at 2.5 percent and he is considering raising it to 3 percent.
 
Bill Atwood instituted a similar policy and gets 80 percent participation. For the commercial clients, though, the owner of Bill’s Complete Lawn Care and Landscaping in Trumbull, Texas, created a clause in the contracts that allows the company to automatically adjust its fuel charge each time there is a $.25-per-gallon increase in the cost of gas.

CONSTANT REMINDER. The fuel surcharge isn’t a good business practice, posts Ryan Holt, owner of Driftwood Lawn Care and Landscape Group in Rising Sun, Md. “That whole ‘gas surcharge’ in a customer’s face can be uncomfortable,” he says. “They are already paying higher prices at the pump and everywhere else, just like us. Why feel the need to remind them of it?”
 
Instead, Holt goes back and adjusts his fuel cost and his labor rate is adjusted accordingly, he says. (See “Know Your Usage,” below.)
 
Jason Cupp agrees with Holt. The president of Olathe, Kan.-based Highland Outdoor did away with fuel surcharges two years ago.
 
“I found it to be a reverse marketing item,” he says. “Our clients were annoyed by everyone around them charging a surcharge, that we could actually gain more business and charge a little more (more than the surcharge itself) because the client felt like they were not being nickel-and-dimed.” LL