After several years of following many industry-specific Facebook groups and working with more than a few snow and ice removal companies, I have learned that there are many firms that have not standardized their pricing. To be more specific, their pricing for snow and ice removal services seems to be left to chance. This inevitably makes turning a profit much more difficult.
Our company’s plan for ensuring a profit included standardizing our pricing. We have implemented the standardization into our scheduling and estimation system and use job costing reports to update production numbers for future winters. If your company is struggling to turn a profit, consider following these steps to begin standardizing your pricing.
Understand the costs.
There are three major costs to consider: (1) cost of your labor force, (2) cost of equipment and (3) overhead recovery markup. First, you must consider the cost of your labor force. This includes considering average hourly wage as well as labor burden (i.e., unemployment insurance, FICA, workers’ compensation or health insurance). Calculating an average hourly wage allows you to have a handle on approximately how much you will be paying in field labor no matter who is in the field working at any given time. It’s important to consider equipment costs. Each type of equipment setup will come with its own specific set of expenses that can be calculated hourly. In this hourly rate, be sure to include replacement costs, interest on loans, inflation, maintenance and repairs, including oil changes. The final part of the equation is to look at projected profit and loss statements and calculate the overhead recovery markup, which includes non-field labor, general/administrative costs, material markup, equipment markup and subcontractor markup. Once you know the total costs of doing business, you will be able to price jobs to meet anticipated profit margins.
Understand production rates.
By analyzing job costing reports from your customer relationship management software, you can use the previous year’s data to calculate future pricing per square foot. By using job costing data, you should be able to create an average production rate for each type of crew in your fleet. For example, the reports for our company list each crew “type of equipment and plow size” as well as the time it took to clear the exact square footage of the property. Since we are very particular about which crew setups are used on each type of property we maintain, the data we collected through tracking start and stop times each time we plow a property gave us a very accurate production rate regarding what our crews were able to clear each hour. By tracking and analyzing this data following each snow and ice event, we now have a production rate that crews can realistically achieve in our market. This also allows us to avoid relying on industry benchmarks for pricing work.
Create a pricing matrix.
In its simplest form, a pricing matrix is a table that breaks out specific intervals of area with an associated price you charge for your services, budgeted time to complete the work on the property, associated expenses and desired profit margin for the jobs bid out. Once this data is entered into a system, our office and estimators go into the software and utilize a measuring tool and a prebuilt estimate template to produce property-specific prices that reflect the equipment used. The system produces a budgeted time, associated overhead expenses and a projected profit margin. We run job costing reports mid-season and end-of season to confirm crews are meeting anticipated budgeted times and profit margin and to confirm our projections and update historical production rates.
Take the time up front, prior to the arrival of the estimation season, to standardize your pricing systems. Although it may take some intensive labor, the return on investment will be well worth the time spent. It is critical to have a plan that will lead to fruitful profits instead of leaving things to chance.