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OK, who's implimenting a fuel surcharge?

Discussion in 'Commercial Snow Removal' started by Makndust, Mar 25, 2005.

  1. Makndust

    Makndust Senior Member
    Messages: 324

    My wife and I were talking this morning about what the snow removal is making and the increases in costs (fuel, insurance, supplies, etc.). I am seriously considering a "fuel surcharge" instead of a rate increase. I think that mabey it will set a little better with the customers. Especially since one of my largest customers is Town Pump who is a fuel station/ C-store chain. Of course, I do buy all my fuel there. Back to the topic at hand. I just filled both tanks up on the pickup yesterday on fuel at 2.19 per gallon. That is starting to really tick me off. I think that next year, if the price keeps going up, there will be a fuel surcharge of 15% on the bottem of every bill. What do you guys think? How many are doing it now? How do you think this will go over? I'm sure the last was a really dumb question.
  2. bingermann

    bingermann Member
    Messages: 31

    Fuel Surcharge

    I have had better luck using a rate increase due to rising fuel costs. When it is stated that way I get less static than when I put a fuel surchage on my bill. That usually results in people complaining that fuel is my expense not theirs. So building it into my pricing has been smoother. I just raised my hourly rate by $5 for new/renewed contracts to offset the rising fuel costs. Besides, when gas goes down I am still making the higher rate.
  3. lawnandplow42

    lawnandplow42 Senior Member
    Messages: 110

    good idea

    i feel that is a good idea having an extra fuel charge percent. IMO, i feel it is better than raising the overal rate. This is because i would be able to explain to the customers that the extra charge can be removed once prices lower. I dont' think that aspect would work with an increased overal rate. Along with that, people wouldn't blame the increase on you... They would simply get mad about the price of gas, and they are probably already aware of it. Plus, most customers are smart enough to know (hopefully lol) that trucks don't run on only air.
  4. Mick

    Mick PlowSite.com Veteran
    from Maine
    Messages: 5,546

    Instead of trying to explain a "fuel surcharge" or blame a rate increase on fuel prices, I did something different which seemed to work very well. Two things play important parts, though:

    1. I gain customers every year. Plus I retain nearly 100%, except for those who move, buy a truck/plow etc.

    2. I have all residentials with similar driveways or private roads.

    What I did was to offer previous year customers no price increase if they kept me for the next year. This was especially welcome since all they had heard was "price increase due to fuel prices". Then, I set about getting new customers with prices about 15% higher than the old customers. So what would have been a $25 driveway the year before was now $30. I wound up more than doubling the route from the year before. Now, the same offer goes to customers I got this winter. To the customers from the year before, I'll send a letter reminding them that "I left the rate the same from the year before (when gas was $1.21/gal), but I really can't afford to do that again. So I will need to make an increase." If you were my customer, would that seem reasonable to you?

    I've kept close track of expense to income ratio and with that method, the fuel still accounted for approx 5% of gross revenue.

    I'm thinking this "leap-frogging" should work well for retention. After two years, it's just easier to stay with what you've got than looking around. Also, by that time, I'll have a pretty good rapport with people.

    Plowing snow is more about service than actually moving the snow.
  5. justme-

    justme- 2000 Club Member
    Messages: 2,138

    I am thinking the same thing for next season if Diesel breaks $2.00 a gal again, I think I will notify all my customers of it when I confirm for next year. I will probabily only add a dollar or two to the price, since I do per pass but I think doing it as a fuel surcharge is a better way for smoother relations- possibly like 5% and make sure they know when fuel drops the surcharge will drop.
  6. jeffwoehrle

    jeffwoehrle Member
    Messages: 56

    Freight companies have been adding a fuel surcharge for years. Goes up and down with the price of fuel (like down is an option these days). Makes for a good way to cover your arse on contracts. Who knows what next year will bring in regard to fuel prices.

    I don't think it's a bad idea. Particularly since many customers have probably seen fuel surcharges on other bills they pay.
  7. LwnmwrMan22

    LwnmwrMan22 PlowSite Fanatic
    Messages: 27,864

    My plowing accounts, along with the lawn maintenance accounts, I've raised between 10 and 50%, depending on how much I wanted to keep the account.

    All have rehired me for the 2005-2006 season again.

    These charges are an increase of $25 - $100 / month on a flat yearly fee.

    Now, you and I all know that even if you were plowing an account, that you would never use an extra $100 / month in diesel charges for one truck, for 6 months out of the year, or hardly an extra $25 / month / account on a smaller strip mall property.

    If you take the difference, even if diesel went up $1 / gallon, and you used say, 5 gallons of diesel at one account, which would have to be a large account, or a WHOLE lot of snow, you'd be covered for 5 of those storms a month.

    You have to do rate increases.

    I see this all the time on here AND LawnSite.com and I used to be the same way, afraid to raise prices because I was afraid to lose customers.

    If you're not doing this job full time, and you've got other income, fine.

    If you're full time, if this is your only way of making money, you HAVE to increase your rates.

    Like a previous poster noted, if you increase your rates, and the fuel charges go down dramatically (which they may go down 10%, but no more) at least you're still taking in the same money.

    The problem you could have with a surcharge, is if Joe Schmo sees diesel at a station 4 miles from you, and it's 2 cents below your "limit" of when the surcharge sets in, you COULD have a customer telling you that he's not paying the surcharge, since he knows there's fuel cheaper than your "limit".

    I look at it that if I raise my rates, it's locked in. I don't have to worry about adding a 5% or even 10% surcharge on an account or try to remember if fuel prices were at a certain limit.

    What's the difference if you just raise the rate 5%, or if you charge a surcharge of 5%?? On a $60 plow job, it's still $3. Just raise the rate to $65 / time.

    If you truly only wanted to charge a surcharge for the fuel, you should only be charge an extra 5% on your actual fuel cost for the job, which would be about $1.
  8. cet

    cet PlowSite Fanatic
    Messages: 7,196

    I don't think fuel is as big a part of the picture as we all let on.

    For the average plow truck burning $6/hour would be a lot. On a 6 hour run that is $36. If fuel goes up 50%, then that is $18 extra for the run. Now we all say we a making $150/hr. For 6 hours thats $900. A 15% surcharge is $135. The surcharge is $100 more then we burn without a price increase. Even a broker making $50/hr. only needs a 3% surcharge to cover a 50% increase in fuel.

    If you need to make more money then raise your price but don't try to blame it all on fuel. Customers are smarter than you think. A $30 driveway with a 15% surcharge for fuel is a extra $4.50. I don't think you spent $4.50 in fuel to do his driveway.

    Just my .02
  9. Italiano67

    Italiano67 Senior Member
    Messages: 638

    Go to the store and buy some thing and see if they have any problem with increasing their prices due to high fuel and steel. No, it's time to pass on the increased expense to the consumers. I am sick of being in a business where it is so difficult to pass on increased cost to the customer. Now is a good time to justify more money.
  10. Peopleeater

    Peopleeater Senior Member
    Messages: 249

    Diesel Fuel Surcharge

    I own/operate a semi dump truck. Last year they initiated a fuel surcharge that started kicking in after fuel went over $2 or 2.10 a gallon. It was a variable rate. Every .10 raise in fuel, an extra % for fuel. My broker and customers set this up as we have no say in the matter. The only say we have is or not we will do the job for the rate.
    I just filled up (half way) and the bill was $160.00 @ 2.319. The same approximate amount 2 years ago was $90.00, and last year $125. I usually will use that amount of fuel in one day. We ended up with (I have to check this out further on last years pay stubs) $50 bucks or so a week. It didn't cover the cost increase completely, as the fuel surcharge didn't kick in til 2 or 2.10. It did help to take the sting out of the prices, but not completely. Now this year they are talking a (heard a version of 2.50 an hour and 4.50 an hour, and dropping the fuel surcharge). $180 extra a week at 40 hrs and rate of 4.50. This will won't meet the raise in fuel prices, but at least they are giving us something. 5 days a week with 160 a day = 800.00 a week in fuel versus 1 year ago 125 a day = 625.00. Plus, pretty much anything we buy is increased in price (parts, etc) have raised prices due to increased steel and their operating costs that are higher due to fuel and steel, and inflation. Also, how many have seen that fuel prices may reach as high as $3.00 a gallon this summer. The raise won't cover the fuel then. But if fuel drops (which we know how that works, it won't lower much now that the price is up), then we would make out.
    Other changes in the way we do business (shorter routes, etc) may also help. I would rather have an in town job in the semi averaging 30 MPH versus an out of town job running at 55 MPH.
    As you can see, there are alot of fluctuations that will affect us for the summer. We will have to use our best judgement and protect ourselves against the higher operating costs (refusing work or certain types). Now the companies will have to pay higher amount to their hourly workers to stand around and wait for trucks, not having enough trucks to do job, therefore increasing cost of each job.

    In any case, as mentioned above, we all MUST implement rate hikes due to the "new economy" we always here about. If this is the new economy, I like the old one better! (LOL) Everyone has their own needs based on their own set of circumstances. Fortunately for the snow plowers, we have time to think about how to implement our rate hikes. Whether you raise prices due to higher prices all around, or just implement a fuel surcharge, make sure to explain WHY you HAD to raise prices. You will save yourself time while still being fair by raising them overall (IMO), but what if fuel prices go up more than you anticipate. I think that an explanation to your customers would be needed, and if implemented and explained well, the customers will understand. People are not stupid as stated in a previous post, but once explained why the increased cost are necessary, they shouldn't have any problems. If you don't decide to implement a fuel surcharge, or rate increase, then over time you will be considered a lowballer. (increased costs, same rate). Remember all the lowballer posts over the winter? If they value your service, they will gladly pay, and for those that don't, they are the ones you don't want anyhow. Either your service will suffer without an increase, or your bottom line will.
    The company that only agreed to half the raise last year for (cost of living before the surcharge was implemented, prices last year were higher than the year before) will lose trucks due to signing out and going home, or refusing to show up in the first place. This will affect their bottom line, and increase their operating costs due to jobs taking longer.
    In any case, we are all going to HAVE to do SOMETHING, or we won't be profitable.
    The services and products you use (food, steel products, etc.) have already raised prices, and will continue to do so as operating costs go higher. Why would we continue to operate at the same prices? Yes, it isn't fun, but whose bank account are you more worried about? Yours or your customer's? Each person, contractor or customer, will have to find a way to deal with it by either raising prices, or finding a way to cut costs and increase efficiency, or for customers find a way to deal with the increases, whether it is a new job, higher wages, or cutting out luxuries. The economy is different now than it was 2,5,10,20 years ago. It is a no brainer, you MUST increase prices to deal with the costs of being in business. As to how or how much? We must decide that for ourselves, and implement the necessary changes. Let's face it, the fuel prices aren't going anywhere but up, and so are our operating costs. I think it is time for ALL to sit down and refigure what we will charge (operating costs and profit we want/ need to make).

    Whatever decision you make, just explain why and the good ones shouldn't have a problem. If they do, then they should go buy a shovel (which have increased in price, even if only a tiny bit).

    It is going to be interesting to say the least.

    Have fun,

  11. gt_racer50

    gt_racer50 Senior Member
    from Ohio
    Messages: 484

    I started using the fuel surcharge 2 years ago. Not the 1st problem. UPS, Fed Ex and everybody else is using it, including your local grocery store, gas station and Dept Stores, only they don't tell you, Only UPS and the likes tell you. As they say, this aint UNICEF or some other outfit that works for free. You just have to be reasonable. I raised a minimum of $1 up to $5 per yard, depending on the size of the acct, which equals gas usage.