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Price/cost model

Discussion in 'Commercial Snow Removal' started by dave-man, Sep 26, 2002.

  1. dave-man

    dave-man Junior Member
    Messages: 19

    I'm starting to build a cost model in Excel to try and get my hands around the costs associated with plowing as a small (or very small) business. If you are very patient, you may have read through my question about insurance.

    I'm dividing the costs up into three categories: capital items, fixed costs, and variable costs (perhaps my MBA is showing).

    Capital items are the big things that last, such as trucks, plows, and spreaders.

    Fixed costs are the annual expenses you incur whether it snows or not, such as insurance, SIMA membership, and annual equipment maintenance.

    Variable costs are those that are directly proportional to plowing, such as fuel, tires, edges, and wages.

    The model will include recovery periods and capitalization rates for the large equipment, and margin goals for fixed and variable expenses.

    I'm building this model to see if it makes sense for me to pursue plowing as a very small business without one of the other businesses (such as lawn care) that most of the smaller operators seem to engage in.

    I plan to share the model here as it evolves. I'd like to ask for your help in identifying expenses I may have neglected. I'm not concerned at all about the numbers, just the name of the expense. One of the benefits of this approach is being able to adjust the numbers to see what happens, so I don't need the numbers to build the model, only to use it. Anyone who wants to use it should use their own numbers to evaluate total real costs.

    So far, I have

    Capital items
    truck
    plow
    spreader
    initial truck outfit (warning, spares, etc)
    snowblower
    computer & other office equipment (fax)

    Fixed costs
    Comm'l vehicle insurance
    CGL insurance
    SIMA membership
    Plow maintenance (Fall and Spring)
    Business taxes (may be variable)
    Stationary (letterhead & cards)
    Advertising (flyers, etc)
    Telephone
    Internet
    Other utilities
    Weather service

    Variable costs
    Wages
    Fuel & oil, including filters
    Hydraulic fluid
    Shovels
    Deicer
    Sand
    Income taxes
     
  2. Tommy10plows

    Tommy10plows Senior Member
    Messages: 345

    Forget the MBA stuff it's guts that count

    This is a long haul business. You cannot be successful in it if you try to chart a year's experience and determine if you can make money based on one year.

    I remember my hometown selling its very expensive (paid for by us taxpayers) JET POWERED snow melter to Laguardia airport after 4 mild winters from 1972 - 1976. Of course the next winter was the infamous 1977 blizzards, followed by the blizzards of 1978. Good planning? Hardly. Good economic model? Not at all when you consider the long term.

    For all of you who read these posts and think that it is easy money, think again, it's not. The real PLOWMEN have the scars to prove it. Professional plowing is vital to our transportation infrastructure. It's not just the truck, it is the operator that counts. A good operator can take the worst truck and nurse it along all night and make just as much as the guy with the Dually PSD with the $1400 mo. year round lease payment. And you have to live and breathe snow removal to have any degree of long term success. It's not a part time winter job, it is a lifetime of winters.

    Yes, you can determine the point at which you will make money in a storm based on your overhead. Customer (residential and commercial properties) need for our services varies with the weather. Time is money for us, the more you plow and the more profitable each job is, the more you make.

    If you don't like cold weather, damp feet, laying down on your back in a snow bank at night with the back of your shirt pulled up and your backside hanging out on that cold wet snow as you try to figure out what broke on your shiny plow toy, then don't even think about getting into this business. It's not for you. And if you can't find it in your heart to help dig out or tow out a fellow PLOWMAN who is stuck in a snow drift, or broke a u-joint and needs help, and do it at NO CHARGE, then this is definitely not for you.

    Plowmen aren't cosmetic surgeons. We are the MASH unit guys. That's the way we made money in this business.
     
  3. digger242j

    digger242j Senior Member
    Messages: 672

    You know, it occured to me earlier today, that I enjoy it enough that I *would* plow for free. (Come to think of it, actually, sometimes it comes close to that....) ;)

    I don't think you should be critical of Dave Man's way of thinking though. Everybody's base of experience, no matter how deep, has a first year at the bottom of it. The blood and guts aspect of the industry can't be denied, or minimized, but a guy with the blood and guts *and* a good handle on the economics of the business will have a clear advantage.
     
  4. Mike Nelson

    Mike Nelson Senior Member
    Messages: 637

    Dave Man,

    You are on the right track.

    We use a spread sheet for all our jobs.We plug in the the equipment,material ,labor,and profit margin we need.We have it set up to tell us how much profit we should make if the snowfall is 0'' or 100" of snow.You can even show the customer your spreadsheet, because there is no sense having a 5 year contract if you won't be able to survive that long! You need to make a profit! It has to be a win win situation for all.

    We have tracked all our expenses over the years and we have a great handle on our costs.

    If you want to grow your snow business or any other you must know your costs.

    The first thing that my competitor says if we are lower than them on a job is "I am a lowballer" and the truth is I am more efficient.

    Efficiency is the way the snow business is going.Who can do it the more efficient way and save the customer money will most likely get the business.

    John Allin did not get to the size company he has today by guessing what his costs are,he could tell you almost to the penny what they are and that is what a good business man does.

    It took a some time for me to figure this out and a lot of money lost. Hind sight is always 20/20. ;)

    Well good luck and if you need anything feel free to call my office and speak to either myself or Jay Kosack he is my VP of Sales and Marketing.
     
  5. plowed

    plowed Senior Member
    Messages: 344

    Dave-man, I too have an MBA and agree with your methodology. We do the same thing for every job that we bid. You need to know your costs associated with doing business, otherwise you will simply be out of business.

    I did not see in your list, but have you thought about or included professional fees, such as what you pay to your accountant or other consultants?

    I worked as a business manager and project manager for another contractor before I went out on my own. It was so scary to realize that this guy had NO idea of what was going through his business in terms of cash flow or income/expenses. I finally sat him down one day after I prepared a list of his fixed expenses. He was floored! His business had grown so rapidly over the course of a few years, that it had basically grown away from him. He was suddenly concerned with the amount of business that he HAD to get in order to just pay his overhead, let alone make any profit.

    Sorry to ramble on, but my point is that while you may not need to know every expense to the penny, you should have a good idea. You can not always make up income through volume.
    Tommy10Plows, your point is well taken, in that you must or should have a passion for what you do, and you need to have a working man's attitude. However passion alone is not going to pay the bills. You need to have all the cards on the table in order to make an educated decision about how to proceed or not to proceed.

    There have been bid requests that I have walked away from simply because I am not in a position to finance or expense a project. It's hard to do, but when my checkbook is empty, who is going to pay my bills...
     
  6. sonjaab

    sonjaab PlowSite.com Addict
    Messages: 1,425

    Tommy 10 ....your post is great ! (as well as the others)
    Esp. about breakage in the blizzard etc. I know most
    guys who bust on what brand of truck each has.
    When its SNOWTIME and you see a plow Bro' stuck
    or hung up in a bank, Ya always stop and give them a
    pull no matter what ya drive !. Maybe not if they
    stole your acct. from last year tho !.............geo
     
  7. dave-man

    dave-man Junior Member
    Messages: 19

    Re: Forget the MBA stuff it's guts that count

    Agree
    I agree that snow & ice management is critical to our national transportation infrastructure. Federal, state, and local governments provide only limited resources toward the tasks associated with that function. Private entities pay the rest. Federal, state, and local governments provide only partial capacity for snow & ice management (equipment and employees) even for that portion they pay for. The rest of the capacity comes from private industry, ranging from companies like SMG at the high end to a kid with a shovel at the low end.

    That is EXACTLY my point. You have to know where you stand. What did I spend? What did I make? Can I make a reasonable profit in average years? Can I pay bills in bad years? Can I make it at all in a year with really heavy snowfall, or will the extraordinary costs (subs, rental equipment, disposal costs) eat all the extra revenue? If you don't know where you are, you can't get where you are going.

    I think that here is where we part ways. Guts DO count. Guts are how you make it work with what you have when bad things happen at 3 am. But business savvy, academic and practical, counts too. Business savvy means having the right spare parts in stock or--better--in the truck. Business savvy means not buying that new spreader if it's going to mean missing payments six months out, or not having a cushion for a bad year. Sure I'm sitting at my desk in a suit right now. That doesn't mean I don't understand operations, or that I haven't been there before. Just because I went back to school (while working full-time, by the way) to get both an MBA and a Masters in Project Management doesn't mean I forget working shift and a half as a machinist in a shipyard, or a welder on an oiler, or racking equipment for remote imaging. It doesn't mean I don't change my oil, or re-roof my house, or build a shed, or install my plow myself. Although you don't know me, you took an off-hand comment about an academic credential and assumed a lot about who I am. Well I am a geek. And a nerd. But I'm a geek and a nerd with tools, and I know how to use them, from computer programming languages like C and Perl to office applications like Excel to pneumatic tools, woodworking tools, welding equipment, and machine tools. Just because I drive a desk for my primary living doesn't mean I don't understand the real world, or that in some cases driving a desk isn't just as enervating as driving a truck.

    Okay enough. I get a little wound up about this, because it happens over and over.

    Thank you. :drinkup:

    Thanks also. I plan to finish my first generation model and ship it to you before I call, so I can get the most benefit from your kind offer without taking up too much of your time.

    Exactly. Thanks for remembering professional services (legal, accounting, tax, possibly hazardous materials (for salt, in some jurisdictions)); an excellent catch. Thank you.

    I hope to have a first cut at the Excel spreadsheet this weekend and post it on my website where people who are interested can see it. I'll try to generate a static page that displays it for anyone who doesn't have Excel. If the model seems interesting to people and enough plowers don't have Excel I could fairly easily build a web-based version. Plug in your numbers and see what comes out right on a web page. Of interest?

    Geez I'm long winded. :rolleyes:
     
    Last edited: Sep 27, 2002
  8. TurfPlus

    TurfPlus Senior Member
    Messages: 179

    Kevin Kehoe of Kehoe and Co. had an Excel spreadsheet similar to what you are talking about at the SIMA Conference in St. Louis last year. I was very interesting and informative. Just another example of SIMA trying educate its members. Its a great tool to know what your TRUE costs are and can be applied to any business.

    John
     
  9. Tommy10plows

    Tommy10plows Senior Member
    Messages: 345

    Education

    Certainly did not mean to denigrate your education. I apologize if that is your impression from my post. I know many MBA's who are quite successful in their chosen profession, or multiple professions.

    If I may re-state my position:

    "It is important to know your costs on any job. It is also important to have the fortitude to see the job through completion."

    Again, please do not take offense. None was intended. Apologies to all who felt offended.


    Yes, I would pull an MBA plowman out of a snow bank. But if it were a lawyer turned plowman...well, let me think on that one a bit, at least until spring !!!

    And yes, I do keep track of costs, started many years ago with Lotus for DOS (remember slash file save?) and now use Smart Suite, which I prefer to Excel.

    Tuesday is October. Snow is coming soon, get ready guys.
     
    Last edited: Sep 27, 2002
  10. Mike Nelson

    Mike Nelson Senior Member
    Messages: 637

    "Yes, I would pull an MBA plowman out of a snow bank. But if it were a lawyer turned plowman...well, let me think on that one a bit, at least until spring !!!" :D


    Tommy10Plows I liked that one....

    You didn't offend anyone,I took it as you were telling us about the other parts of the business which maybe the toughest.

    What I love most in business is getting a chance in front of a new customer and telling them how we do business.
    We got another chance today to do just that.Brought in the laptop and showed them our spread sheet according to their specs and Bingo out comes the number they wanted!!!They were amazed on how we did that.

    Also being honest and upfront with your potential customer right from the beginning,because people buy from people.Seems like everywhere we go other people are telling stories that they are the ones plowing our sites,I guess they don't have enough references on their own. :eek:


    It is great to see how everyone here is thinking about the snow business and what professionals we are....

    Keep Raising the Bar
     
  11. Snoworks

    Snoworks Senior Member
    Messages: 466

    Dave-Man, just curious, what management software do you plan on using for your snowplowing endeavor.

    I use Excel for all my company's finances. I plan on converting over to Quick books, but the thought of logging all this years information scares me.

    CGB
     
  12. dave-man

    dave-man Junior Member
    Messages: 19

    Re: Education


    Thank you for your kind words. I am sensitive to those who consider my academic background and decide that for some reason that means I don't know what it means to get dirt under my fingernails! I apologize for reacting so quickly.

    I really do agree with you strongly.

    In every business, some one must understand the business you are in. Someone must understand the business of business. It is best if there is someone who understands both.

    I hope the model I am working on will provide a tool that will help the people on this board to reach that state. Not because I know more about anything, but because the product of my effort will help to organize what they already know, and extract the information (meaning) from the data.

    P.S. I have my own issues with lawyers. :)
     
  13. dave-man

    dave-man Junior Member
    Messages: 19

    Re: Education

    Oh, yeh. Definitely remember 1-2-3. In fact, I used VisiCalc briefly before that! I used 1-2-3 until I shifted over to Quattro Pro, and then moved to Excel. That was probably 7 or 8 years ago.

    I imagine SmartSuite has a conversion routine to read in Excel files. Have you used it much? I know that some of the more sophisticated functions (on both sides) don't convert real well. Perhaps you would be kind enough to try my model when it is ready? I'd like to be compatible with as many folks as possible. In my view tools (and computers are tools) should help you do your work, not make you change how you do you work. No one should have to change their spreadsheet of choice, or painfully type stuff back in, just to use it.

    September 28th and its going to hit 80 today. {sigh}
     
  14. Chuck Smith

    Chuck Smith 2000 Club Member
    from NJ
    Messages: 2,317

    Re: Re: Forget the MBA stuff it's guts that count

    Now you are a snow geek like the rest of us! Pretty soon you will be a weather geek!

    If you do a search on I believe "education" you will find a thread where many of us posted our past education and employment. I think you will be shocked at how many on this board have a degree, and college educations.

    We are all geeks and nerds to those that don't plow... :D

    ~Chuck
     
  15. Snoworks

    Snoworks Senior Member
    Messages: 466

    Dave-Man - Just wondering how your model was doing.

    CGB
     
  16. ADLAWNCUTTERS

    ADLAWNCUTTERS Senior Member
    Messages: 212

    it is important to know the in & out of any business.i think that plowing has to be in your blood.when you have been plowing for a few days with almost little or no sleep spread sheets don't mean a thing. remember the movie risky business sometimes you have to say "what the heck"and go for it. good luck
     
  17. Snoworks

    Snoworks Senior Member
    Messages: 466

    Adlawcutters - I have the following comments regarding your post. You are probably right in saying that spreadsheets don't matter in the heat of battle. However, when the battle has been one and your going over your labor/material margins for that particular event, the spreadsheets rule the roost; because if your not paying attention to material costs and labor hours, etc., you probably wont be in buisness long. That goes for any buisness venture.

    I used to tell my old partner this about being in buisness for yourself; You can't wake up everyday and think just showing up for work is good enough. If you don't prepare, schedule, bid, order, etc., nothing will get done. Needless to say, he left the company this year. Sometimes the prep work is the hardest work, sometimes!

    I think I started to drift away from topic, owe well. Yeah, one more thing, If you think that keeping track of all aspects of your plowing company is a waste. You might want to talk to a couple of firms that browze this site from time to time. I know of two firms that track everything, yes everything, and they are generating some preaty impressive profits margins. They must be doing something right!

    CGB

    :p
     
  18. ADLAWNCUTTERS

    ADLAWNCUTTERS Senior Member
    Messages: 212

    i hear what you are saying .i know a guy who is one of the bigger snowplowing companies in the buffalo area and he is a millionare , i've seen him walkaround talking to himself during some of these storms.and now he is loosing his hair.even if your company is doing great it doesn't matter if you lost your mind.you still have to love what you are doing.
     
  19. Sno

    Sno Senior Member
    Messages: 320

    Dave-man,

    I dont have an MBA... But I sure would like to plug my numbers in your spread sheet.. :D

    Let me know when complete?

    Sno