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Seasonal contracts

Discussion in 'Business Fundamentals' started by JThompson, Mar 7, 2003.

  1. JThompson

    JThompson Member
    from NYC
    Messages: 71

    This year really broke the bank for snow budgets. Got me thinking of a way to address this in hopes of avoiding accounts shopping next year. Thought of the seasonal contract. Got some questions. How many years do you typically cover in a seasonal contract. I would think a one year contract could result in a boom or bust; not particularly favorable to either party. If it was a 4 or 5 year contract I would think it would be more favorable to both as the law of averages would counter the single year boom or bust scenario. Also, you're locking the customer up for an extended length of time while guaranteeing yourself a certain amount of income. What kind of term do most of your seasonal contracts cover?

    What services do the seasonal contracts cover? Do they include deicers or just plowing and sidewalk clearing? I imagine the latter would be much easier to figure. You would look up the average number of events with your trigger depth and go from there. The deicer situation concerns me. I have one account that wants calcium chloride and they put it down whenever there is any sort of icy condition; as well they should. How would you account for that? We could have rain that turns to ice. We could have run off from melting snow that refreezes, etc. And this stuff isn't cheap. You would have to have a limit. But if you set a limit I would think they would use that limit every winter; why not, they paid for it. So you would base your price on that limit, correct? Well wouldn't that be the same as per service when it comes to deicing? In effect, they just locked themselves into using a guaranteed amount of deicing.

    How do your customers see a seasonal contract with a max number of inches or pushes after which it becomes per push? Do they feel that it protects you on your risk but not them if there is little or no snow? Where is our assumption of risk in this arrangement? (I try to sell this but I have found they do not look at this as fair as we are not assuming any risk.) Do you give out better pricing on a per inch or per push basis with this type of agreement than on a straight per push basis?

    Any other factors to consider in seasonal contracts? Thanks.
  2. wyldman

    wyldman Member
    Messages: 3,265

    If you have had a busy snow season,then now is the time to sell them on seasonal contracts.Sell it like insurance,it's in place to protect them.

    Most of our seasonals are on 3 year contracts,with rate increases of 5% per year,paid in installments over the winter season,or we will discount if paid in full in advance.We also only sign a one year contract with all new customers,which is paid in full before the season begins.If they are happy with us,and were happy with them,we fine tune the pricing and sign a minimum 3 year contract.

    It is based on average snowfall data averaged over the last 15-20 years.We know exactly how many plowable events we get and multiply that by our per push price (number of hours to clear lot X hourly rate).With a lower trigger you will be going out more,with a higher trigger you go out less,but also sometimes have to plow up any other frozen snow that may have fallen but did not meet your trigger point,so charge accordingly.

    Sidewalks can be included if the customer requires,and can be written into the contract and added to the contract price.

    Anything less than your trigger point will get salted if they want bare pavement all the time.Any de-icing is billed separately for both material and labor.We bill for "per ton applied",as all of our properties are quite large,and it is billed every month on top of the contract price.

    If your properties are smaller and require less de-icer,then you may want to bill it as a set price per application,including materials.It can be more profitable this way.You may also choose to include the de-icing in your contract price,but only do it if there is a small amount of de-icing to be done.Most de-icing fluctuates dramatically from year to year depending on the weather,so be careful.

    Most of our contracts do include an "extreme snowfall clause",so if we have a massive snowfall,it is billable separately.We also have a maximum yearly snowfall cause on some contracts so that if we exceed the maximum for the year,anything else is billed additionally.These clauses are rarely used,and only there to protect us in extreme cases.Most customers will realize that this is there to protect the contractor,but will also help keep the seasonal prices in check,as you don't have to price high to cover any extreme weather.

    Other things that are billed additional are stacking,snow moving and removal.Pre-define pricing for these in your contracts and try to recommend at which point they may be required.
    Last edited: Mar 7, 2003
  3. drobson

    drobson Senior Member
    Messages: 112

    Great info Wyldman. I too am thinking about more seasonal contracts and didn't really know very much about it. I have a couple, but I certainly didn't set them up as well as I could have and will get a lot of use out of the information you posted...


  4. wyldman

    wyldman Member
    Messages: 3,265

    Glad to be of help. :drinkup:
  5. Chief Plow

    Chief Plow Senior Member
    Messages: 201


    I have to say that is great info. I could never sell a 3 year seasonal around here though. We do everything per push. And competition around here is very tight. Seems like every business on the corner has a different contractor working it. I have been fortunate that I have had (for the most part ) the same business's for the past 3 years. If I went seasonal, this year would have been ugly....

    Just my opinion
  6. John Allin

    John Allin PlowSite.com Addict
    Messages: 1,327

    If you think you can, or you think you can't......

    You're right.
  7. wyldman

    wyldman Member
    Messages: 3,265

    Excellent point John.

    Chief Plow - "If I went seasonal, this year would have been ugly...."

    Just my opinion

    If your going seasonal,you have to be in it long term.

    You will have bad winters with lots of snow,where it never seems to end.Costs go up,and you are stuck on a fixed income.Only benifit is salting makes you lots of money.

    You will also have good winters where your trucks hardly move,and you still collect the money every month.

    It will all even out over the years.
  8. apkole

    apkole Member
    Messages: 75

    Since our business was established in 1964 seasonal contracts have been the norm for us. Long term it really does pay off.

    I haven't observed a dramatic difference in costs between the busy and light years. Many times the trannys will make it through a tough season, only to fail part of the way through the next, which may be a light year.

    Slow or busy, either way we still need to meet that minimum $ thats needed to open the door on the business. That number includes insurance, depreciation, equipment payments, building payments, heat, water, electricity, maintenance, and all of the other ongoing expenses.

    We still write seasonal contracts, but many operators have moved their large municipal and commercial customers to 3 year contracts. I think these multi-year contracts are a good idea. They protect your customer base from low-ball quotes, and it establishes the cashflow so you can invest in equipment with some guarantee that you will be able to pay for it.

    One local operator landed a large condo complex, ramped up with trucks, plows and lawn equipment to handle the work, and lost the contract the next year to a low price. His workmanship and professionalism was exemplary, but price was primary focus for the condo people. He is stuck with the equipment and associated costs. Of course, he can always put that to work for other people, but a multi-year contract would have saved him some grief.
  9. Snoworks

    Snoworks Senior Member
    Messages: 466

    JAA - LOL, as I was reading Chief Plows comment, I couldn't wait to post my response. You bet me to the punch, even if the qoute was taken from you in the first place!

    Chuck B.

    For those who don't know what I am talking about: I bought JAA book at the SIMA convention last year, and he signed the book with the same quote. Since then, I have incorporated it into my every day mindset. Speaking from experience, I have had many people try and steer me clear of running a snowplowing company. Including my parents, inlaws, brother, sisters and wife occasionally.

    After seven years part time, and 2 years full time(Snow only business), I can say - If you think you can, or you think you can't......

    You're right.