Changing the way you contract with clients can make winter the most profitable season of the year.
You wouldn’t believe how many contractors push snow reluctantly,” reflects James Huston as he travels northeast on I-81, somewhere in rural Pennsylvania. “Snow removal is a tremendous opportunity, but most people don’t approach it right.”
Huston earns his living consulting with landscape and snow-removal contractors nationwide. On the day I spoke to him, he was on his way to visit one such contractor, Ron Muller, owner of Aspen Environmental Companies, LLC in Vernon, N.J.
With a dozen years in the marketplace, Aspen Environmental is a well-established, successful landscape and snow contractor business, the success of which earned Muller, a certified snow professional (CSP), the Snow and Ice Management Association’s (SIMA) “Excellence in Business” award earlier this year at the group’s 2005 symposium. He’ll proudly tell you that he loves winters—all winters—whether there is heavy snow or not. That’s because he’s built his business to be at its hottest when temperatures are at their coldest.
A model for growth
When describing Muller, it’s clear that Huston is proud of Aspen Environmental’s success. In part due to their collaboration, and in part due to Muller’s outstanding business model, Aspen Environmental has grown to collect more than $900,000 in revenue from snow removal annually. “And the best part is that we’re making a net margin of 30 to 35 percent,” Muller beams.
It’s through proactive client communication and effective contracting and billing that Muller has been able to maintain his great margins, even in his competitive marketplace. His first key to good customer service: “bill immediately after every event.
“We always send an invoice within 48 hours of every snow event. Even with our seasonal contracts, we’ll send an invoice detailing the services provided so that the customer knows exactly what we did during the event. It keeps us accountable and provides proof that we’re holding up our end of the contract,” he says.
Aspen Environmental primarily relies on three different contract types: per push, per inch and seasonal retainers. Depending on type of client, the distance to and from the job site and the desires of the client, Muller utilizes each type of contract to its maximum profit advantage. He explains why some contracting methods are better than other in the different circumstances:
- Per push. Especially for those who are new to the snow removal business, Huston says that per-push contracts are what many small- to medium-sized contractors utilize, especially for residential clients. And while per-push are the easiest type of contracts to enter into, a contractor’s sole reliance on them can expose the business to sometimes significant swings in cash flow from season to season, depending on the severity of winter weather. “When the snow is falling, everything may go like mad, but as soon a mild winter hits, operations relying solely on per push contracts will struggle to make ends meet,” Huston says.
Typically, Muller says that he determines per-push fees by estimating the time necessary to complete the job (including travel time) and multiplying it by the hourly rate he charges.
In heavier-than-normal snow seasons, Muller says that per-push contracts may risk customer dissatisfaction with the seemingly upward-spiraling cost of snow removal due to the event frequency and resultant invoice frequency. “That’s another reason why it’s critical to get the invoices out within 48 hours of the finish of the snow event, so they distinctly remember why they’re being billed.”
Muller adds that, in seasons with heavy snowfall, contractors with per-push contracts may struggle to manage the increased workload without turning to sub-contractors to help out with the work.
Aspen Environmental frequently uses sub-contractors to help manage its varying workload, but Muller is quick to point out that he doesn’t just turn to his “subs” for help in big events. He tries to consistently give his subcontractors consistent work in smaller storms, and it’s subcontractors who push the snow for the majority of Aspen Environmental’s residential accounts, allowing Muller’s full-time staff to focus on their efforts on meeting the needs of larger, more profitable commercial clients.
He says that regardless of what type of contract his client is on, he typically pays his subs by the hour at a rate that is typically 45 to 55 percent of the gross hourly rate taken in—a wage many sub-contractors will very happily work for.
- Per inch. Per-inch contracts base the invoice total on how much snow actually falls. This type of contract builds-in value with clients who want to pay less for light snowfall than they do for clearing of heavy snow. Huston says that such contracts can be a win-win situation for all parties involved.
Muller echoes Huston’s sentiment, and says that Aspen Environmental has increased its use of per-inch contracts recently, instead of using as many per-push contracts.
First, per-inch contracts better-account for the additional costs the company incurs clearing snow from heavy storms. Aspen Environmental provides a certified snowfall report for each snow event to each of its clients on per-inch contracts. According to Muller, this keeps clients on the same page by making the “need” to push snow as plain as black and white. “If our contract says that we’re going to plow every 2 inches of snow that falls, and 6 inches fall, the client will expect that we’ll be there three times.
“When compared to a per-push contract, we’ll make most of the money we’d make on one per-push contract on the first visit, so with each subsequent visit, we end up billing more on average with per-inch contracts,” says Muller.
- Seasonal contract/retainer. A seasonal contract specifies that the client pays a set amount each month to retain the contractor for snow removal. Muller says that he uses seasonal contracts extensively, especially with commercial customers, who often prefer to control their costs and pay the same amount each month. And while seasonal contracts can work out to be a win-win situation for all parties involved, Muller offers up a note of caution.
“It’s critical that you truly understand your costs with seasonal contracts because, if you don’t, it’s easy to get burned by pricing your services too low,” he says.
Muller also recommends writing three-year seasonal contracts whenever possible. He believes that, by going with three-year contracts, his business stands a much better chance of achieving its profit goals than it does with one-year contracts.
“With one-year contracts, there is a good chance that the weather will not work out the way you had planned, which creates a greater likelihood that you’ll either lose money or disappoint the customer, depending on the weather,” he says. “With three-year contracts, you will often have one average winter, one heavier-than-normal winter and one lighter-than-normal winter. It all balances out in the end, provided you had an accurate handle on your costs going into the contract.”
It’s clear that Muller has learned a lot in his 12 years in business about how to successfully contract with his clients, but he says that his business acumen has been bolstered significantly through his consulting relationship with Huston. He says that, while some of the business decisions he’s made have been largely self-evident, it’s Huston’s long-term experience in the industry that helps him “see the forest through the trees,” allowing him to better-focus on the long-term goals of his business instead of concentrating on the little issues that occur in the day-to-day grind. It also helps that Muller shares Huston’s view that snow removal represents a significant opportunity for him to make money.
“We make our best margins in the winter, and it’s because we’ve established a good reputation for reliability and superior customer service with our clients,” Muller says. “It’s also been helped greatly by the perspective I get from Jim. In fact, the consulting I’ve received from him has been one of the best business moves I’ve made. Regardless of where a contractor’s business is at, I’d recommend working with a consultant.”
Christopher Gersib is a freelance writer who resides in Winter Park, Colo.
The Snow and Ice Management Asso-ciation (SIMA) – A SIMA membership entitles the member access to a vast array of business building tools, including numerous contract samples submitted by other SIMA members, as well as a host of other tools to help you build and market your snow removal business. (www.sima.org; (814) 835-3577)
J.R. Huston Enterprises – A leading consultant to landscape and snow removal contractors nationwide. Huston Enterprises provides educational seminars, hands-on training workshops, on-site consulting, computer software installation and training, and a speaker’s bureau for dinner talks. Company CEO Jim Huston is also the author of a number of published books, including his latest release, How to Price Landscape and Irrigation Products. (www.jrhuston.biz; (800) 451-5588)
Snow Management Group (SMG) – Led by John Allin, a leading industry authority and consultant to contractors in the snow and ice industry, SMG is a nationally-recognized leader in snow management services, with snow-related revenues of well over $40 million last year. (www.snowmanagementgroup.com; (814) 452-1221)
Sensible Software, Inc. – Developers of CLIP, a widely-used software program for the billing and financial management of service businesses. Versions of the CLIP software are available for contractors of virtually any size. (www.clip.com; (800) 635-8485)
HindSite Software – Business organization software programs help you keep track of winter work. You can try out the demo on the Web site. (www.hindsitesoftware.com; (888) 752-5978)
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