How To Calculate Costs For More Profit

You can’t manage what you don’t measure. Costs are killing snow contractors, but they don’t have to. You’re going to need labor, equipment and de-icing materials at every jobsite. There is no way around that. But you can control the pricing of that jobsite relative to the costs you incur to service that account. If you are not performing job-costing at each location, then you are probably underpricing your service because you are not fully evaluating your costs. The industry is too competitive to simply take calls and push snow.

What’s your profit margin? Industry averages are hard to come by and vary widely by region. Margins will be larger in bigger cities and metropolitan areas versus more rural and less-populated areas. But you should have a target percentage for each contract. Generally, snow contracts should yield 35 percent to 45 percent profit, according to Snowfighters Institute Chairman John Allin. This data comes from his years of consulting with companies that range in size from small, rural contractors that generate $100,000 in snow revenues to regional behemoths with tens of millions in snow revenues. Salt contracts should be even more lucrative, somewhere between 50 percent and 60 percent profit. These should be calculated separately, and there are more salting events in a snow market than snow-push events.

So first, do you know your profit margin on each site? If so, how do you improve it? This sounds like an exhausting process, but it is crucial to understanding your business and fairly pricing those services in the marketplace.

Calculate your expenses

• Labor costs should include your hourly wage times hours to complete a site, including travel time. Do this for each employee at each site, and you will start to see variances in profitability in this analysis alone. This is the beginning of assessing your opportunity costs, in this case, whether the same resources should be deployed to make better money somewhere else.
• Equipment expenses include your rental, lease or financing payments on whatever piece of equipment is used at a specific site. Include fuel needed for both transportation and snow and ice removal. Include maintenance expenses and insurances. This will allow you to assess the types of equipment that make sense for a particular site, how to manage that piece of equipment, and whether you can make that piece of equipment more profitable at another site. Or, you might discover that spending money on a wider box pusher can cut your time and labor costs 30 percent and allow the operator and machine to be available on another site. Don’t forget to include your mechanic. Ideally, you should have a profit-and-loss statement for each piece of equipment so you know when it’s time to retire, upgrade or maintain a truck, skid steer or wheel loader.
• Materials should be recalculated periodically to reflect price fluctuations. Maybe you bought a load of salt in the spring because it was a good price. You should recalculate the cost to replace your inventory in today’s market, and then set your contract price accordingly. Are your spreaders calibrated? If so, how much are they really putting down at each site? Bad assumptions lose money.
• Overhead must be added to each job-costing estimate. There are a couple ways you can do this. At very least, you can shorthand this process by adding about 20 percent of total costs as an overhead expense. This accounts for your office staff, radios, cellphones, insurances, software, computers and other basic costs for doing business. If you don’t have an office staff, then you can total your hard costs – at minimum your CGL insurance, QuickBooks, TurboTax and cellphone — and divide by your number of accounts.

This is not an academic exercise. The more detail that you understand about your operation, the better you will be able to price contracts fairly, accurately and profitably. Check out our survey results on labor, pricing and insurance  for more insights into these issues. We’ll continue to offer tools on pricing templates, estimating software, client communications and financial analysis on equipment, cashflow and company valuations. But none of that will matter unless you know your costs.

Visit PlowSite.com for more forums on equipment, business management and technical information. Join the conversation in the largest community of snow and ice business professionals.

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