By Neal Glatt
Spring officially starts in just 19 days. For many snow contractors this year, the clock is ticking and the situation is starting to look dire as this season may end with the lowest snowfall ever on record. Even for areas of the country where there has been snow, companies may have more questions than answers on how to maximize revenue and profit. Here’s how to manage snow contracts for the best possible outcome…
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The first step in determining how to manage snow contracts successfully is to figure out the exact amount of overhead costs your business will have for the winter season. This includes all real estate or rent costs, all utilities, all insurance, all equipment costs, and all payroll costs the business will incur related to the snow business. If employees are not laid off in the winter, then their entire seasonal salary should be considered in this calculation. If equipment is used exclusively for snow, then the entire annual cost (or replacement costs) must be added to this expenditure.
A snow business must have absolutely no less than this exact dollar amount in seasonal contracts which have guaranteed income. Those who claim they can’t sell seasonal accounts in their market must figure out a way to do it (or else see the next point below). There is a business case to be made for securing seasonal contracts in that amount plus a percentage of desired profit. Some companies will aim for 115% while others will seek 145% of their fixed expenditures in fixed contracts.
One key differentiator to note is that not all seasonal contracts are actually guaranteed income. Many “adjustable”, “variable”, or “shared risks” contracts have fixed payments which are subject to snowfall adjustments. The guaranteed income portion of these contracts must be considered at less than 5% of annual average snowfall, if not zero snowfall, to properly mitigate the financial risk.
Those who can’t sell enough seasonal contracts, retainers, or other forms of fixed income must consider a weather insurance policy to cover the difference. These policies may be helpful, but will present an additional cost to a company which may be avoided by better salesmanship.
Each snow company must also consider the risk of working too much in a winter. Creating an estimate on the number of hours worked (including overtime or snow bonuses), materials used, cost of repairs, and other variable costs should be based on double the annual snowfall in a given market. Then, compare these costs to the amount which would be invoiced on the variable revenue contracts (per inch, per event, per hour, etc) to ensure that enough profit remains.
When done properly, these scenarios will show a profitability curve where profit is earned on no snow years and extreme snowfall years, but the most profitable scenario is somewhere near an average snowfall season. When the curve shows negative profit at any point, the risk is too great and a firm must reconsider it’s contract portfolio, amount of fixed or variable costs, or supplementing income in some way.
These numbers are merely suggestions as every snow market is different. Fortunately, weather statistics exist to analyze specifically the budget numbers required for any business. Check out the Snowtistics® and Climatology reports from WeatherWorks at this link if you need to find your region’s exact data. Better yet, come learn directly from WeatherWorks and experienced professionals at a Snowfighters Institute event this summer: all the details and registration details are located at www.SnowfightersInstitute.com/, but space is limited so you’ll want to reserve your seat today. If your snow profit isn’t where you want it to be this year, or you need to learn how to sell more seasonal contracts, we’ll help if you’re ready to invest in taking your business to the next level.
Tags: Snow Contracts , Snow Business , Seasonal Contracts ,