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mtdman
02-19-2004, 01:15 AM
This is what I wrote for my fuel escalation clause for my customers this year. Constructive feedback appreciated. And yeah, I know some people don't think it's a great idea. I am asking what you think of my wording on what I wrote. We've already beaten the pro/con arguement to death.

FUEL ESCALATION CLAUSE:
All prices included on this pricing sheet have been figured using current gas and oil prices, as of February 2004. However, in the current unstable economic climate, fuel and oil prices have shown to fluctuate widely in the summer months, and there are always predictions for higher prices every year. Gas and oil are two major expenses in the Green Industry. To create affordable, accurate and competitive rates each year, it is extremely difficult to anticipate the gas and oil price fluctuations. At the same time, higher rates cut directly into revenue and come right out of my profits. TJís is a full time business for me; I do this as my career. To stay in business and produce a profit margin I can live from, I must take into consideration this potential for gas and oil price spikes. Unlike retail pricing, my rates are set at the beginning of the season, and I lock them in for you for the season. If major price increases occur during the summer, I have no way of offsetting those price spikes during the season to maintain a reasonable living wage.

Therefore, starting this season, I will include a fuel escalation clause with my pricing. All lawn care rates quoted on this pricing sheet are applicable for gas prices up to an average of $2.25 per gallon, 87 octane. From $2.25 to $3.00, an additional $1 per visit will be added to your rate. For each additional $1 per gallon beyond $3.00, an additional $1 per visit will be added. The escalation will be based on average gas prices on the day of your service. If prices come down, the additional charges will not be charged for that visit. If prices stay up, any necessary rate adjustments will occur next season.

This clause is designed to offset any gas and oil price spikes that might occur during the summer season. This increase is a minimum I would need to charge to stay profitable, and I hope to never invoke this Escalation Clause. A sample escalation table is available on the website, www.tjslawncare.com.

mtdman
02-19-2004, 01:38 AM
And here's a question I was thinking about as I wrote that. How exactly should I introduce this to new customers? Anyone have a problem explaining their clause to potentials?

Phishook
02-19-2004, 01:40 AM
I like it.

I'm 90% sure I'm going to do something very similar to that. I just have to figure out the price to start it at.

dkeisala
02-19-2004, 03:01 AM
You're kidding, right? Between this and your other thread, how difficult are you going to make it for your clients to do business with you? Do you think your customers really care how much gas cost you? If you can't figure contingencies into your costs, that's your fault, not theirs.

Gas ALWAYS costs more in summer and winter months than any other time of the year. It's all based on supply and demand. If you are so concerned with an upswing in fuel costs, why don't you just charge all customers a bit more and spread it over your entire client base without their knowledge than making some lengthy, and wordy, diatribe in your contract? Someone tried to pass that off to me and I would tell them to p!ss up a rope.

promower
02-19-2004, 03:10 AM
Nothing wrong with a fuel esculation clause. And honestly those are very reasonable prices if were a customer or thinking of using your services an addition dollar or two per visit if gas prices skyrocket would not worry me. If the cost of doing buisness goes up, then the cost to the consumer goes up. Presenting it to new clients, I would just include in the contract and not even mention it, if they question the clause just explain what it means to them.

mtdman
02-19-2004, 03:13 AM
Hey dkeisala,

Constructive feedback appreciated. And yeah, I know some people don't think it's a great idea. I am asking what you think of my wording on what I wrote. We've already beaten the pro/con arguement to death.

Richard Martin
02-19-2004, 03:17 AM
One question I have is:

Will you be adjusting the escalation to suit a particular lawns needs? For example, say one lawn is 1/4 acre and the next is 3 acres, would you adjust the pricing the same for both lawns regardless of actual fuel used?

In other words, this is all fine and good if everybody's lawn is the same size and it takes you the same amount of time to get to each lawn.

Phishook
02-19-2004, 03:18 AM
[QUOTE]Originally posted by dkeisala
What was your fuel expence last year?

we're talking $1 per week over 2.25. So the gas on july 21 was $2.90/gal. The normal mowing was $37. July 21,the price would be $38. *Not to mentoin I used 4 gal there, 4 home, and about 1/3 mowing at $2.90 a gal.

8.333gal x $2.90=24.17 july 21

8.333gal x $1.70=14.17 may 14

:eek:

dkeisala
02-19-2004, 03:19 AM
Yeah - I know, an opportunity I just couldn't pass up.

mtdman
02-19-2004, 03:28 AM
Originally posted by Richard Martin
One question I have is:

Will you be adjusting the escalation to suit a particular lawns needs? For example, say one lawn is 1/4 acre and the next is 3 acres, would you adjust the pricing the same for both lawns regardless of actual fuel used?

In other words, this is all fine and good if everybody's lawn is the same size and it takes you the same amount of time to get to each lawn.

The charges I mentioned are what I figured an average lawn will cost me in increased gas prices. That includes driving time gas, equipment gas, etc. Therefore, the charge is spread over my entire customer base. And most of my lawns are the same size.

The minor increase that comes seasonally isn't what I am worried about. I am worried about the potential price spikes of $3 to $4 per gallon, and I want to have a method in place to offset those spikes. In 2000 when gas nearly doubled, so did my costs. But I had set my prices at the beginning of the season, and I promised they would stay the same. What's worse, going back on my word mid stream or having a prearranged method for offsetting costs and maintaining my living if need arises?

I fuel up 2 to 3 times a week, at an average of $40 for all equipment last year at around $1.50 a gallon. If gas prices were to spike and double, that's a huge increase in expenses. I'm not going to eat that. Retail businesses don't eat costs when they increase, why should I? And were I to try to anticipate those spikes in my pricing, it would drive my prices beyond the range of competitiveness.

Furthermore, I like to explain things to my customers. I put things in as simple terms as possible, try to explain to them my process at arriving at new policies like this. I could just slap it in there, say take it or leave it. Instead I tried to explain the whole thing, head off questions and reservations.

dkeisala
02-19-2004, 03:31 AM
But when is that last time gas was 3 bucks a gallon? I know what you are saying and I agree with you and understand you want to protect yourself but you can only go so far.

mtdman
02-19-2004, 03:34 AM
Originally posted by dkeisala
But when is that last time gas was 3 bucks a gallon?

Exactly! That's why I hope I never have to use it. But I'm not taking chances it won't happen. Back in 2000, who woulda thought we could have $2 per gallon gas prices?

dkeisala
02-19-2004, 03:41 AM
OK - I take back everything I said. However, can't you find a way to summarize and abbreviate your fuel escalation clause? Perhaps "if gas prices exceed x amount of dollars there will be an automatic 3% (3% of $35 = $1.05) surcharge to any and all mowing invoices?

If this is the route you are going to go, I really don't think you need to explain WHY you are planning on doing something, just that you WILL do something. Makes things easier for everyone.

Richard Martin
02-19-2004, 03:48 AM
This is what I would use if it was necessary:

Fuel Surcharges
As you know well the price of fuel can change from day to day. The price of fuel is one of the factors in determining the price I charge to service your lawn. If the price for Regular Unleaded Fuel exceeds $2.25 per gallon at Tim's Gas & Go there will be a minimum surcharge of $1.00 for lawns up to 1/2 acre and $1.00 for each additional 1/2 acre.

This would spread the charges out evenly.

mtdman
02-19-2004, 03:51 AM
Thank you for your input.

I have found from experience that explaining things as clearly as possible, explaining my process at arriving at a policy such as this, removes questions and reservations about the new policy. If people don't understand why, they just assume it's a money grab or feel uneasy about it. It works well for me.

If you think it's too long I will consider revising it and shortening the length.

mtdman
02-19-2004, 03:53 AM
Originally posted by Richard Martin
This is what I would use if it was necessary:

Fuel Surcharges
As you know well the price of fuel can change from day to day. The price of fuel is one of the factors in determining the price I charge to service your lawn. If the price for Regular Unleaded Fuel exceeds $2.25 per gallon at Tim's Gas & Go there will be a minimum surcharge of $1.00 for lawns up to 1/2 acre and $1.00 for each additional 1/2 acre.

This would spread the charges out evenly.

Yeah, but I don't do anything close to an acre in size. Like I said most of my stuff is very similar in size, city sized lots.

scott's turf
02-19-2004, 09:06 AM
Originally posted by mtdman


In 2000 when gas nearly doubled, so did my costs.

Wow, your fuel is nearly half of your expenses. I know every operation is different but our fuel expense was only around 10% of our total expense.

I think what Richard Martin was saying was very informative. You need to specify where the price of gas will be taken from and a percentage increase for your customers will be much more fair for everyone and it is not anymore difficult.

qualitylandscaping
02-19-2004, 09:28 AM
KISS....

$2.50-$3.00 increase per visit to cover increased expenses..

Gene $immons
02-19-2004, 09:51 AM
It sounds like "lawyer speak" which nobody will be happy to read. I would just raise the rates some, and not worry about all of the wording. It might be more expensive for you if you have 5 or 10 cancellations .

GrassBustersLawn
02-19-2004, 10:17 AM
Fuel costs has to be a concern to us. I don't know about you guys, but my trucks get about 10 to 12 mpg when pulling a trailer. We need those trucks to get the mowers to the job, so we need to consider making up for the vehicle gas too, not just mower gas! I put a FUEL CLAUSE to my people two years ago, and I used $1.75, which is about where we are now. I think $2.25 is pretty generous on your part!

MIKE

jcr_17
02-19-2004, 11:28 AM
I got a headache just from reading the first couple of sentences. I think you should get to the point instead of trying to convince your customer why it is is justifiable. Keep it short and sweet.

brucec32
02-21-2004, 03:44 AM
Do you know something we don't? Expecting oil facilties to get bombed or something?

This obsession with gas prices borders on paranoia. Of all the expenses to worry about in a business!

What's next? The "Juan asked me for a raise" clause? The "my insurance company raised my rates" clause? Both labor and insurance will almost certainly rise faster than fuel costs.

On a typical home lawn you mightuse what, a half gallon of gas? Even with driving gas, that's still maybe a gallon a lawn. Many more variables out there to spend worry time on than gas prices.

I can see other clauses that will be added to contracts in the future.....

"trimmer line price adjustment. If price goes over .03/foot, then ....."

"McDonald's value meal price increase clause......Dear customer, I have to eat in order to maintain energy to do your lawn....."

Part of being in business is assuming risks and forecasting for potential price increases. Heck, even my natural gas company will give me a fixed rate for a year if I want it. And they can't control prices they pay either, and it's a much bigger portion of their costs than gasoline is to you.
"

lawnman_scott
02-21-2004, 10:02 AM
Originally posted by brucec32
Do you know something we don't? Expecting oil facilties to get bombed or something?

This obsession with gas prices borders on paranoia. Of all the expenses to worry about in a business!

What's next? The "Juan asked me for a raise" clause? The "my insurance company raised my rates" clause? Both labor and insurance will almost certainly rise faster than fuel costs.

On a typical home lawn you mightuse what, a half gallon of gas? Even with driving gas, that's still maybe a gallon a lawn. Many more variables out there to spend worry time on than gas prices.

I can see other clauses that will be added to contracts in the future.....

"trimmer line price adjustment. If price goes over .03/foot, then ....."

"McDonald's value meal price increase clause......Dear customer, I have to eat in order to maintain energy to do your lawn....."

Part of being in business is assuming risks and forecasting for potential price increases. Heck, even my natural gas company will give me a fixed rate for a year if I want it. And they can't control prices they pay either, and it's a much bigger portion of their costs than gasoline is to you.
"

I would have to think hard and long to find a post anywhere on this forum that i have agreed with more. Customers must really hate the years when you buy a new truck or mower!!!

qualitylandscaping
02-21-2004, 10:18 AM
Well said Bruce..

Just put this in their spring letter... "Due to the increasing cost of doing business in this area, your weekly rate is being increased $2.50"...


Leave it at that.. If they want an explanation, have a spreadsheet ready to show them how your expenses have changed.

But when you put the whole thing right in front of them, they will think it's too much and they will look for someone else.

Don't give more than you need to. If they have a problem or a question, they will come to you!

DFW Area Landscaper
02-21-2004, 10:49 AM
MTD,

As you know, I completely over-hauled my service agreement this winter. I seriously considered adding a fuel clause to my contract for this year. But it was important to me to limit the entire contract to one page. I had to increase the page from 8.5 X 11 to 8.5 X 14. And reduce the font size.

I've already had two customers sign up with my new contract. The close is the same as it was with my Mickey Mouse contract that I was using last year. No one is gonna take the time to read the contract. You just ask them to initial here and here and sign & date here. That's all their interested in.

So these guys that are telling you that if they were your customer and you approached them with this, they're the ones that are full of schit. You can write anything you want on your service agreement and over 90% of all customers will sign it without even attempting to read it.

What I decided to do with the fuel clause kind of goes hand in hand with what Bruces32 said. There are a lot of other costs that rise over time outside of fuel. I fully expect my mini-storage unit to increase prices over time. I expect to give my good employees raises every so often. I expect insurance rates to continue rising. The list goes on and on.

What I decided to do was to create a section for price changes near the bottom in the terms and conditions. It says "Prices for all services will automatically increase 3% every January 1st. All other changes in price must be agreed upon by both parties in writing."

So far, I haven't had a problem with this clause at all. It'll be nice in '05 when I can do the same amount of work and get an automatic pay raise, just like I'd get if I were a corporate employee.

Later,
DFW Area Landscaper

pcnservices
02-21-2004, 12:54 PM
Originally posted by mtdman
And here's a question...... How exactly should I introduce this to new customers? Anyone have a problem explaining their clause to potentials?

75c increase in gas price - $1 raise in service fee? Do you actually use more than a gallon of gas per mowing a lawn? When the gas price come down are you going to discount that $1 again?

I'm just playing "devil's advocate" here!

This is going to create confusion and frustration by your customers and yourself managing it. Cut the confusion, add the $1 in advance and absorb the cost.

PC

dkeisala
02-21-2004, 01:30 PM
MTD certainly got more than he was asking for with this thread, didn't he?!!

Todays headline in the business section states "gasoline prices during the six months ending Dec. 31, increased 16.6 percent from the same period in 2002." That's a healthy increase. And we haven't even hit the peak driving summer season when gas prices really climb.

So whether or not you plan on using a fuel escalation clause, this is an area where it pays to know your numbers when pricing your services for the coming season. In my own personal situation, my fuel costs jumped by 24% during the same period stated above.

Gotta love Bush and oil loving cronnies! When are they gonna come out with gas/electric hybrids for mowers? :)

gramps
02-21-2004, 04:39 PM
Why not real simple. Ex.I will chargeX$ per week,unless I need more. Then I'll add on some more.

PROCUT1
02-21-2004, 05:20 PM
I raised 300 houses last year by 2 dollars per visit. Not one left.

Ajays
02-21-2004, 11:27 PM
I think the clause is silly. Just raise your rates to cover your potential increase in overhead. How difficult is that?

mtdman
02-22-2004, 01:42 PM
What I am worried about with this clause is the increase in fuel prices to the $3 and $4 per gallon range. IN 2000, gas prices were around $1 or so a gallon before the season started. Gas prices then proceeded to double by mid season. I saw some stations raising prices by 15 cents per gallon a DAY. My fuel costs doubled. And quite honestly, that IS my major expense, fuel.

Now, you can say, how likely is it that we are going to go over $3 per gallon for gas? How likely was it that we'd pay over $2 per gallon in the spring of 2000? Gas keeps going up. Wintertime is the cheap season for gas. If it's already at $1.75 now, that tells you we are in for some higher prices this spring. And don't forget, in the summer we have to have that reformulated gas that takes longer to produce and costs more money, which gives oil companies plenty of reason and excuse to raise rates.

I can anticipate most other expense increases, because those expenses don't rise irradically every time I go to buy something. Rent goes up once a year, parts and equipment prices don't fluctuate from week to week. Gas does. I cannot anticipate a fuel increase that might not happen. Setting prices based on $3 per gallon gas, that might not happen, would put my rates out of a competitive range.

Everytime I fill up, I have to buy 40 gallons of gas for my truck, mowers, gas cans, etc. At $1.75 per gallon, what gas prices are now on average around here, that's $70. I fill up at least twice per week, sometimes 3 times. At 2.5 fillups per week, that's $175 per week.

At $2.25 per gallon, where my cutoff begins, 40 gallons is $90, or $225 per week. $50 difference.

At $3 per gallon, $300 per week, or $125 difference. $4 per gallon, $400 per week, $225 difference.

$50 extra is about 2 customers per week worth of mowing. $125 is 6, $225 is 9. That's 2, 6, 9 customers that I mow for free basically when gas prices go up, because the increased expense comes outta my profits. How many of you are willing to mow those people for free each week?

Incidentally, this is the first year in 4 years I've done a major rate increase for most of my customers. 90% of my customers haven't had a rate increase since before 2000.

rodfather
02-23-2004, 10:44 AM
Just finished reading an article on AOL news this morning. Gas prices are supposed to be the highest ever this summer...perhaps peaking at $3 a gallon...just f***ing great.

Lux Lawn
02-23-2004, 11:38 AM
These gas prices are out of control I agree.I started working on a rate increase yesterday to cover extra gas and other increases.I was trying to only raise customers that I have been doing for over
two years and came up with about a third of them being raised. I still don't think that is going to be enough I may go back and check it again to see who can be added.