Contract Question -- Fuel Surcharge

[TwoBrothersLC]

I have added a fuel surcharge clause to my contract. I would like input as to content and expression, please...

The company reserves the right to make mid-season changes to the agreed upon rate in the event of an unexpected rise in fuel costs. We have figured our rates based on an average $1.70 per gallon of fuel. Should the cost maintain $2.00 per gallon for more than 2 consecutive weeks, a fuel surcharge may be added to subsequent billings.

Any serious input would be helpful...thanks:cool:

[BW4486]

If fuel prices were $.99 would you refund customers money??

[ollie212@tds.net]

We have been using a fuel surcharge for 4 years now .. you have to .. to protect yourself.. I have not had any complaints from my customers .. only once did we use it ..fule was around 1.90 2.00 for about 4 weeks ... ive seen companies not use it and they are no longer here.. if your a solo maybe you can get by with out doing this ..but you have many employees and have several crews you have to ... or your compant takes less profit .. you are doing it correctly.

[precisioncut]

I haven't added one but I think I will need to. SOON. Gas prices have already come to bite me in the A$$. I paid $2.16 yesterday and well all I have to say is OUCH.

[TwoBrothersLC]

I am a one-man operation, but can't justify losing profits. I need to feed my family. ollie and precision..thanks for your comments...very helpful.

[GarPA]

we put the fuel charge in all of our new and renewal agreements this year...not a single complaint from commercial or residential.

You may want to simplify your wording just a little bit. Something like (you can tweak it)..."Your service fee is based on fuel costs averaging between x and y for 2004. Average monthly fuel costs in excess of y, may result in a small fuel surcharge for that particular month"

Our mulch supplier has added a fuel clause and so has our nursery supplier. I won't comment on why I think some people think a fuel clause is a bad idea. But for 2004, pulling a price per gallon out of thin air at this point in the season, is going to result in either you, or the customer, getting screwed...Stick to your guns on this. Like I said, we had not one complaint or ? about it and all the agreements have been approved.

[brian mon]

may result in a small fuel surcharge for that particular month"

a fuel surcharge may be added to subsequent billings.


So how much are you adding?

I'm going to ask for the same thing but not sure what % to increase....

[TwoBrothersLC]

I'm thinking between 1 and 2 dollars a week

[GarPA]

you should be able to estimate the amount of fuel you use on every account per week...including the truck fuel...and frankly, the main reasson I added the fuel clause was becuase of 9mpg in those gas guzzling Fords...I'm not sweating the mower fuel..its the truck fuel where it adds up

I put an example in each agreement.

Goes something like this: "For ex:, should the avg cost of fuel be $2/gal for a given month, the fuel surcharge will be $4 for that month. (on this example, I know I;m using about 8 gallons a month on this account..so...if my trigger for the surcharge is 1.50/gal, then the delta is 50 cents over the 1.50. 8 gal's x 50 cents = $4 surcharge. I am soooo glad I put this clause in this year. But you'll need to do some fuel allocation by customer to make this work as fairly as possible. We also add a line that says "we take no profit from the fuel surchagre". Hope this helps

[mtdman]

I added a fuel surcharge this year. I heard all kinds of crap about how it was a bad idea and I was going to lose all my customers because of it. So far, not one single comment from any of my customers about the surcharge, and I haven't lost anyone because of that clause.

I set mine to kick in at $2.25, and raised my rates to anticipate gas costs up to that price. It's not the minor increases I worry about, it's the big gas spikes that are possible up to $3 to $4 per gallon. I was in business in 2000 when gas prices doubled mid season, which doubled my costs. It hurt my profits. I don't want to be caught in a situation like that again with no recourse.

And it's not just the mower and equipment gas. You have to take into consideration the gas you spend driving your truck to the jobsites. And you should know your expenses, including gas costs. I did a calculation based on my average gas usage last year. If prices go up to $3 per gallon, I'd be paying an extra $90 per week, I think. That's a lot of money. And when you consider that that $90 translates to about 4 customers worth of work, that's 4 customers per week you are mowing for free basically because of that expense. 4 customer's worth of work that you won't see the profits for because of gas prices.

Rent, employees, insurance, equipment can all be anticipated for and budgeted for. Gas prices fluctuate and no matter how much of a financial wizard you are, you cannot anticipate increased expenses due to gas prices. Me, I want to keep the money I make. I'm not absorbing extra costs from gas increases, and the fuel surcharge clause allows me to be flexible enough to not absorb it.

[GarPA]

kudos to you MTD ...you should be very successful in business as you obvioulsy have a good handle on your costs and your numbers. And this is for sure a numbers business we're in...I too did not get one complaint and some of my customers are some pretty high powered self made business owners who are shrewd with their operating costs. In fact, one of the guys who owns multiple storage rental sites actually gave me a back handed compliment..he said something to the affect "boy you don't let any dollars fall thru the cracks do you??"..."no sir..in that way I'll be able to service you for many years to come"...hah

[jajwrigh]

I think $1 per customer would be fair and keep your income steady. I may do this if I have to this summer!

[Team Gopher]

Hi TwoBrothers,

Here is a useful quote by Mtdman from this post (http://server2.lawnsite.com/showthread.php?s=&threadid=62603).

"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. TJ’s 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]

I changed what my clause said, though. I got quite a bit of feedback that said it was confusing, and I agreed. I simplified it down a bit. This is what I ended up saying:

FUEL ESCALATION CLAUSE:
The base rate quoted on this sheet for lawn care services is the price for this season. That rate is locked in for you throughout the season, and based on fuel prices as of February 2004. However, in order to offset any unforeseen fuel price spikes during the season, this clause allows for an addition surcharge to be added per visit.

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. If gas prices rise above $2.25 per gallon, TJ’s reserves the right to add a minor surcharge per visit to offset any fuel price increases. The surcharge will only be in effect as long as gas prices remain above $2.25 per gallon, and only if gas prices are above $2.25 per gallon on the day of your service. This clause is designed only to offset any gasoline price spikes that might occur during the lawn care season.

For more information about the escalation clause feel free to contact me. A sample escalation surcharge table can be provided by request. This clause does not apply to customers who choose the Season Prepay Option.

[Soupy]

Mine simple says, "A 3.5% surcharge will be added anytime 87 octane fuel rises above $2.00/Gal". This gives me a little over a $1 for a $30 cut.

I would go with a percentage, so the larger lawns pay their share. It wouldn't seem fair for a smaller lawn that uses less gas pays the same as the larger ones.

I use a diesel truck, so i'm not worried about gas in the truck.