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  #1  
Old 04-05-2005, 05:58 AM
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Runner Runner is offline
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Location: Flint, Michigan
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Fuel Cost and Price Structure Analysis

This is a follow-up to what I had posted in a different thread. I am posting this in a seperate thread for exposure. Any input is greatly appreciated.

This is getting scary. Our fuel was at 2.15 to 2.25 for the last few weeks. Today, it was at 2.45. This got me doing alot of thinking. To survive, we are going to have to make alot of changes. For the mowing for instance, I've done an analysis. Here is what I come up with. For some of my residentials, it comes out to just over a 10% increase if fuel reaches a $3.00 mark like it looks like it's going to. These will be some heavy duty price increases, especially considering the other thousand lawn services that are still doing lawns for $25.



Fuel Surcharge Analysis
(Solo Operation)

Fuel Usage
From $1.75 to $2.25

Truck(s) 50 gal. per week $25.00
2 Stroke Equip. 5 gal. per week $2.50
Mowers 20 gal. per week $10.00

Total Difference $37.50

Divided among (approx.) 20 accounts each … $2.00




Fuel Usage
From $1.75 to $2.50

Truck(s) 50 gal. per week $37.50
2 Stroke Equip. 5 gal. per week $3.75
Mowers 20 gal. per week $15.00

Total Difference $56.25

Divided among (approx.) 20 accounts each … $2.82




Fuel Usage
From $1.75 to $2.75

Truck(s) 50 gal. per week $50.00
2 Stroke Equip. 5 gal. per week $5.00
Mowers 20 gal. per week $20.00

Total Difference $75.00

Divided among (approx.) 20 accounts each … $3.75




Fuel Usage
From $1.75 to $3.00

Truck(s) 50 gal. per week $62.50
2 Stroke Equip. 5 gal. per week $6.25
Mowers 20 gal. per week $25.00

Total Difference $93.75

Divided among (approx.) 20 accounts each … $4.69
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  #2  
Old 04-05-2005, 06:59 AM
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MOW ED MOW ED is offline
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Big bummer with the increases but to tell you the truth I only had one guy question me on a surcharge but he understood my reasoning. Our gas is now at 2.29 and it will continue up. All of my accounts have had increases this year in one form or another and I have built in the magical number of 2.69 for the next surcharge trigger. I shudder to think of the 3.00 a gallon mark but there aint a dam thing we can do about it except get the old Pinto out and put the reel mower in the back with the hand shears for trimming.

That is a neat structure and it is something I will reference. Is the frost out yet in Michigan? It is full throttle here even thought it seems that full throttle costs lots more these days people are still taking the bids. Good Luck.
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Old 04-05-2005, 07:05 AM
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Charles Charles is offline
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I have gone up some on most of my customers-- 1$ to 2$. I dont think they would tolerate anymore of a rate hike. There is so much competition out there I would be skating on thin ice. Prices are going up on everything because of the increase in gas prices. The consumer is suffering enough already
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Old 04-05-2005, 07:22 AM
DennisF DennisF is offline
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I did some fuel usage analysis back in December 2004 and came up with a $2.00 per week price increase for every customer. That was based on gas at $2.25 per gallon. I raised all mowing fees back in February and had no complaints. If gas gets to $3.00+ per gallon...I'll have to raise all prices by at least another $2.00 per week.

Most customers understand that you have to cover your expenses and that gas is a large part of our costs. High gas prices are causing other things like mower parts, insurance, etc to increase. Any customer that resists a justifiable price increase is not worth keeping on the schedule. If one of them complains about a small increase in mowing fees to cover gas price increases....I'll dump them.
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Old 04-05-2005, 11:41 AM
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MacLawnCo MacLawnCo is offline
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Joe, ill repeat what ive said elsewhere:

first of all you need to look at fuel in terms of gal(or $) per hour... not in aggregate as you are. Even if fuel doubles from 2.5(my budgeted) to $5, i only need to go up about $1 per hour. Im not that worried to be completely honest. But that may be that my truck sees 30-50 miles a week. 50Gals a week for your truck? Is that for real?

To add to that, why do a set rate per week for every client Dennis? A percentage (directly relating to your hourly increase) would be most brilliant. We all know no two lawns are exactly the same.
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Old 04-05-2005, 12:06 PM
lsylvain lsylvain is offline
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Suggestion,

When I started for the second time back in 99 I knew that gas was going up. What I did was when coming up with my pricing I assumed a per gallon cost of $2.00/gal (I think it may have been $2.50 but that seems really high). I think you could get gas then for about $1.15/gal. (that was only 6 years ago doesn't that suck) Then as gas prices rose I didn't have to add the extra gas cost to current customers, but I did increase my gas cost when figuring estimates.

So for eg.

initial estimated based on $2/gal (Actual cost around $1.15)
gas goes up .25
new estimated based on $2.25 a gallon.

Basically I get the price increase up front and don't have to fool with it for a long time. I basically would not need to raise prices until my total gas cost exceeded my allocated gas to customers. Which means that Gas prices would have to go up a lot, and I would have to not get any new customers to pass the cost along to.
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Old 04-05-2005, 07:58 PM
DennisF DennisF is offline
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Location: Florida
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The rising price of gas is not only affecting the fuel cost per hour for mowing, it is also affecting prices for replacement parts (blades, belts, tires, filters, etc.) so I factored in those costs as well when I raised prices in February.

To make a point, I just placed an order with J-Thomas for a number of items that I'll need for this mowing season. Things like blades, deck belts, cannister air filters, oil filters, trimmer line...all the items that I will need for the season. It is the exact same order that I placed last year at this time. The total price for the order has increase by 21% since last year for the same parts.

This increase in cost has to be recovered just to maintain the same level of profit as last year.

One other thing. I was at the dealer the other day and I noticed that they increased their hourly labor rate to $74 per hour. Last year it was $68 per hour. Not a big deal if you service your own equipment, but it indicates that everyones costs are rising and those costs are being passed on to consumers.
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Old 04-05-2005, 10:01 PM
lsylvain lsylvain is offline
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Very good point DennisF.
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  #9  
Old 04-06-2005, 12:32 AM
Lance720 Lance720 is offline
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Location: Vancouver B.C. Canada
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Gas in town last week (Vancouver BC Canada) was over $1.00 per litre last week. 2.50 a gallon sounds great to me.
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Old 04-22-2005, 06:35 PM
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gramps gramps is offline
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Quote:
Originally Posted by Charles
I have gone up some on most of my customers-- 1$ to 2$. I dont think they would tolerate anymore of a rate hike. There is so much competition out there I would be skating on thin ice. Prices are going up on everything because of the increase in gas prices. The consumer is suffering enough already
we are consumers too.
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