Contract Question -- Fuel Surcharge

Discussion in 'Business Operations' started by TwoBrothersLC, Mar 21, 2004.

  1. TwoBrothersLC

    TwoBrothersLC LawnSite Member
    Posts: 21

    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:
     
  2. BW4486

    BW4486 LawnSite Member
    Posts: 244

    If fuel prices were $.99 would you refund customers money??
     
  3. ollie212@tds.net

    ollie212@tds.net LawnSite Member
    Posts: 60

    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.
     
  4. precisioncut

    precisioncut LawnSite Senior Member
    Posts: 654

    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.
     
  5. TwoBrothersLC

    TwoBrothersLC LawnSite Member
    Posts: 21

    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.
     
  6. GarPA

    GarPA LawnSite Silver Member
    from PA
    Posts: 2,585

    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.
     
  7. brian mon

    brian mon LawnSite Member
    Posts: 143

    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....
     
  8. TwoBrothersLC

    TwoBrothersLC LawnSite Member
    Posts: 21

    I'm thinking between 1 and 2 dollars a week
     
  9. GarPA

    GarPA LawnSite Silver Member
    from PA
    Posts: 2,585

    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
     
  10. mtdman

    mtdman LawnSite Gold Member
    Posts: 3,137

    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.
     

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