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Discussion in 'Lawn Mowing' started by sparcolawn, Jan 31, 2006.
can someone explain the whole fuel surcharge thing and how to apply it in a contract, thanks a lot
If you are worried about fuel prices, then you put in a surcharge clause. You can make it as specific, or as vague as you want. What I have now says I reserve the right to add in a fuel surcharge if prices spike. I don't have a cutoff or trigger for it. I used to, but I found that it's not necessary to raise prices for a few days because gas spikes briefly.
The idea is to cover your butt in case gas prices go up like crazy. Obviously you want to set your rates each year based on what you think gas rates will be at. But the surcharge is in case they go up more than what you expected. If you expect gas prices to be around $2.50 a gallon all season, then they sky rocket to $3.50 then you might want to recapture that.
IMO, most of what we saw last year was temporary, but big increases in the past have lasted longer. If you set your prices at the beginning of the season based on gas then, then gas goes up $1 or more and stays there, obviously you're losing money. The surcharge is a way to protect your profits. Higher long term gas prices affect other costs as well. Other businesses that depend on fuel also use a surcharge, why not the lcos?
My opinion has changed. I prefer to handle gradual rises in gas prices at the beginning of the season, try to forecast for the upcoming summer. But I still have that reserve clause so that if gas goes crazy because of hurricanes or Iraqi insurgents I've got my butt covered.
I started a thread about fuel surcharges a few days ago, here it is
hope it helps
I look at it like this about the "fuel surcharge" thing. If it takes you 30 minutes to mow a yard and it uses 1 gallon of fuel for the mower, trimmer and blower, combined then the price of gas goes up 1.00 then you have only 1.00 more in that yard that you charged 30.00 - 40.00 for. If you can't eat 2 dollars an hour then there is something wrong with your business structure. Last year when the gas surge hit I got about 10 new customers because of the "fuel surcharge" that other LCO's were charging. I did not let it be known that there was a surcharge I just set there price to know that I could make a profit. If I can net 15-20 per hour for me then I am happy and I know that I am my own boss and that I am making all the calls of the business and not having to work for the man. I can drop that to 13- 18 per hour and know that I am still happy. Look at it this way too If you are working at a 9-5 job and dirve 25 miles one way to work and the price of gas goes up 1.00 per gallon you do not get a raise for the price increase in gas from your employer and neither do the customers that you are mowing for so what makes you think they are going to pay the extra. I have not seen it happen yet and I will not add it to any of my customers.
All of our contracts state that during high fuel cost times a surcharge will be added. That way we can adjust the price as needed. We add $1 per mow when fuel is above $1.55 per gallon and $2 when it is above $2.55.
No complaints...doing it that way for 4 years now.
I agree, I stayed away from mentioning the fuel issue much because I felt the customer might see it as me being another one who's jumping on the bandwagon of opportunity (in this case the opportunity to increase prices). After I caught a few dirty looks from folks evidently thinking I might be taking advantage of the situation, I changed my tune because it wasn't worth losing a bunch of long-term customers over a few (1 or 2) lousy bucks... Because all my stuff consumes a gallon of fuel per yard (including the truck) so yeah, 1-2 dollars extra, big whoop.
But what I did do is raise my prices by 5 dollars for new customers and those who were paying the least / yard or / hour, plus my minimum charge went up from 25 to 30-35 (meaning I might do something for 30 for old-times sake but it really should be 35 minimum - and it's coming)... So roughly 10 - 20 percent of my customer base saw an increase and that extra 10-20 pct at 5 dollars each makes all the difference in the world.
So, I raised my prices, but not for everybody and not all of a sudden: A little here, a little there.
I find that's the best way anymore, do it gradually, over time, spread it out thin and keep on spreading it, but that's just me.
I have increased my prices this year for new customers and I have seen an increase in Biz this way too. I am in the same way of thinking that you are. I don't have enough customers to be able to lose any and then just say "OH WELL" I have to keep all I have and get more to make the move to the full time game.