Protecting The Profit Margin Against Rising fuel Prices

Discussion in 'Business Operations' started by xpnd, Jan 1, 2003.

  1. xpnd

    xpnd LawnSite Senior Member
    Messages: 378

    After labor, fuel is my second most expensive purchase. How many have a fuel surcharge in their service agreement? I'v added one this year. It is a sliding rate depending on the price of fuel over a two week period. The very few customers I've had to emplain it to had no problem with it once they realized it was peenies on the dollar. However this year I analyzed those pennies and they could add up to over $500.00 a month during the season. The utility companies do it why can't we?
  2. KDJ

    KDJ LawnSite Senior Member
    Messages: 325

    Well they buy fuel also, so they know fuel is on the up side.
    Protect the bottom line.
  3. lbmd1

    lbmd1 LawnSite Senior Member
    Messages: 462

    A few years back, we added a line item charge of "fuel surcharge" to our invoice in quickbooks due to rising gas prices. We sent a letter prior to that stating that unstable and rising fuel costs would have to be compensated for through this temporary surcharge of $3.00 a week. Everyone understood and some even said they didn't know why we didn't do it earlier. At the begining of the next year, we just incorporated this price and rounded up a little to do away with the surcharge. No problems or complaints at all. As gas prices are rising again into the $1.60 a gallon range and higher, we may institute this surcharge again next season. We have 130 weekly clients and when you multiply that time $3.00, that $390 a week, or $1560 a month sure helps out at the pump.

  4. Derrick Roberts

    Derrick Roberts LawnSite Member
    Messages: 15


    Are these 130 customers all residential or some commercial?
  5. lbmd1

    lbmd1 LawnSite Senior Member
    Messages: 462

    About 120 are residentials, the remaining are some condominium complexes and a few commercials. We mostly specialize in the higher end residentials and leave the commercials to the competition to fight over. The loyalty and trust we get from residentials are more piece of mind to me than fighting year after year with the competition over commercials where there is little loyalty. I actually enjoy the residential market where most other LCO's hate them. So it's become quite an easy niche to fill with very little competition. Although my website is under major construction, you can see on the opening page some of the average properties we maintain.

  6. Barkleymut

    Barkleymut LawnSite Bronze Member
    Messages: 1,117

    lbmd1- man you need to move out of the hood. Those houses must be worth under $20K.

    I've found working with the rich can be very profitable or barely profitable and very very time consuming. Depends on the customer and their expectations.

    As for the fuel surcharge - If gas goes back down to 90 cents a gallon are you going to charge them less? Just add 5% to the current price and tell them the cost of doing business has gone up. Insurance, gas, labor, rent, supplies, mulch, all of them have increased a decent amount in the past 2 years. This is the reason you have to increase prices every year. I don't care if its only 1%, it lets your customers know that you are on top of your business and aware of the changing market.
  7. LawnLad

    LawnLad LawnSite Senior Member
    Messages: 738

    Since fuel is about 2% of gross sales consistently we will not charge a surcharge perse, but we will raise prices this next year citing increased insurance, fuel, labor expenses among others. I find that fuel is consistently about the same cost year in and year out as a percentage of sales, so it's fairly predictable and not worth sweating at the moment. Now if it goes over $2.00 a gallon and we're in for a long war over seas, I think we'll have bigger issues to worry about than just increasing gas prices. More like customers cutting way back on what they want to spend their dollars on.
  8. lbmd1

    lbmd1 LawnSite Senior Member
    Messages: 462

    I realize that many charge a % more each year to cover constant increased overhead expenses such as gas, insurance, labor, etc.. Every 2-3 years we make an adjustment in pricing on a one by one basis, not across the board. There are just some that we either make real good money on, or they give us so much extra work on the side that it's not worth losing them for a small weekly price change. We do continue to increase our labor per hour charge each year on labor associated work. Barkleymut is right when dealing with this form of clientel. For the most part, they are pretty good, some require more attention and a** kissing more than others. But they are charged accordingly. We do make special mowing service calls on weekends or prior to special occasions but again, the $ is there to compensate for this. Getting back to fuel costs, I think it's something more that they can relate to it each and every day THEY pull up to the pump and see gas prices rising sometimes daily. They come home and b*tch to the wife about how high gas prices are getting again. So when they get a letter from ABC lawn care ( whose main expense is gas and labor ) they can understand fully why we are going up. Since they don't normally deal with workman's comp insurance, labor issues, pay and benefits rising constantly, etc.. it's harder for them to see the justification for the continued price increases. It's really just a mind game in all honesty. Does it require me to charge an additional $3 for each lawn in gas usage? Absolutely not. But they know that between driving there to their house, mowing the lawn with our monsterous machines, then weedeaters, then blowers, etc.., they SEE the reason. They don't see our insurance bill increases, or payroll tax and service fee bills, and all the other small across the board increases we as business people get and have to fork out. We also have an 8% corporate sales tax here in NH that we cannot collect seperately from our clients but must pay on at the end of the year. But again, they don't have a clue to our overhead so you have to get it any way possible, through price increases and other revenue collecting measures. I'm not saying it's a perfect way to get more money, but for us, it has worked out with great understanding on the part of our customers, without the least amount of hassle. And finally, with regards to whether we go down in price if gas prices go down. No. They receive their base price for their lawn service to cover all my associated costs at the time of estimating their lawn. Anything costs that increases from there out though gets an increase eventually. Although if gas prices went down to 90 cents, minimum wage goes down, and so on, I would consider it if I was called on it by a client to keep my prices in line with other LCO's. Hey what works for one, might not for another. That's the great thing about these forums. You get to see and hear other ideas from people across the country and share ideas.

  9. xpnd

    xpnd LawnSite Senior Member
    Messages: 378

    Man. I must be off-base on my fuel surcharge rate. There is no surcharge until fuel hits $1.75 gallon. At that price there is a 1.2% surcharge and a sliding rate from there. Less than a dollar per service in most cases. I was looking just to get the delta cost back in fuels not increase profit margin. I may have to go back and rethink this.

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