By Matthew Hoskins, CSP
Many important factors contribute to the long-term success of a snow company’s business, the desired objective being profitability, and a minimum result being financial viability. Don’t confuse viability with profitability. Viability is the ability for an entity to survive, especially during certain periods of stress, whereas profitability speaks to the ability for an entity to actually make a profit.
Periods of stress can challenge small and large businesses alike, but perhaps it is more pronounced in the snow industry where that period of stress can be present one year and not the next. Indeed, it’s an industry with high potential for frequent fluctuations. Additionally, when taking into account the swings of the economy, with its downturns in employment and spending that often track with the stock market, it can make it more difficult for a snow business owner to ride what may seem to be a roller coaster from season to season.
Diversifying a portfolio of snow accounts and the method by which those accounts pay for service may help minimize risk of financial swings, while increasing viability and long-term success.
Finding a contract balance
The three typical snow contract models are per-occurrence, per-event, and per-season. Each pays at their respective frequencies - each time snow is pushed or salt is dropped, for each complete snow or ice event, or for each complete season, regardless of how much it does or does not snow. Each of these models has its risks and rewards. With a mix of contract models based on your business’s tolerance for revenue and profit fluctuation, balance can be created that can help normalize potential swings of light and heavy snow seasons alike.
Consistency among clients and agreements may assist, as well. Specifically, establishing a portfolio of clients with multi-year, long-term agreements can be beneficial for both the client and the snow company, with both being able to plan longer-term budgeting, while securing more favorable pricing as a result of longer-term assurance of snow service and revenue. Whereas both parties to the snow contract may have reservations in this commitment after a season of weather fluctuation, staying the course can yield benefits for both parties season to season.
Guiding the client in the right direction
With an overall objective of stability for a snow company’s business, and with the added consideration of the level of desired risk, a decision regarding splits between the contract models should be made and applied to the marketing strategy. Some clients already know how they want to pay, and others are open to suggestions and changes. It is then the responsibility of the snow company, as the one selling its services, to focus potential customers in the direction most compatible for its business.
Ideally, a snow business should be able to bring in consistent and steady revenue in a light snow season while being able to capture the added revenue and profits that come with a heavy snow season. A well balanced and flexible portfolio of accounts that mitigates the risk of serious financial fluctuation will help to ensure that a snow business is viable and able to weather seasonal storms for years to come.
Risks & rewards of contract models Per Occurrence
|Benefits. Can be good for a snow company’s business in a heavy snow season with many inches of precipitation; drives revenue growth and, if priced properly, can be very profitable. Easy to allocate costs to individual properties, storms, and services as a result of the detail oriented nature of billing for each service. |
|Risks. A very high risk of revenue problems in years of lighter snow, with few snow events, where it may be difficult to cover even basic operating costs. |
|Benefits. Can be good for a snow company’s business in a heavy snow season with many short events. Revenue stream is more balanced with the frequency of the snow events due to the aggregated billing of the entire event, as defined in the contract. |
|Risks. Similar revenue risk to the per-occurrence model in a light snow season, where few events occur and covering basic costs may be a challenge. |
|Benefits. Can be a balanced model for a snow company’s business that can be employed with long-term, multi-year agreements. Consistent and equal payments throughout the season cover costs and profits. Can be very profitable in lighter snow years where fewer services are performed and, therefore, fewer variable costs are incurred. |
|Risks. The risk lies in a heavy snow year when fixed and variable costs to deliver service exceed the total of the seasonal payments. |
Matthew Hoskins, CSP, is a Business Development Executive for USM, an EMCOR company. He also is a member of the Snow Business Editorial Advisory Committee. Contact him at firstname.lastname@example.org.