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Combating fluctuations

By:
  • Mike Rorie
- Posted: April 11, 2017
Now that we are on the other side of the 2016/2017 snow season, how did it turn out in your region? In the majority of the Midwest where I live, storm opportunity was spotty.

December kicked off with several snow events, which helps snow business owners in many areas. Not only can you clinch a strong finish to the end of the year, but you also get to reap the benefits of variable non-budgeted income. Plus, when the snow falls earlier in the season it fires up your team and gets any gaps in delivery buttoned up with customers and subs who are eager to get on board.

It’s beneficial to start out strong. But as I write this at the end of February, the 2017 side of this season has been pretty soft. March might help us out, but it probably won’t save the companies who had a majority of their contracts written as time and materials, per inch or per push. 
 
Contract mix is vital

In softer seasons, it becomes glaringly obvious that your contract mix is a crucial part of your success. Ideally you want your book of business to have a variety of time and materials, seasonal and per push (or per inch) agreements so you can hedge your bets for the highs and lows and generate income no matter what.

So what does your contract mix look like? Study your customer base to understand where you made the most money, where you lost the most and where there’s potential to make more. You should also look for situations where you can provide better service to someone if they were on a different type of agreement.

Different types of clients can fit into different types of agreements to give your book of business a nice mix while providing the highest level of service for that client. Property size, geography and equipment overheads can impact your strategy for more financial balance.

Likely you can roll the dice with your zero-tolerance customers and agree to per-occurrence terms, while some of your more conservative customers might easily migrate to seasonal contracts. If you’re going to agree to service someone per inch, put in some type of minimum measurement they must agree to so you’re not stuck holding the bag if it doesn’t snow.

Any way you slice it, I don’t think the average contractor would choose the up and down years over steady, consistent financial contribution year over year. At the end of the day, this is what you seek to achieve when you’re studying your contract mix.

Seasonality will always be at play, but smart operators challenge their management teams to devise countermeasures for sustainable success. Seeking a balanced income will stabilize your business and help combat the variability this profit center can throw at you.

After all, not every season gives us the weather to cash in, but always improving the business in ways you can control will do just that.
Finding money elsewhere
A good contract mix will probably make the biggest financial impact for you during a high or low year, but there are plenty of other ways you can get a leg up during unpredictable winter months.

1. Examine your rentals. Are you renting or leasing space or items that you could reduce or eliminate? Often you can trade for items like yard space versus paying rent. Equipment rental is another area to address. Getting good deals on loaders is great, but having a subcontractor with their own piece of equipment that only charges when you’re performing helps with the slower seasons.

2. Evaluate your material providers. Can your supplier hold more of your inventory so it’s not as much guaranteed spending for you upfront? Even if it means paying a few dollars more a yard, it might be worth it. A slightly smaller margin is a lot easier to take than low or no revenue.

3. Work on next year’s growth plan
. Growing your business significantly always helps safeguard meeting or exceeding financial growth year over year. If you add more jobs each year, you will continue to enjoy the benefit that growth provides to your bottom line.
 
Mike Rorie has been a participant in the snow and ice industry for nearly four decades. He is now the owner of GroundSystems, as well as the CEO of GIS Dynamics, parent company to Go iLawn and Go iPave. Contact him at Sales@gisdynamics.com.
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