Limit risk with diversification

Snow and ice removal companies that are able to diversify their contracts stand out in their markets, and this is true in my own market, Rochester, N.Y.

I work each year to procure a well-rounded portfolio including the following contracts: prepaid with unlimited trips, prepaid retainers (set number of visits with per trip fee thereafter) and per push contracts (with a minimum trip requirement).

Last season’s portfolio includes 575 residential prepaid contracts and 70 commercial contracts, which generated $400,000 in snow revenue. Our business model requires residential customers to pre-pay in full without a discount for the snow season.

This diversification has allowed me to cover fixed and variable costs throughout the year as well as remain liquid and create a predictable net profit margin regardless of snowfall.

The prepaid residential contracts allow for enough cash to support payroll for large storms, negotiate the best price on rock salt and they provide ample cash flow to accommodate for slower paying commercial clients. These contracts also guarantee profit in the event of a light winter. My main source of profit exists within my commercial contracts.

To plan for each year, I use the historical snowfall averages, job costing data and average plow runs data from the northeast region. By using these averages and tracking production rates for our equipment, I have been able to create predictability in our profit margins.

I continue to analyze the percentages of each type of contract as the overhead recovery model changes as the company grows. It is critical to adjust these percentages to achieve profit goals.
 

Hiring.

Managing a diverse portfolio means managing multiple employees and subcontractors. Unfortunately, the seemingly endless winter led to higher than usual burnout rates and therefore, turnover rates.

I attempted to combat this issue by providing training, standardized processes and procedures, and an incentivized pay structure. Instituting a standard training model of online videos and on-the-job training allowed for quick and predictable onboarding.

Having clearly documented job descriptions, including a list of responsibilities and clear expectations, was crucial to success.

Furthermore, I offered a one-time incentive payment tendered at the season’s end in addition to weekly pay for those who persisted through the season.

Employees earned this incentive payment, which averaged approximately an extra dollar per hour of pay, if they worked for the duration of the season.

Subcontractors’ first payment installment for the year was held by the company until the end of the season to ensure commitment for the season.

Supplies.

The biggest challenge this season was ensuring ample rock salt and bagged ice melt during a declared salt shortage. It was necessary to have enough liquid cash on hand to pre-purchase all bagged ice melt prior to the start of the season.

Prepaid contracts helped offset these costs. These contracts specifically included a clause to guard against the increase in salt prices. Contrary to popular belief, this practice does not hinder acquisition of contracts as we solidified 575 accounts prior to the season and had a waiting list of approximately 450 accounts.

Ultimately, I had to allocate a large enough rock salt allotment to last the whole season.

When salt supplies started to dwindle, I made sure to expand and stock our salt bins to secure enough rock salt at the budgeted price to finish the season.

The author is owner of Callahan Lawn Care and Property Maintenance. He has been in the snow business for more than 15 years.