Selling win-win snow contracts

A hybrid contract of seasonal and per-occurrence terms can help the customer and the snow removal company “win.” (Photo: fullvalue/E+/Getty Images)

How many times have you heard one of the following phrases about snow and ice management services?

“It’s a numbers game.” “One year I win, the next year you win.” “It averages out over three years.”

The idea is that since snowfall is unpredictable, there can only be one winner. We all know the game. Per-occurrence contracts result in a big “win” for the service provider during a heavy winter (and a big “loss” for the customer). The opposite is true in a light winter. Unlimited seasonal contracts result in a big “win” for the service provider during a light winter (and a big “loss” for the customer). The opposite is true in a heavy winter. It’s a game of Russian roulette.

In reality, a heavy winter often brings more equipment damage, more risk of not meeting customer expectations and takes a heavy toll on personnel, marriages and families. What looks like a “win” might not be so great after all. An unlimited seasonal contract that fails to provide for these additional costs compounds the agony of a heavy winter.

Similarly, a light winter with a per-occurrence contract brings significant risk. Just think of the enormous costs involved with procuring equipment, supplies, tools, materials, hiring and training staff, implementing technology, the cost of sales and more. On top of that, consider the cost and burden of remaining on call 24/7 all winter. How does it make sense to possibly be paid zero for your efforts (if it never snows)?

Phil Harwood

Even worse is the attempt by some to predict the upcoming winter’s snowfall. Think about it. If a customer had an unlimited seasonal contract last winter and they “got burned” because it was a light winter, the worst thing they can do is switch to a traditional per-occurrence contract since the upcoming winter may be the big one. It’s like trying to guess daily stock market moves. Day traders
usually end up selling low and buying high.

There is a better way. You are the professional. You know the weather history, snowfall probabilities and negative consequences associated with traditional “win-lose” contracts. Your customers most likely have no clue about any of this. You need to educate them, and as you do, you will become an invaluable asset.

A true “win-win” contract provides the service provider with guaranteed revenue. Snow and ice management services are an emergency service, not unlike the fire department. Doesn’t it make sense for you to be paid for your readiness, even if it never snows one single flake? The fire department is paid for with tax dollars. Can you imagine what would happen if they only were paid when there was a fire? That makes no sense at all, and it doesn’t make sense for snow professionals either.

More and more, snow pros are seeing themselves as emergency service providers and expecting to be paid as such. They are educating customers to help them understand the reality of the situation, and they’re offering them contract forms that reduce their risk while providing a more stable situation for service providers — the ultimate win-win!

Innovative snow professionals have designed “hybrid” contracts, which are a blend of seasonal and per-occurrence contracts, seasonal limited contracts with a ceiling and floor and per-occurrence contracts with retainers. These creative alternatives better protect the service provider and the customer.

In my judgment, no snow professional should ever offer a traditional per-occurrence contract with no guaranteed revenue component. And, they should never offer an unlimited seasonal contract with no ceiling or floor. This does not mean they will never agree to these contract formats; they may if they have no other option and are willing to take on the risk, but they should never propose them to a customer. In fact, they should educate prospective customers about the value of using a hybrid or limited seasonal contract form.

Weather history is critical in this process. Even though nobody knows how much it will actually snow next winter, historical weather data allows you to have an intelligent conversation with a customer about the likelihood of different snowfall totals and the risk that different contract formats carry. Through this educational process, it will become clear to the customer that a hybrid or limited seasonal format is best for them and their service provider.

Snow and ice management has evolved from “something to do in the winter” to a highly profitable business all by itself, if set up and managed properly. Selling “win-win” contracts is an essential component of a successful snow operator.

Chart it out

Some of the tools I recommend using to help educate customers about the risk-reward trade-offs involved with various contracts are:

• Scenario analysis – Show comparisons for heavy, average or light winters for each contract option and compare them to traditional unlimited seasonal and per-occurrence contracts. This provides the customer with side-by-side expenditures, which helps them to better understand the risks associated with each option.
• Scatter plots – A great way to visually show the randomness of seasonal snowfall totals over a number of years. I recommend showing at least 20 years of history. In my market, we have more than 140 years of snowfall history available. Customers need to understand the variability and the range in the data set.
• Bar charts – These are excellent visual tools for displaying snowfall averages by inch, by month and by event. These are key drivers of risk and pricing of win-win contracts.
• Probability charts – Showing the likelihood (statistical probability) of snowfall totals within a range for a data set. These are also key drivers of risk and pricing of win-win contracts. Most likely, your customer will not have seen this data.