One of the classic questions a customer asks a snow removal professional is, “How do you price—hourly, per plow or flat rate?” Of course, this question implies each snow contractor utilizes one pricing method exclusively or at least has a preference.

While there are some who may be more simplistic in their approaches, the snow industry overall has advanced when it comes to pricing. The challenge is helping prospective customers understand, appreciate and value the benefit of working with a true snow professional who has the ability to conform pricing options to meet unique situations.

It’s been my experience that pricing preferences are driven by market-specific norms. In some locations, hourly pricing still prevails. In other markets, unlimited seasonal contracts are the only game in town. And then there are the markets where hybrid pricing models are accepted. Even so, forward-thinking snow professionals are becoming knowledgeable on all models so they can better educate prospects and win more work.

With that in mind, it’s important to know the three must-have elements of snow pricing models: retainers, caps and credits. 

Retainers 

Retainers are used to compensate the contractor at a minimal level even if it does not snow. There is no credit or give-back. The retainer is completely earned by the contractor simply by being committed to the property for the winter. Even if it never snows a flake, the fact that there are resources committed to the property in case it does snow justifies the retainer. 

We all know there’s a cost to having equipment, labor, materials, subs, etc., on standby, waiting for the snow to come. In addition to direct costs, think of the costs involved with planning, infrastructure, staffing, training, education, certifications, licenses, etc. To think a contractor should be paid nothing to be on-call all winter makes no sense to any rational person. From this perspective, retainers make sense. 

Seasonal contracts negate the need for a retainer, as the retainer is built in. However, per-occurrence contractors should have a retainer to protect the contractor.

To establish a retainer, select a percentile of your maximum seasonal snowfall total, say 20 percent to 40 percent, and set your retainer for this amount of snow. In other words, if you were to receive only the selected percentage of snow this winter, what would you invoice? This is your retainer. You may ask for it in a lump sum or bill it monthly. As work is performed, simply credit against the retainer and only charge for work that exceeds the retainer. 

Let’s pretend your average seasonal snowfall is 30 inches, the lowest seasonal snowfall is 10 inches, and the highest seasonal snowfall is 50 inches. A retainer at the 25 percent mark would equate to 20 inches. Whatever your price would be for 20 inches of snowfall is the retainer. Your estimating program should be able to quickly generate this price for you.

Retainers are easy to sell because they’re based on logic. The main reason they aren’t sold as often as they should be is because they appear difficult to sell. Plus, the reality is most snow contractors aren’t prepared to sell retainers. They’re willing to roll the dice or assume it will snow an average amount or more. History tells us very low snow years are possible, just as very high snow years are possible. If your contract proposal is lacking a retainer, add it in. If your salesperson is unable to sell it, you can always remove it.

Caps

While retainers provide protection in low snow winters, caps provide protection in high snow winters. Both are important to offset the risk associated with the largest unknown in the snow business: the weather. There are many types of caps. 

A seasonal cap is a cumulative amount of snowfall or number of visits for the winter, where a seasonal price is established up to the cap. Once the cap has been reached, additional charges apply. These additional charges may be in the form of time and materials, per inch, per visit, per application, etc.   

Seasonal caps may be established at any percentile, too. As the percentile approaches 100 percent, the likelihood of reaching the cap declines and the seasonal contract price increases and vice-versa. A clever snow professional could easily show a prospective customer seasonal prices at various caps so they can evaluate their risk tolerance based on real numbers. 

Let’s suppose the 75 percent mark is selected for the cap. This equates to 40 inches. The seasonal price would be generated for 40 inches.  

The question of whether to establish a cap based on seasonal snowfall totals or number of visits is worth discussing. It really doesn’t matter as long as the estimating program generating the pricing is consistent. In fact, it would be entirely reasonable to establish a cap based on the attainment of either a certain number of inches of snow or an established number of visits, whichever comes first. 

Another cap is a storm cap, which is used in conjunction with per-event pricing where flat-rate prices are set for specific increments of snow depth. At a certain level, it gets difficult to accurately price for the increment. For example, a contractor who may be able to accurately price a 1- to 3-inch plow event may not be as comfortable pricing a 25-inch plow event. For this reason, it’s helpful to establish storm caps at the point in which pricing is no longer accurate. I generally see storm caps beginning at 8 inches to 12 inches. 

Credits

Credits are used to give back a portion of a seasonal contract in a low snow year. Adding credits to contract proposals often helps seal the deal when prospective customers want to be reassured they will not significantly overpay for a seasonal contract if it doesn’t snow much. From this perspective, credits are reasonable, but you must apply them carefully.

Applied credits should never exceed the retainer amount. The retainer is there for a reason. It makes no sense to give back the retainer, whether it’s shown in your contract proposal or not.

In our previous example, we had a retainer at 20 inches. If we agree to a credit, we want to be sure the credit doesn’t go below our pricing for 20 inches. Since our seasonal average is 30 inches, we may be agreeable to a credit for less than 30 inches but only down to 20 inches. The retainer must remain intact. 

Credits and caps usually come into play later in the snow season after much time has passed. It’s essential to maintain detailed and accurate records for tracking and reporting pertinent information to your customer. A reliable weather service and fleet-monitoring software may assist in this area. 

Now is the time to look at your estimating program, pricing methodologies and proposal templates with an eye toward making improvements to these important aspects of your snow business. The sooner you get started, the better off you’ll be. 

Illustration: renjith krishnan / FreeDigitalPhotos.net