Winning pricing strategies for snow contacts

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If you’re a snow contractor, snow and ice management services should be your most profitable service line because they’re emergency services performed in extreme weather conditions and produce an increased exposure to claims.

It’s essential to have a winning pricing strategy for snow. There are two common pricing strategies employed by snow contractors. The first is based on what the contractor needs to charge to be profitable, regardless of what the competition is charging. The second is based on what the competition is charging, regardless of what the contractor needs to charge to be profitable.

Let’s look at each approach more closely and discuss ways to make each one a winning strategy.

Profit-focused approach

The profit-focused approach makes sense from a purely financial perspective. With this approach, prices are established through a systematic budgeting process that ensures all expenses are covered and profit targets are met.

Setting prices is essentially a math problem. When prices are set, they are what they are.

The two extremes of this profit-focused approach are the premium providers and the cost leaders. Snow contractors providing exceptional or unique services are able to command premium prices. This model is a high-cost, high-profit approach that works in certain niche markets. These snow contractors are good, and they know it. Their customers know it, too, and are willing to pay for it.

At the other end of the pricing spectrum are the snow contractors who are charging low prices that are sufficient to meet their financial goals. These contractors know their numbers and are only charging what they need to charge. While their competitors disparagingly call them low-ballers, they are laughing all the way to the bank. This model is a low-cost, sufficient-profit approach that works well in certain customer segments.

My advice to the profit-focused snow contractors is to remain aware of what your competitors are doing, including their pricing strategies. There is a tendency for profit-focused contractors to become too inwardly focused and adopt a “take-it-or-leave it” mindset. While it’s good to be confident in your numbers, it’s also good to be mindful of your competitors and how this relates to the uniqueness of your value proposition.

Market-focused approach

The second common pricing strategy for snow contractors is to find out what the competition is charging and either match these prices or undercut them. The obvious flaw in this approach is that it fails to take into account the contractor’s cost structure and profit objectives. Market prices may be sufficient, but they may not be.

I’m part of several snow industry social media groups. Almost every day, a group member asks the group what he or she should charge. The post is followed by lots of responses. However, I don’t know if I’ve ever read a response that mentioned the cost side of this question, as if it’s irrelevant. Pro tip: profit is not irrelevant.

My advice to the market-focused snow contractors is to know your own numbers. Roll up your sleeves and work through the financials to understand your cost structure and determine the prices you want to sell at. Then, you’ll be much more equipped to evaluate market prices and whether or not you can match or beat them.

The winning strategy

The winning pricing strategy is to incorporate both approaches into your pricing strategy. Know your numbers and know your competition. By doing so, you may discover that your prices are too low, your prices are insufficient to deliver the profit you desire or you’re simply leaving money on the table.

Recently, I met with a snow contractor. We discussed the selling price for treated salt applied to parking lots, and I encouraged him to find out what some of his friendly competitors were charging. After making a few phone calls, he realized that his price was half of what the rest of the market was charging. He had been leaving big money on the table for years and didn’t even know it. We discovered the oversight and fixed it in a matter of minutes.

Alternatively, you may discover that your prices are too high because your cost structure is out of line, or you’re just being overly aggressive in your pricing. My advice is to develop a better understanding of financial matters. Become an expert at budgeting and pricing. Benchmark both costs and prices against your peers and competitors.

My last word of advice is to join a snow industry peer group. If you’re serious about snow, the knowledge you’ll gain will be invaluable. The Snow & Ice Management Association (SIMA) offers peer groups for its members. Visit Sima.org to learn more. Now go forth.