Don't let your snow contractor steal your chocolate - The High Price of No Price Increase

Facts of Life

Price increases are a fact of life. Milk, eggs, and bread are all on the rise. Not this week, this month, or this year, but rather since the creation of capitalism. Price increases are normal, they reflect an increase in operating costs. Inflation is necessary, for without it the entire central banking system would collapse. What though is different about current trends, inflation, the labor market, and the supply chain? The current economic climate is producing significant inflation. We have not seen inflation like this since 1980 when it hit nearly 14%. Labor, materials, and equipment prices have skyrocketed. These price increases are so significant that they dwarf standard profit margins for the service industry. This means, that if they are not passed on to buyers, a service provider would literally take losses to provide the same level of service for last year's price. They cannot be absorbed, there is simply not enough margin to absorb them.

Capital markets create competition. This has made America strong. We compete for customers by offering better, faster, and cheaper goods and services. Competition keeps us attentive and honest. A business that can provide services with the greatest value and simultaneously at the lowest price point is the one to beat. But, what about the business that provides the lowest price followed by sub-standard value? In the risk-averse world of snow and ice removal services, this combination means spells trouble.

You the buyer, will not get the same value of work for last year's price, and if you do, the company providing it to you will not be financially viable for very long which means at best your bargain basement price will not be sustainable. At worst your service could be interrupted by a company that loses liquidity. No matter what, a low price that is not based on real-world job costs just means sub-standard service.

The History of a Hershey Chocolate Bar

There are cases where a company can hold its price but reduce its product. Let’s take for example The Hershey Company. In 1972 Hershey had an issue, it needed to protect its business in the face of significant inflation and a rise in production costs. Price increases were required. Several products produced price increases, but one product the famous Hershey Chocolate Bar did not. How did Hershey manage to hold the price of its chocolate bar at 10 cents? The answer: it simply reduced the size of the bar. The chocolate bar went from 1.375 ounces to 1.260 ounces. It shrunk in size by 8.35%. This tactic today is known as “shrinkflation”. Today the standard Hershey Chocolate Bar weighs 1.55 oz, but it also costs $1.14 at your local Walmart.

Hershey was smart. They decided that their customers would be more comfortable paying the same price and just getting a little less. But they also did something that sub-standard contractors are not doing. They told their customers that the size of the bar would be reduced, and of course, according to law, they printed that fact on every label of every chocolate bar they sold. Were you under the impression that the laws of weights and measures applied to snow removal? Do you believe a contractor who plans to reduce service by holding a low price is going to label it for you?

Read about examples of shrinkflation .

The Staffing, Inflation, and Supply Chain Debacle

Today we face a perfect storm. Staffing is a major issue for all businesses in all sectors. But it is even worse for non-union work that requires employees to endure very challenging working conditions, irregular hours, and often separated from family due to immigration. We can now add to this list of challenges the inflation our own employees have faced, and the dramatic rise in the cost of living. Those costs are now passed onto us, the employers, and therefore must be passed on to customers. Labor costs have increased by over 14% since last year.

Inflation itself has had a major impact on the costs of equipment, materials, and fuel. The cost of rock salt a major ingredient in most ice management programs is up nearly 20%. A 28,000-pound wheel loader that cost $141,000 USD only two years ago, now costs over $176,000 USD. Trucks, plows, salters, shovels, fuel, and even advertising costs for help wanted ads have all significantly increased.

?Supply chain issues have created a vacuum for equipment and supplies. Any company that was not loyal, did not pay their bills, or mistreated suppliers in any way, is now at the back of the line to get essential goods to deliver services. The F-350 is a staple supervisor truck within the East Coast Facilities snow fleet, none could be ordered this year (2022). The order banks will not even open until the late fall, and when they do buyers like ECF will have limits on the number of trucks we can order. These orders will not be available to operations until the winter of 2023/24.

These are serious issues that serious companies must navigate. I believe that buyers are not being honest with themselves if they truly believe a contractor can offer the same level of service as they did before for the same price, or even worse at a reduced price. In some cases, we are still seeing contractors lower their previous prices in a fight for market share. Companies that operate in this manner are never top performers. They simply cannot be. ?

How a Snow Contractor Steals Your Chocolate

The key to theft is the fact that when service is reduced, or value is reduced without notification, it is tantamount to theft by principle. The way your low-price snow removal contractor steals your chocolate depends on your type of service agreement. Let’s look at the top three categories: Seasonal, Per Service, and Time & Material, and consider the thought of theft by reduction of value.

Seasonal

A low-priced seasonal contract can mean slow or incomplete service. This is how the game works when the contractor is stuck with a predetermined rate and here are some of the tricks:

1. Reduce the size or amount of equipment on site, reducing fixed overheads. This means service takes longer. Often far too long. It means the site will be crippled when major storms occur.
2. Start service late. When plows are dropped several inches into a storm, it saves production time and money, but it leaves the site vulnerable to slip and falls and therefore lawsuits.
3. Reduce salting. This means the pavement is more often icy when it could have been “back to black.” This obviously invites personal injury and property damage.
4. Just do the bare minimum. Plow the lanes, open parking spots, shovel the walks, and call it a day. Incomplete service means you should expect what was once snow to turn into ice. The ice that results from vehicle and pedestrian traffic compacting snow means lawsuit heaven.?

Even if you have successfully transferred all your liability to a third-party management firm and the snow contractor, do you the buyer not have a responsibility to your own customers? What does it say about your brand when my family arrives and has to walk over ice to get inside your store to shop? You are responsible even if you transferred liability from a consumer’s perspective.

Per Service

A low price combined with a per-service snow removal contract means one thing, “OVER SERVICE”, here is how it works:

1. Salt on salt is where we begin. How about this scenario: it snows on Monday, and the contractor salted your lots when they were done. Yet, when it snows on Tuesday, the contractor “pre-treats” your lots… hmmm? Do you realize that they did this only to bill you for the most profitable portion of snow removal, namely a salting application? This is called salt on salt, and most companies are complicit in this issue. They will salt and salt, and salt, if they can.

Note: I once took a client in Easton Pennsylvania from a major competitor and very large company (they had brown trucks). This company's salt prices were cheap, much cheaper than ours were at the time. So, I asked the Facility Manager “Let me ask you, on average how often did they salt for a normal snowstorm?” Do you know what the answer was? Eight times! 8 Times!!! A high level of service would typically call for 2 saltings, maybe 3. But 8?

1. 38? rain. Contractors today have access to sophisticated weather data. We all know that we base anti-icing and de-icing operations on paved surface temperatures, not ambient temperatures. Every contractor has access to paved surface temperatures. So why do they salt when air temperatures are at 38 and paved surface temperatures are even HIGHER!! The answer is simple to bill you!
2. There are contractors who will salt your sites in 38° rain all day long. Some of them have even made the mistake of posting about it on social media, posts we have on file and show buyers along with that day's weather report.
3. Hammer you on extras. What cannot be made up with per service billing will be made up with extras. Hauling, relocation, melting, roof clearing, drifted snow, ice patrol. You name it. If your per-service agreement lists any of these as extra, expect EXTRA! These are also called blank check services because surely you are not going to be monitoring these services as they are performed, you will instead get a bill, accept it, and pay it.
4. BEWARE OF LOW PLOWING RATES – Don’t let your eyes fool you on low plowing rates. Every single company in the industry that is not under a seasonal agreement makes most of its money salting, not plowing. Why? For example in Pennsylvania, we may only plow 6-8 times a year, but we have to salt during those storms and the other 12-14 events where we are not plowing, the less than 1” events. Therefore, salting is what you should be focused on. Without the revenue stream of anti-icing and de-icing services, there is no way a contractor could plow your property for the rates quoted. Not even ECF could.?That is the way our industry was built. I wish it was different, but there are simply not enough customers who are educated enough to know the difference. So we are stuck charging high rates for salting, and low prices to plow. Not we ECF, but rather the entire industry.

Time & Materials

Now we get to exciting examples of how your snow removal contractor steals your chocolate. Magical trucks, invisible people, and snail mail. Here are three ways T&M will bite you in the ass if you accept that prices have not gone up…

1. Magical trucks. Simple, you really only had one truck, the other two on the bill, oh yeah, those were down the street at another site, they are called magic trucks because they magically appeared on your bill. So, remember where one company quoted $175 per hour for a truck, and your chosen contractor quoted you $125 per hour? Well, your contractor is charging you 2 hours for every one hour worked, so their real rate is $250 per hour. Don’t shoot the messenger.
2. Invisible people. Amazing right? Did you know that your snow contractor has invisible people? They will bill you a head count of ten for every seven people. So that low rate is just what you think it is, a fake rate. You can create whatever system you want to try and control billable hours; I promise you these clowns will find a way around it. The same principles will apply to all the equipment and all the de-icers utilized.
3. Snail mail. Why should your contractors be fast and efficient if they are not going to make any money? Low rates mean the contractor will often stretch out the work, be less efficient, and maximize every piece of equipment and person to make up for lost ground on rates. I mean, what motivation do they have to be efficient when you are rewarding low ball rates? The answer is none.?

Reduction in Value

Reduction in value can involve many factors. Contractors who lack liquidity cannot invest in upgraded equipment, or new technologies. This will trigger disruptions because older unreliable equipment is prone to fail in harsh conditions. They may lower insurance coverages. Investments in safety and process training cease. They will operate with less management and provide inferior customer services. These are just some ways value is reduced when prices are reduced. Value cannot be easily measured, but I recommend you try like hell.

The alternative

Now the million-dollar question, what is the alternative? The alternative is quite simple. Here is what I recommend:

1. Spend the time and effort creating a solid specification that outlines services.
2. Create a uniform pricing matrix and allow a column for your invited contractors to put notes. With notes, they have the opportunity to inform what is special about what they offer, and the value.
3. Create a questionnaire that will let you dig into the true capabilities of the participating companies that will provide you with quotes. Make sure your questions vet out value.
4. Delete the word BID from your entire process. Use the words quote, or estimate. Bidding is a word that inherently means you are going to buy on price alone, which inherently invites all the issues mentioned above. Governments bid work, the sort of go by the low bid, except the government is often corrupted. You are not, so buy on value and lose the word bid.
5. ?Ask contractors directly how they will prevent over-servicing, under-servicing, and overbilling with magical trucks and invisible people.
6. Get access to weather data. Open an account with trueWeather and monitor weather conditions including paved surface temperatures yourself.
7. Most important, choose a reputable contractor whom you know, or was referred to you. Don’t bite on the shiny brochure the way a sportfish gets hooked on a shiny lure. Dig deeper than the fast-talking salesperson, and sexy sales literature.?

Summary

Don’t let your contractor steal your chocolate. Price increases are here, they are unavoidable. If you are not getting a price increase, or even worse your price has dropped be very concerned. Great companies know how to run a business, they know the financial metrics involved to deliver consistent, safe, efficient, and quality services.

Remember Hershey put their price increase right on the label of the chocolate bar, will the low-priced contractor do that for you? Did they tell you where they will reduce the size of the bar (service)? Spend the time to source a true professional, take the time to vet them. Have a pay now not later attitude. You will pay no matter what, I promise you that, it is just how the game works.

About Me

I am the CEO of East Coast Facilities, Inc. and a Certified Snow Professional. I have over 30 years of business experience and over 20 years in commercial snow removal. My company plows lots of snow in multiple states and submarkets. ECF is one of the largest self-performing snow removal companies in the United States with a fleet of over 300 dedicated trucks and loaders that we own or lease. We employ hundreds of heavy equipment operators and laborers. We have a state-of-the-art fleet and substantial resources. Our claim to fame is self-performance on scale.

We specialize in snow removal for industrial, logistics, manufacturing, and corporate campuses. ECF serves Fortune-500 companies that require elite snow removal. For our clients, it is not even a question. Elite snow removal is a requirement. ECF is the answer.

We are also the largest minority-owned snow removal company in the country.

I serve my industry with straight talk and old-school business practices. I am not interested in the way things were, but rather the way things should be.

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