Growing Your Business

Projecting the Real Costs of Doing Business

You've probably heard some version of the joke about the company that was losing money per client - so they got more clients to make up for it. The humor disappears, however, when it's your business that's the topic of the joke! Unfortunately, there are contractors in the industry who are in that exact situation simply because they just don't realize how to figure their true costs of doing business.

One of the most frequent, and perhaps also the most fatal, mistakes that can you can make is to price your services at too low a rate. Start-ups, with their natural over-eagerness to gain new accounts, are especially prone to this. Even experienced contractors don't always have a clear understanding of their actual costs per hour.

If you are at all uncertain about how you are pricing your accounts, do yourself and your family a favor and take time to make certain that your bidding includes all of the following areas:

Sweeper Cost

You are probably making some kind of payments on your sweeper - this is not its cost! It is, rather, a single component of its actual expense. Add to that a factor for the repairs which will surely crop up as a result of wear and tear. This needs to be an amount which will cover both normal wear items and the more unexpected repairs that sooner or later are necessary on even newer units. Unless you add a portion of cost into your bids to account for this repair factor, you will be unable to afford to keep your sweeper looking and sweeping great over time. The cost of normal maintenance, such as oil and filter changes, must also be included.

Cost Of Fuel

Fuel is one of the more significant daily expenses in running a sweeper. Figure out your cost per mile for the chassis engine, and cost per hour for running your auxiliary, or sweeper, engine. Average in all the travel time you have for each route, and split the costs among the accounts on the route.

Drivers' Wage Cost

Add in an hourly wage rate for the driver, even if the driver is you. Consider that you could probably make $10 to $12 an hour driving a truck for someone else, and at the same time not have any of the headaches associated with being owner of the business.

If you have drivers working for you, don't just tally up their cost per hour as your final cost, either. You are also paying taxes on their wages, such as unemployment and workmens' compensation, and whatever these are must be added on.

Insurance

Insurance is another component, and your estimation of your premium costs needs to cover both your vehicle and your liability. Also include your bond costs and any other various types of insurance you carry on the business, such as key man coverage, coverage on your office, health insurance, etc.

Accessory Equipment Cost

Your work uses other tools of the trade, such as rakes, shovels, backpack blowers, hoses, repair tools, etc. Along with their yearly costs, also add an amount to account for items such as trash bags, a pressure washer, and a spare parts supply. Some of these will also have a cost for servicing, fuel, and oil per average hour of use.

Office Maintenance

Add in a figure sufficient to cover the monthly costs incurred in operating your office. This includes the rent, of course, but also will take in your phone costs, depreciation on your furniture, computers, typewriter, etc., and various other office supplies.

In this category include whatever business license costs you pay to operate your company.

Return On Investment

You have money invested in this business, right? As a result, you deserve to earn a rate of return on it. If you borrowed the money, then you know its actual cost to you. If you are using money which had previously been in savings, or took out a second mortgage on your property, however, a rule of thumb is to consider that you should be getting the same rate of return as you would be paying if you had taken out a business loan.

Finally, you also need to get what might be called your entrepreneurial share, or 'risk and hassle-factor' return. This is the portion which should accrue to you because you are in business for yourself. After all, you are going to have to provide for your retirement and you are the one who gets up at 3 am to go rescue your driver when he has a flat, so you are entitled to a rate of return on your company which takes this into consideration. This should be a return which is on top of the normal wages that you would be making if you were doing your job for someone else.

Developing Alternate Cost Schedules

You may be surprised to learn that many successful contractors have developed some kind of rating system for their accounts; they have not just one cost per hour, but several. To come up with different pricing categories, you must determine what expenses in the company are variable. Recognize, for example, that the routes serviced by one class of sweepers won't usually have the same general expenses as those handled by larger or smaller units. Allow for this when you bid.

You may also have clients who provide their own insurance coverage, others who don't provide a dumpsite, etc. By allocating the costs actually associated with each client, you will have a much better idea whether or not you are making money by servicing them.

If you do determine that you are losing money on some of your accounts, go to them with your facts and request the rate increase you need. If they aren't willing to go along with an increase which will make the account profitable for you, give notice and then quit servicing it. There is plenty of business out there that will make you money, so why pay someone for the privilege of going out at night and keeping their parking lot clean!

Remember that one of the surest ways to business failure is to get all the low bids. When sweeping contractors everywhere insist upon a fair price for all their accounts, it will be a boost for the entire industry.

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World Sweeper
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