2005 Winter/Spring Volume No. 5
Being Responsible to the Bottom Line
Pricing your service based upon current realities
Two things will kill your business and hurt your cash flow quicker than anything else—cutting your prices and not passing on real increased costs to your customers. Both are habits sure to hurt even the best of balance sheets. The latter more than the former can put a strain on customer relations. This strain can test the loyalty
of the most loyal of customers. However, even the least loyal
of customers understand the realities of business.
COST OF ENERGY
One of the biggest realities to face the operating of today’s portable sanitation business—filling trucks with gas—has gone through the roof. Fuel prices have also added to the cost of shipping operating supplies such as chemical, paper and small parts.
While the price of restrooms, sinks and other equipment held steady in 2004, it is doubtful that manufacturers in our business will be able to hold the line on prices in 2005 because the cost of plastic resins—the raw material for creating our products—has more than doubled in the last three years. In January 2002 the price of resin was .37 cents per pound. Today it is .88 cents per pound and rising with no apparent ceiling in sight. The attached chart shows the price increases for 2004.
While the cost of manufacturing is going up, service levels and quality of units is also going up. Today the industry supplies a much wider array of products and services to their customers including sinks, hand sanitizers, and fresh water units.
Despite improvements across the board, the average price for monthly service has not changed much in the last decade. Sanitation Journal reports that the national average is $69.50 a month with the Northeast having the highest average of $86 and Florida having the lowest at $58.
As margins get thinner, well-run businesses, especially corporations who have invested in much overhead in order to provide top-levels of service, get squeezed. Companies have largely addressed the issue by looking for ways to increase efficiencies. Lighter aluminum-tank trucks with fuel-efficient diesel engines are becoming more popular. Routing software with GPS (global positioning systems) are helping operators design shorter, more efficient routes and pressure washers have helped decrease clean-up time.
However, as rising costs cut margins even further we hope it doesn’t lead to cutting corners on service in order to keep prices down. This would give the entire industry a black eye. The average cost of service has held steady far too long and it is time to gradually increase prices to reflect current realities.
Many companies are getting around price hikes by tacking on additional line-item fees such as fuel surcharges, delivery fees, waste disposal fees, and rush charges. While these may help defray the cost of doing business, one can’t help but wonder how the customer feels when he or she agrees to one price, only to see the actual price considerably higher.
While most operators are afraid to be the first in their areas to raise prices, at current margins, it is doubtful that anyone can undercut you and stay in business. A thoughtful, honest letter to customers explaining your price hike should be all that is necessary. Every industry that depends on fuel from trucking to airlines to delivery services has had to raise their rates. The portable sanitation industry should be no exception.
Customers often prepare for current cost realities long before providers of products and services pass them on. They realize it is only a matter of time before rates and fees go up. And who can blame them for taking advantage of an under-priced deal—to not do so would be irresponsible for they are only looking out for their own bottom-line. Why add on the additional costs to what they are currently planning to do, if they’re never motivated to do so? Especially since, to them, your additional costs aren’t part of their reality.
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